3.3.2.2.3 Formulating the Bid: Bid Form and Issuer’s Acceptance
With the preliminary official statement and other documents in tow, the syndicate then begins to solicit market interest, compiling as much market information and as many firm offers as possible from potential buyers. Just prior to the issuer’s announced date for the auction, syndicate members will meet to discuss possible bids; set the reoffering scale, the desired spread, and how the spread is to be apportioned; and decide on their commitments to the syndicate. The reoffering scale is the set of prices or yields at which the new securities will be offered to the public for each maturity. The managing underwriter will decide how much spread (compensation) the syndicate requires and subtract it from the reoffering scale prices to determine its submitting bids. Once the bid is decided, members may withdraw from the syndicate if they wish. Their share of the participation will be divided among the remaining members, and the syndicate letter becomes a binding contract.
Sealed bids are submitted at the time and place specified in the Notice of Sale. Bids are submitted on a bid form, which states the proposed scale of the bid and the offered prices, and it affirms the underwriters’ acceptance of the issuer’s terms in its Notice of Sale. When the bid is sealed, it includes a good faith deposit (usually 2% of the bid amount). The issuer will typically select the winner from the lowest bidder or by lot