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Series 7 Exam: Firms that Employ Registered Reps

On the Series 7 exam, there are questions about registered reps and the kinds of firms that employ them. Registered reps can work for any of these kinds of firms:

  • Investment banking firm: An investment banking firm is an institution that helps issuers raise money. Think of investment bankers as the brains, because they help the issuer decide what securities to issue, how much to issue, the selling price, and so on. Not only do investment bankers advise issuers, but they usually underwrite the issue and may also become the managing underwriter in the offering of new securities.

  • Underwriter: The underwriter is a broker-dealer that helps the issuer bring new securities to the public. Underwriters purchase the securities from the issuer and sell them to the public for a nice profit (yippee!).

  • Syndicate: When an issue is too large for one firm to handle, the syndicate manager (managing underwriter) forms a syndicate to help sell the securities and relieve some of the financial burden on the managing underwriter. Each syndicate member is responsible for selling a portion of the securities to the public.

  • Managing (lead) underwriter: The managing underwriter (syndicate manager) is the head firm that’s responsible for putting together a syndicate and dealing directly with the issuer. The managing underwriter receives financial compensation (buckets-o-bucks) for each and every share sold.

  • Selling group: In the event that the syndicate members feel they need more help selling the securities, they can recruit selling group members. These members are brokerage firms that aren’t part of the syndicate. Selling group members help distribute shares to the public but don’t make a financial commitment (they don’t purchase shares from the issuer) and therefore receive less money per share when selling shares to the public.

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