Welcome to Underwriting Syndicate Activities: the second unit of Function 2 and the mechanics of how multiple banks band together to underwrite an offering, allocate risk and economics, and stay on the right side of the trading-restriction rules that activate the moment a syndicate is formed.
Exam Weight: Part of 27% / 20 items (Function 2)
What You'll Learn
In this unit, you'll cover:
- Syndicate Agreement Architecture: The Agreement Among Underwriters (AAU) signed by every syndicate member, the Selected Dealers' Agreement signed with non-syndicate distributors, the deal-wire system that threads notifications throughout the offering, and the several-not-joint liability convention that governs underwriter exposure
- Types of Underwriting Commitments: Firm commitment, best efforts, all-or-none (AON), mini-max, standby on a rights offering, competitive bid, and negotiated structures, and the practical difference between a principal underwriter (buyer/reseller) and an agent underwriter (distributor on best efforts)
- Contingency Offering Mechanics: The SEC prohibited-representations rule for AON, part-or-none, and mini-max offerings, paired with the SEC escrow rule that requires investor funds to sit at an unaffiliated bank as agent or trustee until the contingency clears
- Lock-Up Agreements: The issuer lock-up that blocks new share issuance after pricing, the shareholder lock-up that restricts insiders and pre-initial-public-offering (IPO) holders (typically 180 days), prospectus disclosure of lock-up terms, and the underwriter's right to grant an early lock-up waiver
- Regulation M Filings and Restricted-Period Notifications: The Reg M restriction on distribution participants (underwriters, prospective underwriters, broker-dealers, selling group) and the parallel Reg M restriction on issuers and selling shareholders, the actively-traded exception, the 1-day vs 5-day restricted-period tiers, and the FINRA deal-wire filings the lead manager submits before and after the distribution
- Disclosure of Price and Concessions: The FINRA selling-agreement disclosure rule that requires every AAU and Selected Dealers' Agreement to state the public offering price (POP), or a formula for it, and the circumstances under which dealer concessions can be allowed
Why This Matters
The syndicate is the operating chassis of every public offering. Risk, fees, allocations, regulatory filings, and post-pricing trading restrictions all run through it.
The Series 79 tests the syndicate as a layered system:
- Who signs the AAU vs the Selected Dealers' Agreement, and what changes about liability and economics when you cross that line
- What commitment type the issuer chose, and which party bears the risk of unsold securities under each
- Which contingency offerings trigger the prohibited-representations rule and the escrow rule (AON and mini-max yes, plain best efforts no)
- What restricted-period regime applies to the offering under the SEC's actively-traded test and the 1-day vs 5-day tiers, and which deal wires the lead manager files with FINRA
- How the AAU and Selected Dealers' Agreement must disclose the POP and concession structure to syndicate and selling-group dealers
The substantive Reg M trading restrictions on stabilizing bids, the syndicate covering and penalty bid mechanics, and the Reg M short-selling restrictions belong to the next unit, Execution and Distribution. This unit is the formation and filing layer underneath those mechanics.
Let's start with the documents that hold the syndicate together: the AAU, the Selected Dealers' Agreement, and the deal-wire system.