Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

In the context of underwriting, what is the main distinction between syndicate members and firms in the selling group?

1. Syndicate members assume liability

2. Firms in the selling group assume liability

3. Both have equal liability

4. Neither assumes any liability

The correct answer is: Syndicate members assume liability

The main distinction between syndicate members and firms in the selling group lies in the assumption of liability during the underwriting process. Syndicate members, who are part of the underwriting syndicate, take on more significant responsibilities, including the financial risks associated with the securities being underwritten. This means that if the offering does not sell as anticipated, syndicate members are liable for the unsold shares and may absorb financial losses. On the other hand, firms in the selling group do not share the same level of liability. These firms assist in selling the securities but do not have the same financial commitment or obligation as the syndicate members. Their role is mainly to market the securities and facilitate sales, rather than to assume financial risk for unsold securities. This differentiation is crucial in understanding how underwriting works and the varying degrees of risk associated with the different roles within the underwriting process. Syndicate members are deeply involved in the underwriting deal, while firms in the selling group operate with less exposure to risk.