Underwriter Syndicate

What is an 'Underwriter Syndicate'

A temporary group of investment banks and broker-dealers who come together to sell new offerings of equity or debt securities to investors. The underwriter syndicate is formed and led by the lead underwriter for a security issue. An underwriter syndicate is usually formed when an issue is too large for a single firm to handle. The syndicate is compensated by the underwriting spread, which is the difference between the price paid to the issuer and the price received from investors and other broker-dealers.

Also referred to as an underwriting group, banking syndicate and investment banking syndicate.

BREAKING DOWN 'Underwriter Syndicate'

An underwriting syndicate mitigates risk, especially for the lead underwriter, by spreading it out among all the participants in the syndicate. Since the underwriting syndicate has committed to selling the full issue, if demand for it is not as robust as anticipated, syndicate participants may have to hold part of the issue in their inventory. This exposes them to the risk of a price decline.

In exchange for taking the lead role, the lead underwriter gets a larger proportion of the underwriting spread and other fees, while the other participants in the syndicate receive a smaller portion of the spread and fees.