Distributing Syndicate

Distributing Syndicate

Distributing syndicate is a group of investment banks that work together to sell an initial public offering (IPO) of stock or other securities to the market. When a company begins working with a lead underwriter to prepare securities for the market, whether stocks, bonds or other types of securities, the underwriter considers how many other investment banks would be needed to market and distribute the securities in the intended timeframe. Banding together as part of a syndicate allows boutique banks to work on several offerings simultaneously, take on larger offerings and more effectively compete with large investment banks. Investment banks often form syndicates when working on large securities offerings to reduce risk and to increase the speed and efficiency of selling the securities to investors. Distributing syndicate is a group of investment banks that work together to sell an initial public offering (IPO) of stock or other securities to the market.

DEFINITION of Distributing Syndicate

Distributing syndicate is a group of investment banks that work together to sell an initial public offering (IPO) of stock or other securities to the market. Investment banks often form syndicates when working on large securities offerings to reduce risk and to increase the speed and efficiency of selling the securities to investors. This is especially true in the case of firm commitment offerings, where the primary underwriter may expose itself to inventory risk if the full offering cannot be sold by its own group of salespersons. The underwriter will form a syndicate to market the new securities and pay these other banks that distribute them.

BREAKING DOWN Distributing Syndicate

When a large offering is involved, heavyweight investment banks that act as lead underwriters like JP Morgan Chase, Bank of America Merrill Lynch and Goldman Sachs typically choose to form syndicates to serve their clients. Distributing syndicates are of particular importance to smaller investment banks. These "boutique" banks would be unable to underwrite many IPOs because they lack the capacity to sell large offerings alone. Further, a boutique bank would only be able to work on one or two offerings at a time. Banding together as part of a syndicate allows boutique banks to work on several offerings simultaneously, take on larger offerings and more effectively compete with large investment banks.

Distributing Syndicate Process

When a company begins working with a lead underwriter to prepare securities for the market, whether stocks, bonds or other types of securities, the underwriter considers how many other investment banks would be needed to market and distribute the securities in the intended timeframe. The underwriter then selects the other banks it believes is best capable of smooth distribution. These banks then contact their clients to obtain "indications of interest" in the new offering. The ballpark figures are communicated and updated to the underwriter leading up the issuance date. With these numbers in mind, the underwriter then allocates portions of the entire securities offering to the distributing syndicate at or around the issuance date.

Related terms:

Ballpark Figure

A ballpark figure is a numerical approximation that is used in business or daily life as a stand-in when a more accurate reading is not available. read more

Book Runner

A book runner is the main underwriter or lead manager in the issuance of new equity, debt, or securities instruments. read more

Boutique

A boutique firm is a small financial firm offering specialized and personalized investment management, banking, or niche financial services. read more

Breaking The Syndicate

Breaking the syndicate refers to the dissolution of a group of investment bankers that created a syndication to underwrite the issue of a security.  read more

Firm Commitment

A firm commitment generally refers to an underwriter's agreement to assume all inventory risk and purchase all securities directly from the issuer for sale to the public. read more

Indication of Interest (IOI)

Indication of Interest (IOI) is an underwriting expression showing a conditional, non-binding interest in buying a security currently in registration. read more

Initial Public Offering (IPO)

An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance. read more

Lead Underwriter

A lead underwriter is usually an investment bank that organizes an IPO or a secondary offering for companies that are already publicly traded. read more

Syndicate

A syndicate is a temporary alliance of businesses, which joins together to manage a large transaction that would be difficult to effect individually. read more

Underwriter Syndicate

An underwriter syndicate is a temporary group of investment banks and broker-dealers who come together to sell offerings of equity or debt securities. read more