Syndicate Member

A syndicate member in an IPO is a SEBI-registered intermediary permitted to carry out underwriting activities and assist with the bidding and distribution process.

• Syndicate members may collect investor bids and help distribute securities during an IPO.
• They may undertake underwriting obligations if the issue does not receive the required subscription.
• Minimum subscription: An IPO generally needs at least 90% subscription, subject to applicable SEBI rules.
• FY2025–26 IPO activity: 108 mainboard companies raised around ₹1.76 lakh crore through IPOs.
• Syndication risk arises when underwriters cannot distribute securities as expected.
• Lead managers, book-running lead managers and co-managers perform different responsibilities during an issue.
   

A syndicate member is an intermediary registered with the Securities and Exchange Board of India (SEBI) and permitted to carry out activities as an underwriter.

In a book-built IPO, book runners may appoint syndicate members. Their responsibilities can include:

• Accepting investor bids and applications as permitted.
• Helping register bids during the IPO.
• Assisting in the distribution of securities.
• Undertaking underwriting obligations where applicable.
• Working with book runners and other intermediaries involved in the issue.

Under SEBI regulations, book runners have specific responsibilities for managing the book-building process. Therefore, duties such as overall due diligence, pricing and issue management should not be treated as the sole responsibility of every syndicate member.

A syndicate member must be registered with SEBI and permitted to carry out underwriting activities.
Book runners can appoint syndicate members for a public issue. The syndicate member then performs the responsibilities assigned under the syndicate and underwriting arrangements.
Factors such as experience, distribution capabilities and knowledge of the securities market may also be considered when syndicate members are appointed.
 

In a book-built IPO, underwriting arrangements may involve book runners and syndicate members.

Underwriting means agreeing to subscribe to a specified number of securities if the required subscription is not received from investors.

Minimum subscription: Under current SEBI requirements, an issuer generally needs to receive at least 90% of the offer, subject to the regulations and conditions applicable to the issue.

For an underwritten issue, the underwriting agreement specifies how any applicable shortfall will be covered.

The scenario

Suppose ABC Ltd. plans to raise money through an IPO.

• Shares offered: 1,00,00,000
• Issue price: ₹100 per share
• Total issue size: ₹100 crore

The securities quoted are for example purposes only and not a recommendation.

The law

For this example, assume the applicable minimum subscription requirement is 90%.

• Total issue size: ₹100 crore

• Minimum subscription required: ₹90 crore

  
  

If the applicable minimum subscription requirement is not met, the issuer must refund the subscription amount in accordance with SEBI requirements.

Current IPO offer documents generally state that the required subscription, including any applicable devolvement on underwriters, must be achieved within the prescribed regulatory period.

The underwriting

Suppose syndicate members have agreed to underwrite part of ABC Ltd.’s IPO.

• Illustrative amount underwritten: ₹50 crore
• Issue price: ₹100 per share

The underwriting agreement specifies how many securities each underwriter must subscribe to if its underwriting obligation is triggered.

The effect

Suppose investors subscribe to securities worth only ₹60 crore.

• Minimum subscription required: ₹90 crore
• Subscription received: ₹60 crore
• Illustrative shortfall: ₹30 crore

If the underwriting conditions are triggered, the relevant underwriters may have to subscribe to securities corresponding to the shortfall according to their agreed obligations.

Under current SEBI rules, if a syndicate member does not meet its underwriting obligation, responsibility may pass to the lead book runner as provided under the applicable underwriting framework.

Syndication risk arises when underwriters or other members involved in distributing securities are unable to place them with investors as expected.

This can happen when demand for the securities is lower than expected at the issue price.

For example, continue with the ABC Ltd. scenario:

• Illustrative securities taken up: ₹30 crore
• Issue price: ₹100 per share

If investor demand remains weak after the underwriter takes up the securities, it may be difficult to sell them at the expected price.

This can expose the underwriter to losses. The level of risk depends on factors such as market demand, the amount underwritten and subsequent movements in the security’s market price.

An IPO may involve different issue-management roles, including lead managers, book-running lead managers and co-managers.

These are roles within the issue-management structure rather than three separate regulatory categories of syndicate members.

Lead manager

A lead manager has a central role in managing a securities offering.

Its responsibilities may include:

• Coordinating with the issuing company on the structure of the IPO.
• Carrying out due diligence.
• Managing regulatory filings and compliance.
• Coordinating investor-related and distribution activities.
• Supporting the pricing process.
• Coordinating allocation and other issue-management activities.

Book running lead manager (BRLM)

A book running lead manager manages the book-building process of an IPO.

Its responsibilities may include:

• Collecting and monitoring bids received from investors.
• Analysing demand at different price levels.
• Maintaining and managing the order book.
• Working with the issuer on the pricing process.
• Coordinating the allocation of securities according to applicable regulations.

For example, investors may place bids at different prices within an IPO price band. The BRLM analyses these bids before the final issue price is determined.

Co-manager

A co-manager supports the lead managers in responsibilities assigned to it during the issue.

Its duties may include:

• Assisting with due diligence.
• Supporting distribution activities.
• Participating in issue-related coordination.
• Providing assistance to the lead managers in assigned areas.

The exact role of a co-manager depends on the structure of the issue and how responsibilities are divided among the intermediaries.

Syndicate members are SEBI-registered intermediaries permitted to undertake underwriting activities in an IPO. They may help collect bids, distribute securities and meet underwriting obligations when required.
Underwriting can help an issuer address a subscription shortfall, but it also creates syndication risk for underwriters if investor demand remains weak. Lead managers, BRLMs and co-managers perform related but distinct roles in managing an IPO.