Dot 1: Syndicate definition
Dot 2: Syndicate system
Dot 3: It’s works and risk
Dot 4: Syndicate example
Quick Pick :
Two are more investment bank do underwriting for only one publicly trading company was consider as syndicate .
The syndicate means promoting something commonly with two or more individual’s. It doesn’t matter whatever the certain group promotes, when their promotion are together then is called as Syndicate.
Syndication happens in most institutional when the risk is more or high for one individual or institution it couldn’t be manageable by one person or organization. So the particular organization share the risk with more organization for the same mission to achieve the expected results.
this article occupied the information about what is the syndication in the stock market and how it’s system works and share their risk in it and most importantly let’s have a example to make more clear about it.
Dot 1: Syndicate definition
In stock market before any industry get publicly traded, investment banks plays a major role in selling the shares of stocks.
Investment bank is a institution where they do the investment bank research and underwriting for the all the private firm to get public. Each and every Companies issue different shares based on the equity they want to raise inside the company.
If certain industry want to issue big amount of shares mean it couldn’t handle by the one investment bank so it’s hire others two or more investment banks to sell the whole stocks of shares as much as possible.
When two or more investment bank do the underwriting for one company and sell the same industry stock then it’s called a syndicate, and when the two or three banks provide loan for same industry which also consider as the syndicate loan. So now let’s have a look on how the syndicate systems works.
Dot 2: Syndicate system
When the public Companies issue the big amount of shares of stocks the investment banks diversify and share the shares of issued stock from the company
This shares are divide into total of investment bank involved in the process. If three investment banks involved in the process the total shares are divide into this three banks to sell in the certain period of time.
Let’s look about what the investment banks actually contain risk and how they handle it.
Dot 3: It’s works and risk
Issuing multi millions shares of stocks are not sold by one individual investment banks.
So the investment bank provide the shares to other banks to reduce the risk of selling shares.
When one investment bank take full responsibility for the entire shares there is high chance that particular investment bank failed to sold all the issued shares by the company.
This leads the bank to lose the money once the bank charges fee by selling shares through commission. The investment bank end with lots of unsold shares.
On the other hand it’s become very difficult to profits for the investment banks without helps of other investment bank, that’s why forming syndicate benefits all the investments banks.
And also it’s become very difficult for share issuing big company to sold all the shares by depending on one investment bank.
Where company might also failed to raise required capital for their business because of depends of one investment bank. So big companies always hire at least more than 2 investment bank to sold all their entire stocks of shares.
To make you more clear let’s go through one example below
Dot 4: Syndicate example
Let’s say the company Y want to issue 100 millions shares. So the company hired the investment bank to do it underwriting for them.
But one primary investment bank hired other three investment bank with them. Totally four investment banks do the underwriting for the company Y.
After the underwriting the four banks syndicate together to sell the whole issued shares of company Y by using a syndicate distribution, So each bank take responsibility to sell only 25 millions shares of stocks.
So four bank could totally sell whole 100 millions issued shares easily on the initial public offering.
Instead of failed to sell all the 100 million shares of stock by based on one investment bank.
Here four investment banks common goal is to sell all the shares of company Y that’s why it’s called as Syndicate.
Market rule: #100137
Syndicate is the market rule, This syndication is occur among the investment bank when the bank join to sell the whole securities of the one corporation.
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