SIE practice questionhardAll-or-None Underwriting
In an all-or-none (AON) underwriting arrangement, what happens if the underwriter cannot sell the entire issue?
- AThe underwriter must purchase all remaining shares for its own account
- BThe underwriter keeps whatever shares it has sold and returns the rest to the issuer
- CThe issuer is required to lower the offering price until all shares are sold
- DThe entire offering is canceled and all investor funds are returned✓ Correct answer
Explanation
Why D — The entire offering is canceled and all investor funds are returned
In an all-or-none underwriting, the entire offering is canceled if the underwriter cannot sell all of the shares by a specified date. All investor funds held in escrow are returned. This protects the issuer from raising only a portion of the capital it needs. An AON is a type of best efforts underwriting — the underwriter does not commit to purchasing unsold shares (unlike firm commitment). Choice A describes a regular best efforts arrangement. Choice D describes a firm commitment underwriting.
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