Series 79 practice questionmediumUnderwriting Agreements
What distinguishes an all-or-none underwriting from a standard best efforts underwriting?
- AIn all-or-none, the underwriter guarantees to sell every share
- BIn all-or-none, only institutional investors may participate
- CIn all-or-none, the issuer must accept any price the market determines
- DIn all-or-none, the entire offering is canceled if a specified minimum is not sold, and investor funds are held in escrow until the minimum is met✓ Correct answer
Explanation
Why D — In all-or-none, the entire offering is canceled if a specified minimum is not sold, and investor funds are held in escrow until the minimum is met
In an all-or-none underwriting arrangement, the offering is contingent on the sale of all (or a specified minimum in a mini-maxi arrangement) of the securities offered. If the minimum is not reached within the specified period, the offering is canceled and all investor funds held in escrow are returned. This protects both the issuer (who may need a minimum amount of capital) and investors (who do not want to invest if the company cannot raise sufficient funds). Under SEC Rule 15c2-4, proceeds must be held in a separate escrow account until the conditions are met.
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