No firm wants to own $500 million of unsold stock when a deal turns cold, so underwriters band together. Exam questions on that arrangement ask who carries the risk, who keeps which slice of the spread and what each firm may not do while selling.
An underwriting syndicate is a temporary group of broker-dealers that buys a new issue from the issuer and resells it, spreading the risk. The agreement a firm signs sets what it earns and what it owes.
- Managing (lead) underwriter: It negotiates with the issuer, forms the syndicate and runs the books. Running the books means it keeps the syndicate account records, collects orders and allocates securities.
- Syndicate members: Syndicate members share the underwriting risk under the agreement among underwriters (AAU), which sets each firm's participation, its liability and the manager's authority.
- Selling group members: These firms sell as agents under a selling group agreement and have no liability for unsold securities.
The AAU also decides how unsold securities are split. In an undivided (Eastern) account, each member takes a share of all unsold securities in proportion to its participation.
Common mistakes
- Paying the whole spread: A syndicate member keeps the takedown, which is $1.25 in Example 1, not the $1.50 spread. Only a manager selling its own allotment keeps everything.
- Borrowing the corporate timeline: Municipal syndicates settle within 30 calendar days after delivery under MSRB Rule G-11. The 90-day window comes from FINRA Rule 11880 and applies to corporate syndicates, and for corporate debt the manager must also pay each member at least 70% of what it is owed within 30 days.
- Using the old gift figure: The offering gift cap under Rule 5110 is $300 per person per year. The $100 figure was the limit before March 30, 2026.
Bottom line
- The manager runs the books, syndicate members share underwriting risk under the AAU, and selling group members sell as agents with no liability for unsold securities.
- Eastern (undivided) liability is participation percentage × total unsold; Western (divided) liability is own allocation − own sales.
- Spread = manager's fee + underwriting fee + selling concession; takedown = underwriting fee + concession; the manager keeps the spread, a syndicate member the takedown, a selling group member the concession and an outside dealer, where allowed, the reallowance.
- Competitive municipal bids carry a good faith deposit and win on the lowest NIC or TIC; only TIC reflects the time value of money.
Exam shortcut
Find who made the sale before calculating. The manager gets the spread, a syndicate member the takedown, a selling group member the concession and an outside dealer, where allowed, the reallowance. On liability questions, read the account type first: "undivided" means participation times total unsold. For Reg M, a security that meets both the $100,000 ADTV and $25 million float tests gets one day; otherwise it gets five.
The full lesson (about 3,301 words, 22 min read) adds 2 worked examples, all 4 common mistakes, a self-check, free in the app.
Learning objectives
- A4
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