Ch 2 Deck 3 Flashcards
Prior to agreement, the issuer and lead manager will usually enter into
a nonbinding LOI to allow lead manager to conduct due diligence
Outlines the duties and rights of each member of the syndicate
Syndicate agreement
AAU states the liability for
unsold shares
Western underwriting account
members are only responsible for paying for the shares they were allotted
Eastern underwriting account
members will be responsible for paying for unsold shares
Agreement among underwriters agreement identifies
lead manager and co-managers
AAU agreement grants authority to lead underwriter for:
stabilizing bids
entering into underwriting agreement
Syndicate agreement spells out compensation
for each underwriter and selling concessions
syndicate spells out allocation
of shares and liability for each underwriter
underwriting agreement is between
issuer and lead manager
Agreement between underwriters and selling group dealers
Selected dealers agreement
Selling group agreement
Selling group in an securities issue sell to
retail investors
Selling group agreement compels dealers to
follow SRO requirements and sell securities at offering price
Selling group agreement specifies financial
concessions there are and to whom
responsible for distributing amendments about offering to selling group
lead manager
distributions of information to selling group are called
Deal wires
When lead manager files forms with FINRA about offering this is called a
Regulatory wire
Forms which lead manager must file with FINRA include
Copies of Underwriting Agreement
Agreement Among Underwriters
Selected dealers agreement
Reg M Forms
IPO spread is difference between
what the issuer makes and the public offering price
IPO spread is often about
7% of total proceeds
total proceeds from an underwriting are called
underwriting proceeds
Underwriting spread is divided into
Manager’s underwriting fee
Underwriting fee
Concession
Percentages of underwriting spread are expressed in
actual dollar amount of per share price (e.g., $.28 on every $20 share)
Managing underwriter’s fee is typically
20% of spread
Payment to syndicate members for assuming the risk of unsold shares
Underwriting fee
Selling group bears no
financial risk from unsold shares (unlike syndicate)
AAU is also called
syndicate agreement
payment to syndicate members for assuming the risk of unsold shares
underwriting fee
If a managing underwriter sells shares they earn
the entire spread (managing fee, underwriting fee, concession)
if syndicate members sell the shares they earn
they earn underwriting fee plus concession
