Series 7: 12.4.1. Unsold Shares Of A Public Offering

12.4.1. Unsold Shares of a Public Offering

In a firm commitment underwriting, if the syndicate is not able to sell all the shares to the public in the offering, the syndicate members are financially responsible for the remaining shares. The manner in which the unsold shares will be distributed is described in the Agreement Among Underwriters. The arrangement may be a Western, or divided, account, in which case the share of liability is divided among the underwriters by the size of their allotment of the securities issue. In a Western account, the syndicate members are financially responsible for only the shares they were allotted. This can be remembered through the phrase “Western walks”: the syndicate member can walk away after selling its shares. Or the arrangement may be an Eastern, or undivided, account. In an Eastern account, the syndicate members are responsible for the unsold shares on a pro rata basis even if the unsold shares were not the shares they were allotted. This can be remembered through the phrase “E