Who is a Syndicate Member?

Last Updated: 16 Feb 2023

A syndicate member is an investment banker who gets the mandate to sell shares of an IPO to eligible applicants. How do they get this mandate? The company going public approaches several banks and asks them for a proposal on how they propose to take the company public. The company then chooses the bank with the best proposal. The underwriters who take responsibility for making sure the company can sell all of the shares are called the syndicates.

The chosen bank then forms a syndicate of several other banks, which help it sell the stock in exchange for a commission. All banks that are part of this syndicate are called members of the same syndicate. In most cases, the syndicate members can be from any part of the world and do not necessarily have to fall under the same geographical location as the company.

A syndicate member can be a single individual or represent other business entities. They can also be based on a particular industry and brought together by an investment bank with expertise in this field. The syndicate members are selected based on their expertise, experience, and track record in the industry.

Types of Syndicates

There are various types of syndicate members in an IPO with often similar, yet vital functions for the success of the IPO:

• Lead Manager: The lead manager’s role as a syndicate manager is to be the marketer and distributor of the new issue. This syndicate member is in charge of finalizing all details regarding the issue and negotiating with the issuer to achieve a more beneficial agreement. The lead manager will often share its profits with other banks that assist in promoting the issue to their clients.
• Co-Manager: Syndicate members are a group of investment banks that also promote, but generally on a smaller scale than lead managers. Co-managers do not have as much influence on structuring and pricing but may provide advice to issuers during this process.
• Book Running Lead Manager: A book running lead manager typically functions as both a lead manager and co-manager simultaneously. This person or company is responsible for setting up financial records related to sales, providing information about distribution (when the shares will be available), and potentially organizing an underwriting syndicate (or group of investors) for additional assistance and guidance throughout the process.

What is syndication risk?

Syndication risk is when an underwriter or the syndicate members of fixed-income security cannot place the entire issue with investors. This can be a major concern for companies seeking to issue large amounts of debt. For example, if Country X and trying to issue $100 billion in debt, it’s possible that even the best efforts won’t find enough interested buyers to buy all of it at a comfortable price. In such cases, underwriters may need to take back some of the debt on their balance sheets before they can eventually sell it at a loss later on.

This outcome may seem untenable, but it is a common practice in the financial world. The impact of this kind of situation varies depending on how much debt is involved and whether or not there are any other market factors involved (such as an economic downturn).

If an underwriter takes back too much unsold debt from its clients over time, then its balance sheet could become unmanageable in size or even insolvent. Likewise, other factors may prevent them from selling off those securities quickly before they need more capital (like another recession).

Syndication risk is when an underwriter or the syndicate members of fixed-income security cannot place the entire issue with investors. This can be a major concern for companies seeking to issue large amounts of debt. For example, if Country X and trying to issue $100 billion in debt, it’s possible that even the best efforts won’t find enough interested buyers to buy all of it at a comfortable price. In such cases, underwriters may need to take back some of the debt on their balance sheets before they can eventually sell it at a loss later on.