Securities Industry Essentials (SIE) ExamKnowledge of Capital MarketsMedium
A new issue of municipal bonds is being brought to market through a competitive bid process. Which of the following entities typically submits bids for the entire issue?
- AThe Municipal Securities Rulemaking Board (MSRB).
- BThe issuer itself.
- CAn underwriting syndicate.
- DIndividual retail investors.
Show answer & explanationAnswer & explanation
Correct answer: C. An underwriting syndicate.
In a competitive bid underwriting, an underwriting syndicate (a group of broker-dealers) submits a bid to the issuer for the entire bond issue. The syndicate offering the lowest interest cost to the issuer wins the bid and then resells the bonds to investors.
Why the other options are wrong
- A. The MSRB is a regulatory body, not a market participant in the bidding process.
- B. The issuer is selling the bonds, not bidding on them.
- D. Individual retail investors purchase bonds from the syndicate, not bid on the entire issue.
Underwriting Syndicate
A group of investment banks or broker-dealers that collaborate to underwrite and distribute a new issue of securities. They share the risk and responsibilities.
- Formed for both competitive and negotiated offerings.
- Spreads risk among multiple firms.
- Responsible for selling securities to the public.
Memory trick: Syndicates 'Sync' up to sell the whole 'Stack' of securities.