Show I L' L t I IBy The Macher Machinery of Bond Bona I Distribution 1 By W. W F. F BROWN BROW Of Halsey Halsy Stuart Co 9 9 IV lv You were shown yesterday hoa how ho howa I a bond syndicate operates There I are two wo other methods by which Blank Co can distribute an Issue of bonds namely by the formation of either a wholesale group or a selling group These two groups are much simpler sim aim pIer than the syndicate You will recall real that In the formation of ot a n syndicate the dealer first agrees to to ass assume assume me a liability In the form of a I I participation and then withdraws I such bonds as he may need for his own use The wholesale group system is very similar In method to wholesalIng wholesaling wholesaling ing in merchandising lines A merchant merchant merchant mer mer- chant knowing his trade very well wel buys outright such goods as he re re- re quires Likewise In the wholesale group bond dealers who l know now their clientele very well wel decide how many of ot the bonds they can distribute dis dis distribute tribute and then pur purchase hase this amount outright There is no necessIty necessity necessity ne ne- ne- ne for first assuming a liability as Is the case cae with wih the syndicate A member of or the wholesale group I in Indicating the amount of bonds he desires takes a commitment I In t the e of ot a selling group or distributing group the entire process is still further simplified Dealers are aTe given the opportunity to report subscriptions or orders for bonds without ne necessarily having to tomake tomake tomake make definite commitments in ad advance advance advance ad- ad vance before they obtain orders from their customers It I is customarily custo custo- manly marily mariy true that In itt the instance of the selling group the wholesaling and retailing of the issue ar are simul simul- In other words arrangements arrangements arrangements arrange arrange- ments are made so that dealers will wi receive full ful details of ot the issue prompt promptly on the day set for the public offering SIMILARITY OF GROUPS The dealers then report their subscriptions subscriptions sub sub- or orders to the selling gr group up manager as fast as th they y re receive receive receive re- re them or or on the other othel hand they may elect to enter an for tor a block of bonds even though the amount which they so request may at the be in excess of their actual orders In groups of this character dealers continue their ef efforts efforts efforts ef- ef forts to sell sel bonds as a long as they are available In several ways Wass the syndicate wholesale group and selling group are similar In each case cae the dealers are obliged to make payment on OIL 01 a specified date for their bonds LikewIse Likewise Like Like- wise vise the price at which the bonds are to be delivered to the dealers Is usually fixed at a figure which allows a portion of or their wholesale or selling group commission or syndicate syndicate syndicate syn syn- profit to remain in the hands of the managers to provide for ex ex- ex Wen When the group or syndIcate syndicate syndicate syndi syndI- cate is terminated any such profit remaining to the credit of the dealers dealers deal deal- ers s Is remitted to them In addition the dealers are not permitted to sell sel their bonds at either more or less than the orIginal original original nal offering price Dealers are r re required requited re- re quit quit-ed to observe all al these terms for fora a stated period usually thirty or sixty days If Jr I at the end of ot the pe period period pe- pe nod the manager manger feels that It would be advisable ad to have the dealers continue to observe the terms ms ct-ms for a longer period the syndicate selling or wholesale group may be extended for fot an additional period or periods ordinarily not exceeding thirty or sixty days Whether an Issue Is to be offered to the public by a syndicate wholesale wholesale wholesale whole whole- sale group or selling group is very largely determined by the Investment Investment investment Invest Invest- ment and market conditions prevailing pre pre- at the time the financing is In the course of ot preparation for of off offering of- of f fering ring and the amount and charad- charad ter of ot the issue At a time when mone money is plentiful plent- plent ful and there is a very ver active de demand demand demand de- de mand for securities with possibly a scarcity of n new w offerings then then then's is issues Issues Is- Is s- s sues can be very readily distributed by a wholesale or selling seUng group If I the public wants bonds then the dealers deales want want them and hence it Isa Isa is isa a much simpler problem to sell sel them bonds outright than to go through the motions of first selling them the a labit liability Syndicates may be formed when the security market is less active when bonds honda are harder to sell sel and it takes longer to sell sel them It I should be that this does not mean that the bonds are not as good goodas as those which are available when conditions are different It It simp simply means usually that the investing public has not the same available supply of funds for tor investment or orthe orthe orthe the inclination to invest which it i has at other times MUST TAKE SUBSCRIPTIONS A syndicate has the advantage of attracting not only those dealers who are confident of ot their ability to withdraw and sell seli sel bonds to the full fuli ful extent of ot their tons but also those dealers who are willIng will will- wl- wl Ing lag to take and withdraw a reasonable amount of ot bonds with wih the expectation of sellIng selling sell sell- sel- sel Ing them and very ver likely additional bonds later on This latter ater