Undivided Account

What Is an Undivided Account?

An undivided account is a initial public offering (IPO) for which there are different underwriters, each getting a sense of ownership with setting any shares that stay unsold. That is, each firm consents to get a move on assuming different underwriters fail to sell the portion of the total number of shares that they have been allocated.

This type of account is now and again called an eastern account. Normally, there is a variation called a western account.

Grasping Undivided Accounts

At the point when a company prepares to send off an IPO of stock or bonds, it hands off responsibility for marketing its shares to at least one underwriters. These are the financial firms that deal with the most common way of setting up the IPO, up to and including laying out a price for the shares and selling them. Those first purchasers incorporate large financial institutions and businesses.

In an undivided or eastern account, one underwriter may be responsible for putting 15% of an issue while others take up the rest. On the off chance that the whole issue isn't put, the firm with 15% must help with setting the remainder.

In a western account, every underwriter assumes liability just for setting the percentage of shares it was assigned. The share of liability is split between the underwriters as indicated by the size of their allotment of the total shares accessible.

Underwriting Accounts and Agreements

Underwriters in investment businesses accept impressive risk in overseeing new issues of bonds or stocks. The underwriter consents to upfront to pay the issuer a certain amount of money no matter what the sale price at issue.

To offset a portion of this risk, many firms go into syndication agreements that spread the risks and rewards of underwriting the new issue. Most syndicates are administered by one of the participating firms, and the eastern account is the most common arrangement. Both the risks and the rewards are greater than they are with western accounts. An underwriter who takes part in an eastern account with a consortium can share in a percentage of the profits while committing a moderately small amount of money in advance.

Terms of an Eastern Agreement

Underwriters might remember a market-out clause for the agreement. This clause liberates the underwriter from the purchase obligation in case of a development that disables the quality of the securities or that adversely influences the issuer. The clause is limited in its application, nonetheless. Poor market conditions or over-valuing don't qualify.

The terms are determined in the syndicate agreement, which likewise is called the underwriting agreement. The syndicate agreement subtleties the fee structure. Notwithstanding the money the syndicate member gets while selling shares or bonds, the agreement indicates the percentage of shares or bonds that each syndicate member commits to selling.

The syndicate manager can set up an underwriting on a western or eastern account basis. Types of underwriting agreements shift and incorporate firm commitment agreement, best efforts agreement, small max agreement, all or none agreement, and standby agreement.

Features

• In a western account, every underwriter assumes liability just for its own share of the total.
• In an undivided or eastern account, every underwriter acknowledges responsibility for selling any shares that stay unsold by different members of the syndicate.
• The risks and potential rewards are greater in an undivided account.
• The eastern account is the most common arrangement as an in an eastern underwriter account with a consortium can share in a percentage of the profits while committing a somewhat small amount of money in advance.
• Underwriters are the financial firms that deal with the most common way of setting up the IPO, up to and including laying out a price for the shares and selling them.