Dealers of investment banks provide key underwriting and market making services
Dealers are financial institutions – predominantly subsidiaries of investment banks, commercial banks or investment companies – that play an important role by helping corporate and government entities make financial decisions and raise capital. Dealers provide advisory, underwriting and other services to bond issuers seeking to raise capital through bond financing.
Functions of dealers include:
New bond issues are underwritten by one or more lead managers and a syndicate of co-managers.
Standard roles within a syndicate are:
Collectively, the syndicate will be compensated with an underwriting spread, which includes the management fee, the underwriter’s fee, and the selling concession. The underwriter’s fee is the cost of bringing the issue to market. After all expenses are paid, any remaining funds in the underwriter’s fee are distributed among the syndicate dealers.
Dealer syndicates may sometimes form a selling group to help market the new issue. This includes all financial institutions involved in the marketing or selling process that may or may not be in the dealer syndicate.
A classification that has resurfaced in recent years is the active-passive classification for participants in the bond origination and underwriting process.