A Series 7 candidate just emailed me a question with which many test-takers could probably use a little help. The question comes from another vendor’s software and goes like this: Question: a member of a selling group in an eastern syndicate is: Answer: not liable for a percentage of the unsold shares.
The Series 7 candidate then asked me: Wouldn’t that answer pertain to a western syndicate? Please explain.
RESPONSE: The key phrase is “a member of the selling group.” The selling group is not in the syndicate–they’re just broker-dealers out there with customers. Only SYNDICATE members (underwriters) ever have any liablity. So, if Citi is the syndicate manager, maybe Merrill, Morgan, Goldman, and JP Morgan Chase are syndicate members. Only these underwriting firms can have any liability for unsold bonds. And, they’ll work it out in their agreement among underwriters/syndicate letter, which states whether it’s an “eastern” or “western” syndicate account. The selling group includes a few smaller broker-dealers, who can sell some bonds and earn the selling concession. But, those selling group members have no liability. Ever. Underwriters/syndicate members have liability in any firm commitment underwriting. Selling group members are exactly what the term suggests: sellers. They aren’t responsible for anything. They can help the syndicate, period.


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