underwriting outline

Eastern account

• undivided account
• E and U are both vowels
• underwriters sell as much as they want
• underwriters are paid for what each sells
• excess profits are based on % participation
• undivided liability: any unsold part of issue, syndicate members are liable for %  share of unsold issue
• if firm sells all agreed to stock, may have to buy stock that other syndicate members did not sell

A syndicate member in an undivided $12 million municipal offering agreed to sell $1.2 million of the offering. Initially the firm only sold $900,000 of the bonds. After four weeks 1.5 million of the offering remains to be sold. The syndicate manager decides to close and settle the account. The syndicate member firm has liability for what amount of the bonds?

• $150,000
• 10% member
• 10% of 1.5 million unsold
• firm has responsibility to sell $150,000 of unsold issues

Western account

• divided selling responsibility

A syndicate member in a divided $6 million municipal offering agrees to sell $600,000 of the offering. Initially the firm only sold $400,000 of the bonds. After one week $1 million of the offering remains to be sold. The syndicate manager calls all of the members to tell them to sell and reminds them of their commitment. The syndicate member has responsibility for what amount of bonds? 

• 1 million
• selling responsibility is  ALWAYS 100%
• liability would have been $200,000 because agreed to 600k and only sold 400k