TeachMeFinance.com - explain syndicate
syndicate -- (1) a temporary association of two or more persons formed to carry out some specific business venture, such as the development of large-scale real estate projects. (2) a group of securities dealers who work together to distribute a new issue of securities.
Syndicate -- As a financial term syndicate means several bankers or capitalists who join together to carry out or to insure the carrying out of some plan or scheme which involves a large amount of money. The commonest form of syndicate is an underwriting syndicate. For instance, the capital stock of a company (or a certain amount of it) is to be offered for public subscription at, say, 100 (par). An underwriting syndicate is organized and it underwrites the entire issue at 90. It, in effect, buys the whole issue at 90. The stock taken (subscribed for) by the public practically is sold for account of the syndicate, for it receives the difference of 10 per cent between the price at which the stock is sold to the public (100) and the price at which it is underwritten by the underwriting syndicate (90). The syndicate is obliged to take the stock not sold to (subscribed for by) the public, but it has to pay only 90 for it as against 100 which the public has to pay. If all the stock is taken by the public (as is often the case) the underwriting syndicate has not to take and pay for any stock, but simply receives and divides among its members (in proportion to their shares in the syndicate) the amount represented by the difference of 10 per cent between the price of the stock to the public and the price to the underwriting syndicate. If some of the stock is not taken by the public it may be apportioned among the members of the syndicate, but usually it is sold (in the open market or otherwise) for the syndicate. The bonds of a company (or a certain amount of them) may be underwritten in the same way as its stock. A purchasing (or subscription) syndicate is different from an underwriting syndicate. A purchasing syndicate actually subscribes for takes and pays for the stock or bonds, which may be allotted to the members of the syndicate in proportion to their shares in it, or the stock or bonds may be sold and the profit (presuming that a sale is made at a profit) divided among the memb.ers. Issues of government, state and municipal bonds have often been bought by syndicates and immediately or very soon afterwards resold at high prices. Also see Reorganization.
About the author
Copyright © 2005 by Mark McCracken, All Rights Reserved. TeachMeFinance.com is an informational website, and should not be used as a substitute for professional financial or legal advice. TeachMeFinance.com and its owner recommend consultation with a professional financial advisor prior to any investment or financial decision. Please read our disclaimer.