when a company prepares to launch an ipo of stock or bonds it hands off responsibility for marketing its shares to one or more underwriters these are the financial firms that manage the process of preparing the ipo up to and including establishing a price for the shares and selling them those first buyers include large financial institutions and brokerages 
in an undivided or eastern account one underwriter might be responsible for placing 15 of an issue while others take up the rest if the entire issue is not placed the firm with 15 must assist in placing the remainder in a western account each underwriter takes responsibility only for placing the percentage of shares it was assigned the share of liability is divided among the underwriters according to the size of their allotment of the total shares available underwriting accounts and agreementsunderwriters in investment brokerages assume considerable risk in managing new issues of bonds or stocks the underwriter agrees to upfront to pay the issuer a certain amount of money regardless of the sale price at issue to offset some of this risk many firms enter 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 participates in an eastern account with a consortium can share in a percentage of the profits while committing a relatively small amount of money in advance terms of an eastern agreementunderwriters may include a market out clause in the agreement this clause frees the underwriter from the purchase obligation in case of a development that impairs the quality of the securities or that adversely affects the issuer the clause is limited in its application however poor market conditions or over pricing do not qualify the terms are specified in the syndicate agreement which also is called the underwriting agreement the syndicate agreement details the fee structure in addition to the money the syndicate member receives when selling shares or bonds the agreement specifies 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 vary and include firm commitment agreement best efforts agreement mini max agreement all or none agreement and standby agreement 