type of dealer while he lIe is assuming a liability lia ha- la- la to the extent of his hs participation tion ton realizes that it i he does not discharge his own liability as a re result ic- ic sult sut of ot his sales that his liability may be materially reduced or even even entirely discharged by which may be made by his fellow elow members His obligation in a syndicate therefore does not have to he e consummate consummated consummated con con- summated summate at once one and ad is subject to the te possibility of a later reduction whereas in the wholesale or selling group his purchase of a definite defnie am amount of ot bonds is an immediate obligation which has to be assumed as ns soon as the bonds are 1 seady eady for delivery delvery Dealers Dealer usually go into a syndicate understanding fully that If it f at the time the syndicate Is termInated terminated terminated ter ter- they have not withdrawn their bonds or ot made sales up to the full ful amount of at their participation they will wi be called caled upon to make mae payment for tor the bonds to the extent extent ex ex- tent of their l liabilities blUes Those who have been in business long enough are not disturbed when they find they have to pay for bonds which they have to take up to dIscharge discharge discharge dis dIs- charge a liability A syndicate is a form of protection protection tion ton to assure the distribution of an issue of ot bonds for if it i the bonds are arc readily subscribed for by the In Investing investing In- In vesting public they will wi be distributed dis dis- l among a great gleat many dealers deal deal- ers ers who will wi continue to sell sel them I instead of being left in the tile hands of only one house houe which might find it difficult to sell sel an unusually large amount of one Issue of oC bonds to its is own Investor clientele There is no hard and fast last rule rute that syndicates are formed when securities are hard to sell seU as a it is I sometimes the case that even In an active marl market et when there is a good demand for tor securities securities' some of or the larger Issues may be offered to the tile I public by syndicates tes It I might DeI ue ne I added here that there are styles In Inthe inthe inthe the bond business as in any other line lne of business and that these are iro undergoing changes as new and more effective ways are found for t doing business In recent years the I wholesale and selling groups have come more and more into use al although although although al- al though syndicates have their place when conditions are such as to Indicate in indicate indicate In- In that that a a. a contract of ot a more moro I formal foral nature might be required in connection with effecting a thorough thorough thorough thor thor- ough distribution of the bonds bonas You have been shown in some detail detal I how the merchandising of millions i of dollars worth of securities is effected effected eI ef- ef e- e I by quick effective and working smooth-working machinery i Yet this machinery 1 13 is not pot devised solely for safeguarding the interests of the investment dealers without regard for the interests of oC the in investing investing In- In vesting public It I is the vast number number num nuni- ber of investors throughout the country who in in the final analysis become the holders of the securities which are distributed through the wholesaling process Houses of ot issue therefore must give just as serious thought to the interests of the in inveStors investors In- In estors in marketing the bonds as they do to the preliminary Investigations investigations Invest Invest- gatons of ot an art issue b before fore purchasing ing it INVESTOR PROTECTED The securities must be at prices which give gl e the investors the opportunity to place their funds at ata ata ata a rate of interest which Is in 1 keepIng keeping keeping keep keep- ing with wih conditions and other in investment investment investment in- in vestment character opportunities of similar The Te fact that dealers are not permitted permitted per per- to sell lel securities at more or orless orless orless less than a stipulated price during a certain ln period is likewise a re requirement requirement requirement re- re which benefits the in In- In vestor When a new issue is offered the investor has the assurance th that t the he is offered the opportunity to bu buy the securities at a price which is being uniformly observed It I would not be possible to offer an ap issue of securities to the public without some definite understand understanding ing ins among dealers as to price e otherwise otherwise otherwise oth oth- the market maIet for securities would become demoralized and the investor would not Know at what price to to- bu buy The machinery by whIch vIlich ties tes are wholesaled has been developed developed developed devel devel- by the demands of the times It Is an e essential in the continuation continua tion ton of civic and industrial progress progress progress ress for In every aspect of ot life you youcan youcan youcan can see the many modern necessities necessities ties tes and conveniences which have been made possible through the sale of securities The railroads on which we travel the electric light and ga gas in out our OU- OU homes the schools to which we send our children the tile parks pat in which we recreate the lumber In our houses the meats on our tables from the great packing houses these houses these are are but buta a few of ot the countless countess essentials made available through such distribution distribution distri distri- buton of securities as has been d described de described de- de scribed in these four articles Copyright 1925 by H. H S. S Co |