Awarding The Issue

Once all bids have been submitted, the issuer and the bond council will meet to determine which syndicate will be awarded the issue. The bid with the lowest net interest cost or NIC will usually win the issue.  The NIC takes into consideration the actual dollar amount of interest that will be paid over the life of the issue.  Additionally, if the issuer received a premium for the bonds, the amount of the premium will be deducted from the net interest cost. If, however, the issuer sold the bonds at a discount, the amount of the discount will be added to the overall net interest cost. An alternative calculation used to award the issue would be based on the True interest cost of the issue or the TIC. The TIC takes into consideration the time value of the money. Regardless of which method is used to award the issue, the syndicate with the best bid is awarded the issue. The issuer keeps their good faith deposit and returns the others. The manager of unsuccessful syndicates must return the good faith deposits to syndicate members within two business days. The syndicate that submits the second best bid is known as the cover bid and will be awarded the issue, in the event the wining syndicate cannot meet their obligations to the issuer.  The manager of the wining syndicate will open a syndicate account once the issue has been awarded and the manager is responsible for its operation and must keep accurate books and records for all account activities.    

Order Period

The order period is the time set by the syndicate manager, during which orders will be solicited for the bonds. All orders will be filled based upon the order priority agreed to in the syndicate letter and without regard to when the order was received. The order allocation priority is very important, especially when the issue is in high demand and there are more orders than bonds available to fill the orders.

Allocation Municipal Bond Orders

The syndicate manager must establish a method for allocating bonds based upon the priority of orders received by the syndicate. The MSRB requires that this be done in writing and it is usually detailed in the syndicate agreement along with the details regarding the sending of confirmations. The method under which the orders will be allocated may not be left to the syndicate manager’s discretion. However there may be circumstances under which the syndicate manager may make exceptions so long as these circumstances are detailed in the syndicate agreement. The syndicate manager must demonstrate their reasons for deviating from the agreed order, if they take an exception to the agreed allocation process. There are several types of orders that may be received by the syndicate and they are:

  • Pre Sale Orders
  • Syndicate or Group Net Orders
  • Designated Orders
  • Member Orders
  • Member Related Orders

Pre Sale Orders

Pre Sale orders are entered by institutional investors, who agree to purchase the bonds, prior to the bond’s pricing and terms being finalized. Pre sale orders are given the highest priority when allocating bonds to customers. The total spread, less the management fee, is deposited in the syndicate account and is divided up among the syndicate members based on their participation. If after all pre sale orders are filled any bonds remain they will be allocated to the syndicate orders.

Syndicate Orders / Group Net Orders

A syndicate order is one where the sales credit for the order is shared by members of the syndicate, based on their participation. A member may designate their orders as syndicate orders to give them a better chance of being filled. The entire sales credit, less the management fee, is deposited in the syndicate account.  After all syndicate orders are filled, any remaining bonds will be distributed to designated orders.

Designated Orders

A designated order is usually submitted by a syndicate member, for the account of a large institution. With a designated order, the large institution will “designate” which syndicate members and which agents at the syndicate members receive the sales credit. If any bonds remain, the next orders to be filled are the member orders.

Member Orders

Member orders are orders submitted by syndicate members for their own customers. The syndicate member receives all of the sales credit. Member orders are traditionally smaller orders for individual accounts. If there are any bonds remaining, the last type of order to be filled is member related orders.

Member Related Orders

The last type of order to get filled is a member related order. A member related order is entered for the benefit of an entity sponsored or controlled by the member such as a proprietary mutual fund or UIT.

All municipal securities dealers submitting an order to a syndicate, or to a member of a syndicate, must disclose the capacity in which it is acting in filling the order. The member must also disclose if the order is for the dealer’s account or for an account that it controls or sponsors. Syndicate members are also required to state the name of the person for whom the order was entered, as well as the total par value of each maturity.


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