3.3.3.2.2. Oversubscription: Order Priority
Recall that the order period is the time set by the syndicate manager during which orders will be solicited for the bonds, usually running from one hour to five days. If the bond issue is oversubscribed during the order period, orders will be filled in a certain allocation priority, as indicated in the Agreement Among Underwriters. Sales are allocated by the type of order received during the order period, not by the time the order is entered.
Presale orders are orders made in a competitive sale before the bond’s pricing and terms are finalized. Made primarily by institutional investors, presale orders have the highest priority because they are instrumental in helping the syndicate make a winning bid. Syndicate members are not individually allocated any takedown on sales they make during this presale period. Instead, the total takedown fee is allocated to syndicate members based on their allotted share of the issue, not on who made the particular sale.
Once the order period begins, the next orders of priority are generally established in the following sequence: group net orders, designated orders, and then member takedown orders.
Group net orders are those made by the syndicate at the public offering price during the order period, the hours immediately after issuance (or immediately before, with a negotiated sale). These are sales for which all members receive the takedown fee. Members will often designate their orders as group net orders to give them a better chance of being filled.
Designated orders are next in line, if the issue has not already sold out. These are orders placed by customers, usually large institutions, through a syndicate member or members of their choice. The institution will designate individual syndicate members to receive the sales credit.
Member takedown orders are sales to a syndicate member’s customers or for the member’s own account. The syndicate member receives al