SIE Knowledge of Capital Markets Question 29: Answer and Explanation

Question: 29

Which of the following statements is true regarding a mini-maxi underwriting agreement?

• A. This form of best efforts underwriting has a target sales volume for the agreement to be effective, after which additional sales may be made, up to a limit.
• B. This is an underwriting agreement in which the lead underwriter will receive no compensation unless the maximum available units are sold.
• C. This is an underwriting agreement in which the lead underwriter will receive no compensation unless a minimum number of available units is sold.
• D. This is an underwriting agreement in which the lead underwriter buys all securities issued.

Correct Answer: A

Explanation:

A: Choice A is correct because a mini-maxi underwriting agreement requires the lead underwriter to sell a determined quantity of securities, or else the agreement will not effective. However, if that quantity is sold, the lead underwriter may sell additional units or shares up to the limit available. Choice B is incorrect because it describes an all or none agreement. Choice C is incorrect because it describes a part or none agreement. Choice D is incorrect because it describes a firm commitment agreement.