Forming a Syndicate
A syndicate is a group of underwriters formed to underwrite a new issue of municipal securities. Syndicates are typically formed to help share the financial risk of underwriting an issue and widen the issue’s distribution. Generally, a lead or managing underwriter takes the largest underwriting commitment and manages the syndicate by allocating securities to the other members. Typically, syndicate members purchase their allotted shares at a discount and sell them to the public at a public offering price. Thus, syndicate members take on the financial risk of unsold shares.
The issuer may select co-managers from competing firms to work as part of a syndicate, with the lead underwriter coordinating their activities. Or it may leave the choice to the lead underwriter. Before the sale takes place, the syndicate will market the issue to potential investors and negotiate interest rates with the issuer.
The managing underwriter will communicate the final terms of the underwriting to the syndicate members through a commitment wire. The commitment wire should be sent prior to the Time of Formal Award of the underwriting (the Time of Formal Award is discussed further later in the chapter).
Instead of f