Series 7: 12.1.5.3 Selected Dealers Agreement (Selling Group Agreement)

12.1.5.3  Selected Dealers Agreement (Selling Group Agreement)

Prior to a public offering, the lead underwriter will usually collect “indications of interest” from institutional investors, resulting in most of the lead manager’s allocated shares being eventually sold to institutional investors. The other underwriters in the syndicate, in contrast, will often engage broker-dealers to help them sell shares of the offering to retail investors. These dealers are referred to as selected dealers or selling group dealers. The selected dealers will enter into an agreement with the syndicate called the Selected Dealers Agreement, also called the Selling Group Agreement.

The Selected Dealers Agreement includes:

• • Specifics of the dealers’ compensation for shares sold
• • Provision that compels dealers to follow self-regulatory organization (SRO) requirements and to sell securities at the public offering price
• • Price of the securities or a formula to derive it

Selling group members are not financially at risk.

A FINRA member firm may not include a nonmember firm or a suspended firm in a syndicate or selling group.

Summary Syndicate Agreements
Agreement	What is included
Agreement Among Underwriters (AAU) (syndicate agreement)	• Duties and rights of each member of th