Jul 14, 2021

Indirect issuance includes securities underwriting and securities consignment.

Securities underwriting refers to the underwriting method in which the securities company purchases all the securities of the issuer in accordance with the agreement, or purchases all remaining securities after the sale at the end of the underwriting period. Securities consignment refers to the underwriting method in which a securities company sells securities on behalf of the issuer and returns all unsold securities to the issuer at the end of the underwriting period. It can be seen that underwriting is a kind of sales relationship. The issuer is the seller and the underwriter is the buyer. Once the transaction is completed, the issuer will get the price and the fund-raising activities will be ended. Consignment is a kind of agency relationship. The underwriter is the agent and the issuer is the principal. Anything that can be sold during the underwriting period is sold, and the one that cannot be sold is automatically returned to the issuer when the underwriting period expires. During this period, if the amount of securities issued is large and it is completely handed over to an investment bank, the risk is too high and the customer network is also limited. At this time, a distribution agreement is created. What is a distribution agreement? That is, a number of investment banks temporarily organize an underwriting syndicate, and the members of the underwriting syndicate will hire several securities firms to help sell the underwriting shares allocated to them, and share the shares of underwriting fees with these securities firms. All relationships between the members of the underwriting syndicate need to be clarified in the form of a contract. Such a contract is called a distribution agreement.

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