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The internal process behind IPO underwriting syndicates

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Syndicates help distribute risk and widen market access in IPOs.

When a company prepares to go public, it typically hires an investment bank—or multiple banks—as underwriters to structure and sell the new shares. To handle large offerings and ensure successful distribution, the lead underwriters form an IPO syndicate, a temporary group of banks that share both the allocation responsibility and financial risk of underwriting the deal. This internal process is highly structured, balancing commercial objectives with regulatory requirements.



The bookrunner leads the syndicate formation and allocation strategy.

The lead left bookrunner, often the most prominent bank in the deal, takes charge of coordinating the overall IPO. It manages the bookbuilding process, investor roadshows, and institutional demand gathering. Based on the size of the offering and expected demand, the lead bookrunner selects co-managers, passive bookrunners, and selling group participants to join the syndicate.


Each participant’s role depends on:

  • Their historical relationship with the issuer

  • Distribution strength across investor segments

  • Research coverage or sector expertise

  • Ability to support aftermarket trading



Syndicate roles define influence and economics within the deal.

Investment banks are slotted into defined tiers within the syndicate, with each level entitling the firm to a specific portion of the economics:

Role

Typical Responsibilities

Share of Fees

Lead Left Bookrunner

Pricing leadership, allocation control, regulatory filings

35%–50%

Joint Bookrunner

Supports demand gen, has input on allocations

20%–35% per firm

Co-Manager

Limited input, smaller allocations

5%–10%

Selling Group

Sales distribution, no economics from underwriting

Commission-based only

The underwriting fee split—known as the “pot”—is typically divided into a management fee, underwriting fee, and selling concession, each distributed based on syndicate rank and sales effort.


Investor allocation decisions follow a centralized protocol.

Once the syndicate closes the book of demand, the lead bookrunner allocates shares across institutional and retail accounts. This allocation is not always proportional to order size; it is adjusted based on:

  • Order quality and likelihood of long-term holding

  • Historical relationship and investor behavior in prior IPOs

  • Geographic or strategic investor preferences

  • Internal bank policies on tiered allocations

The lead underwriter documents each allocation and submits it to the issuer for review.


Syndicate risk is shared through firm commitment underwriting.

In most IPOs, the syndicate operates under a firm commitment agreement—meaning it purchases the shares from the issuer and resells them to investors. If the IPO is undersubscribed, the underwriters bear the loss on unsold shares. This encourages accurate pricing and coordinated investor targeting.


A greenshoe option (typically 15% of the base offering) is often included to help stabilize aftermarket trading. If demand is strong, the syndicate can sell additional shares and cover them by exercising the greenshoe.


Internal compliance and regulatory oversight are essential.

Syndicate formation and participation are governed by regulatory rules, including:

  • SEC rules on conflict disclosures and market stabilization

  • FINRA guidelines on fee transparency and role disclosure

  • Internal Chinese walls between syndicate desk, research, and trading


Banks must log syndicate meeting minutes, valuation materials, and pricing decisions. Coordination is usually led by the syndicate desk, a specialized team within the capital markets division.



Aftermarket support and stabilization follow IPO execution.

Post-IPO, the syndicate often supports trading and price stabilization for a set period. This includes:

  • Market-making to avoid early price collapses

  • Selective use of the greenshoe to absorb excess demand

  • Communication with institutional investors to reinforce positioning


At the end of the lock-up period, the syndicate’s role typically ends, and any remaining support is handled by equity research or trading teams.

The internal process of forming and managing an IPO syndicate is central to executing large capital raises, balancing issuer goals with market stability and regulatory scrutiny.


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