Question

Which of the following is the reason for the formation of underwriting syndicates? To regulate the issuance and trading of stocks and bonds To enhance liquidity in large block trades by maintaining continuous up-to-date prices for the securities they are assigned To provide the issuing company with the most competitive underwriting bids To spread the risk associated with the purchase and distribution of a new issue of securities To ensure that the auction trading process is completed in a fair and efficient manner CONTINUE

Answer 1

Reason for the formation of underwriting syndicates

ANSWER:::To spread the risk associated with the purchase and distribution of a new issue of securities

It is a syndicate temporarily formed to sell large initial offerings of equity or debt ,to investors,which otherwise might be very large for a single underwriter/firm to handle , for reasons of volume or risk-involved.

So,the participating members of one particular underwriting syndicate are required to buy the shares from theissuing company to sell to investors.Thus,the underwriting syndicate spreads the associated risk, especially for the lead underwriter, among all the participants in the syndicate.

The lead underwriter accepts responsibility for allocation of specified number of a shares to particular member/individual