When new securities are issued, a process known as distribution is undertaken to allocate these securities to investors. This process typically involves investment banks and underwriters facilitating the sale of these securities, such as stocks or bonds, to the public or institutional investors. Distributing new securities is essential for raising capital for the issuing entity, whether a corporation or a government body.
The success of this distribution depends on accurate pricing, effective marketing, and reaching a broad base of potential investors to ensure adequate demand and fair market value.
What does a syndicate desk do?
A syndicate desk or team is a team of people who collectively underwrite and distribute new securities, such as bonds or stocks. The desk evaluates the market conditions to price the offering effectively, determining the initial price and the allocation of securities among investors.
A syndicate desk is a specialized group within an investment bank responsible for managing the process of underwriting new securities issues. They coordinate with other banks and financial institutions to form a syndicate, which collectively underwrites and distributes the new securities, such as bonds or stocks. The desk evaluates the market conditions to price the offering effectively, determining the initial price and the allocation of securities among investors. Their role is crucial in ensuring a successful launch of the securities in the market, balancing the interests of the issuing company and the investing public. Additionally, the syndicate desk stabilizes securities post-launch to maintain market order and confidence.
If your company is planning to launch or issue a new financial deal to roll out in the market, you must take your syndicate desk’s help.
The Syndicate Desk is critical in the financial markets, particularly in issuing new securities. Here is a detailed explanation of their functions and responsibilities, presented in bullet points:
- Formation of Syndicates:
- The syndicate desk forms a group known as a syndicate with other banks and financial institutions.
- This syndicate works together to underwrite and distribute new securities, such as stocks and bonds.
- Market Analysis:
- They assess market conditions to determine the best timing and pricing for the new issue.
- This analysis includes studying investor appetite, current market trends, and economic indicators.
- Pricing of Securities:
- Responsible for setting the initial price of the new securities.
- They must balance the need to raise maximum capital for the issuer while ensuring an attractive price for investors.
- Distribution and Allocation:
- The desk oversees the distribution of securities to investors.
- This involves deciding how to allocate securities among various investors (e.g., institutional vs. retail).
- Marketing and Promotion:
- They coordinate the marketing efforts to promote the new issue to potential investors.
- This can include roadshows, presentations, and other promotional activities.
- Regulatory Compliance:
- Ensures that all activities comply with relevant securities laws and regulations.
- This includes proper documentation and adherence to legal standards in the underwriting process.
- Post-Issuance Management:
- After the securities are issued, the syndicate desk may manage stabilization activities.
- This includes buying back securities in the market to manage supply and support pricing.
- Liaison between Issuer and Investors:
- Acts as a bridge between the company or entity issuing the securities and the investing public.
- Facilitates communication and negotiation between both parties.
- Risk Management:
- Manages risks associated with underwriting, such as market risk and under-subscription risk.
- Develops strategies to mitigate these risks effectively.
When the research document was ready, the team submitted it to the company intending to launch the new deal.
What is a syndicate?
A syndicate is a self-organizing group of individuals, companies, corporations, or entities formed to transact some specific business to pursue or promote a shared interest. A syndicate is a group of people who need to do tasks that would be difficult or impossible to effect individually.
How do you work the syndicate desk with other teams?
The syndicate desk has to work closely with the credit deviating desk, swaps desk, MTN desk, sales force, and investors. It also has to carefully watch the secondary market, issuers, and research. Thus, the syndicate desk works with many teams. Each of the teams deals with a complex, specialized task.
Syndicate desk-related activities
Mobilization of loans
The syndicate desk is usually responsible for formulating the plan to float syndicated loans. However, this is not the only role that it plays. Readers may be aware a syndicated loan is one mobilized by a bank through many capital surplus lenders.
The purpose of syndicate loans
The Syndicate deals are meant for financing bigger deals. The individual investor’s risk comes down significantly by expanding the loan base across several entities.
The syndicate desk team has the task of tracing and locating the lender. It executes this task by estimating the loan terms through the necessary market research.
How does the syndicate desk work with other teams?
The syndicate desk has to coordinate with other teams in the organization. The process involves origination, sale, and trading loans.
Origination: The process of origination involves working with credit and coverage teams. The process involves specialist functionality according to the guidelines on market conditions, price, trends expectation, pitching guiding, and the like.
Syndicate and sales: The two teams (sales desk and syndicate desk) can perform unexpectedly. However, the sales desk better understands the market’s behavior.
A deal may involve an open market. It could also cap banks’ lists or allowlists where the issuer plays a significant role.
Trading in loans: The syndicate desk is responsible for executing tasks in tandem with loan trading (for the outstanding loans) and optimizing the bank’s portfolio. Many banks operate based on the origination and distribution model. It’s also important to note that they also operate on the trading book.
The syndicate desk is a team of professionals that functions synergistically with other teams in the organization. It’s a team that can make the process of mobilizing the market in favor of the organization. For this reason, financial entities place great emphasis on such teams.
The syndicate desk’s role is pivotal in ensuring the smooth issuance and distribution of new securities, maintaining the equilibrium between the interests of issuers and investors, and contributing to the overall efficiency of the capital markets.