What is a Syndicate Bid?
A syndicate bid is a bid offered by a member of a banking syndicate to stabilize the price of a stock before its secondary offering on the NASDAQ exchange. Syndicate bids help manage the entry of new shares into the market without leading to a dangerous drop in the price of the stock.
How a Syndicate Bid works
A syndicate bid is an attempt by a member of a trading syndicate—meaning a bank, brokerage, or a high-end trader—to stabilize the price of a specific NASDAQ-traded stock. A syndicate bid is placed right before the stock makes another offering of shares. When this new group of shares enters the market, the supply of shares will go up. If there is no immediate direct increase in demand for those shares, 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. To prop up the stock price so the resulting drop isn't so large and damaging, the syndicate member places the highest bid possible to establish a higher price. 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 help manage the availability of new shares without harming the stock itself, current investors or the NASDAQ as a whole.
The Ethics of Syndicate Bids
One may think a syndicate bid is a form of insider trading or an attempt to short a stock. However, because the entrance of new shares 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 cause it to fall to benefit from shorting, the charge that syndicate bids are shorting attempts is equally invalid. Syndicate bids are a technique known by all industry participants involved in share offerings. They understand the purpose is to manage the entry of new shares, and do not consider it a violation of ethics.