Overview

According to the Palgrave Dictionary of Money and Finance, a syndicate is a temporary venture that contracts with a seller to place its securities . Syndication techniques were used by the Bank of England as long ago as 1694, and some features can be traced back to the latter part of the Middle Ages.

In Chapter 2, we quoted Chen and Ritter (2000: 1120): Historically, syndicates existed partly for regulatory capital requirement and risk-sharing purposes, and partly to facilitate the distribution of an issue Today, there is little reason to form a syndicate to perform the traditional roles of risk sharing, distribution, and meeting capital requirements.

While their point is valid, syndicates continue to be formed to market and distribute IPOs. However, perhaps reflecting Chen and Ritter, syndicates for large global offerings are now smaller than they were in the early 1990s. As the investment banking industry has globalized and participants become larger, individual firms have much more capital at hand and far larger distribution networks. To illustrate, in 1991 the Wellcome Trust employed over 50 banks in multiple syndicates for a 2 billion secondary offering of Wellcome plc shares. Ten years later, the Trust hired one bank to place some 1.8 billion of GlaxoSmithKline (the successor company) shares in an accelerated bookbuilding.

In the UK, the traditional triumvirate of sponsor and two brokers, supported by a small army of sub-underwriters, is giving way to international-style syndicates with multiple managers assisting in the distribution.

The first part...