The Series 7 New Offerings section is a nice place to pull up your score. With a little guidance, this section can easily boost your score an extra few percentage points. In today’s post, we discuss this jargon-filled section.
Series 7 New Offerings: Investment Banking Fees, Broken Down
The Series 7 New Offerings section is a common area where people trip up. One of the main reasons is that this is a very jargon heavy section.
Before diving into the jargon, you should know that this section is about primary offerings and related fees. This section also discusses how investment bankers help bring primary offerings to the public. The different types of primary offerings, as well as a breakdown of the total fees involved, show up here.
Reading through this section leaves many people confused. With a simple example and defining some of the jargon, you can potentially add 3% or 4% to your overall score if you know this section well.
Let’s briefly discuss.
Underwriting Spreads
The total fees charged to a company or municipality that would like to sell public securities for the first time is called an underwriting spread.
The underwriting spread is paid to the investment bankers that help bring shares or bonds public for the first time. Securities are sent from the issuer to the investment banker, and then the investment banker distributes the securities to the public.
The underwriting spread is broken down as follows:
- 20% Manager’s Fee
- 20% Underwriting Fee/Syndicate Fee
- 60% Concession
Each of these components require some explanation.
For instance, the manager’s fee goes to one of the multiple investment banks that may be on the transaction. One investment bank is deemed “team captain“ and gets extra compensation for leading. Hence, the manager’s fee.
The underwriting fee tends to be quite confusing, but mostly because there are so many synonyms for it.
This fee can also be called the syndicate fee, a liability, and “additional takedown.”
This is effectively the fee that gets paid to the investment bankers for taking risk on the transaction.
Lastly, the concession is the fee that goes to the sales team at the investment bank that helps sell the offering. Each individual sales person from the investment team will receive a commission. The commissions often come from the concession.
Overall, knowing this section in detail can help add a few extra easy points to your exam score. It’s a much easier section to bring up your score than more difficult sections like options or margin. If you need some help with it, feel free to reach out! Good luck in the meantime!