SIE Exam Question 279: Answer and Explanation

Question: 279

A particular issuer of bonds chooses to engage a managing underwriter under a negotiated, firm-commitment underwriting contract. The underwriter chooses to sell the bonds using a selling group rather than a syndicate. Who bears the financial risk of unsold bonds?

• A. The managing underwriter
• B. The institutional investors
• C. The issuer
• D. Selling group members

Correct Answer: A

Explanation:

A: Instead of forming a syndicate, an underwriter may choose to form a selling group. A selling group member has no obligation to buy the bonds. The financial risk of unsold bonds is borne entirely by the managing underwriter when a selling group is used in lieu of a syndicate.