when an issue is too large for a single firm to handle an underwriter syndicate is usually formed so that the resources of all the firms can be used to orchestrate the issuance and spread out the risk the syndicate is compensated by the underwriting spread which is the difference between the price paid to the issuer and the price received from investors and other broker dealers when the issuance goes public 
an underwriter syndicate is also referred to as an underwriting group banking syndicate and investment banking syndicate understanding an underwriter syndicateunder the firm commitment engagement members of an underwriter syndicate are required to buy the shares from the company to sell to investors as opposed to a company selling the shares directly to investors this removes a significant amount of risk for the issuing company as it is paid upfront for the shares by the syndicate and is therefore not concerned with having to sell the inventory of shares to investors that risk is taken on by the underwriter syndicate the risk that an underwriter syndicate takes on is mitigated especially for the lead underwriter by spreading the risk out among all the participants in the syndicate since the underwriting syndicate has committed to selling the full issue if demand for it is not as robust as anticipated the syndicate participants may have to hold part of the issue in their own inventory which exposes them to the risk of a price decline in exchange for taking the lead role the lead underwriter gets a larger proportion of the underwriting spread and other fees while the other participants in the syndicate receive a smaller portion of the spread and fees firm commitment may be compared to the best efforts underwriting where the underwriter agrees to give their highest personal effort to sell as much as possible of the shares the process of an underwriter syndicatemembers of an underwriter syndicate often sign an agreement that sets forth the allotment of the stock to each participant and the management fee in addition to other rights and obligations the lead underwriter runs the syndicate and allocates shares to each member of the syndicate which may not be equal among the syndicate members the lead underwriter also determines the timing of the offering as well as the offering price and fulfilling any requirements with regulatory issues with the securities and exchange commission sec or financial industry regulatory authority finra in determining the offering price the underwriter syndicate must obtain all the necessary financial information as well as determining the growth prospects of the firm typically a closed bidding process amongst the syndicate members is held to arrive at the price of the initial public offering ipo for popular initial public offerings investors may exhibit a greater demand for shares than there are shares available in this case the ipo is oversubscribed this kind of demand can only be met once shares begin actively trading on the exchange this pent up demand could lead to dramatic price swings during the first few days of trading as such there is significant risk associated with individual investors participating in ipos either receiving shares as the client of an investment bank or by buying and selling shares once they begin trading 