4.1.4.3. 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 selling group has no relationship with the issuer. It is only involved in selling its allotted shares to the public. Nor is it financially liable for unsold shares. Financial risks are borne by the syndicate.
The selected dealers will enter into an agreement with the syndicate called the Selected Dealers Agreement, also known as the Selling Group Agreement.
This agreement includes:
• The specifics of the dealers’ compensation for shares sold
• A provision that compels dealers to follow SRO requirements and to sell securities at the public offering price
• The price of the securities or a formula to calculate it (required under FINRA Rule 5160)
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SUMMARY TABLE Syndicate Agreements |
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Agreement |
What Is Included |
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Agreement Among Underwriters (AAU) (syndicate agreement) |
• Duties and rights of each member of the syndicate • Allocation of shares and the liability of each underwriter • Identity of the lead underwriter and any co-managers • Authority of the lead underwr |