SIE Knowledge of Capital Markets Question 11: Answer and Explanation

Question: 11

Which of the following may agree to a best efforts agreement for an initial public offering (IPO)?

• A. Securities Exchange Commission
• B. Underwriting syndicate, led by the lead underwriter
• C. Lead underwriter for "standby" agreement
• D. Securities commissioner of the state in which the security is offered

Correct Answer: B

Explanation:

B: An underwriting syndicate, led by the legal underwriter, may agree to a best efforts agreement for an IPO. Choice A, the Securities Exchange Commission (SEC), may review the underwriting agreement but will not be a party to it. Choice C, a "standby" agreement, is typically entered into by the issuer and an investment bank, which may not be a lead underwriter or party to the underwriting syndicate. Choice D, the Securities Commissioner of the state in which the security is offered, may review the underwriting agreement but will not be a party to it.