An underwriting syndicate for a new municipal
offering of $10,000,000 has been formed. The syndicate
letter specifies that the syndicate is a divided syndicate.
Syndicate member, THN Securities has taken a 10% bracket
in the offering. When sales begin, THN sells $1,000,000
in bonds. At the end of the offering period, there are
$500,000 bonds left unsold. What is the liability of
THN at this point?
a)
$500,000
b) No further liability
c) $50,000
d) $5,000
Answer:
The
correct answer is b.
A divided or “Western” syndicate
is one in which the members stand alone. When a member
of such a syndicate has sold its allocation—or
bracket—it has no further liability. This is
in direct contrast to the undivided—or Eastern—syndicate
in which the members have a continuing liability,
at their original bracket, for any unsold securities.
