Series 79 practice questionmediumBest Efforts vs Firm Commitment
Why might a smaller or riskier issuer use a best efforts offering?
- ASEC rules prohibit firm commitments for small issuers
- BBest efforts offerings avoid disclosure obligations entirely
- CBest efforts deals cannot include equity securities
- DDemand may be harder to underwrite on a principal basis, so banks prefer an agency-style structure✓ Correct answer
Explanation
Why D — Demand may be harder to underwrite on a principal basis, so banks prefer an agency-style structure
Demand may be harder to underwrite on a principal basis, so banks prefer an agency-style structure When distribution risk is high, banks may be unwilling to commit balance sheet to unsold securities. A best efforts format can still raise capital, but with less certainty for the issuer.
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