WHAT IS Syndicate Bid
A syndicate bid is a bid offered by a member of a banking syndicate to stabilize the price of a stock before a secondary offering of this stock is offered on the National Association of Securities Dealers Automated Quotations (NASDAQ) exchange. Syndicate bids are a way of managing the entry of new shares into the market without a dangerous resulting drop in the price of the stock.
BREAKING DOWN Syndicate Bid
A syndicate bid is an attempt by a member of the trading syndicate, meaning a bank member or brokerage member or trader, to stabilize the price of a specific stock traded on NASDAQ and reduce volatility of the stock and the market as a whole. A syndicate bid is placed right before the stock is going to make another offering of shares to the market. When this new group of shares enters the market, supply of shares will go up with no immediate direct increase in demand for those shares, so the price per share will decrease.
The influx of new shares available for purchase and the drop in price that results causes volatility and direct financial loss for current shareholders in the stock. To prop up the price of the stock so the resulting drop isn't so large and damaging, the syndicate member places the highest bid possible for the stock to establish a higher price for the stock. Essentially, the syndicate bid establishes a high base rate from which the influx of new shares will lower the price. Without syndicate bids, a secondary offering could tank the price of a stock or cause extreme volatility or a fast market. Syndicate bids are a way of managing the availability of new shares without harming the stock itself, current investors or the NASDAQ as a whole.
The Ethics of Syndicate Bids
It is possible to assume that a syndicate bid is a form of insider trading or an attempt to short a stock. However, since the entrance of new shares into the market is announced officially before it happens, this cannot qualify as insider trading. And because the intent of a syndicate bid is to prop up the price of the stock rather than to cause it to fall to benefit from shorting it, the charge that syndicate bids are shorting attempts is equally invalid. Syndicate bids are a technique known by all involved to manage the entry of new shares, and are not a violation of ethics.