What is the purpose of a syndicate letter?

The purpose of a syndicate letter is to establish a joint account for selling securities. In the context of underwriting new issues, a syndicate is formed when multiple brokerage firms come together to share the risk and resources involved in selling a new security to the public. The syndicate letter outlines the terms and conditions under which the syndicate will operate, including the responsibilities of each member of the syndicate, the allocation of securities among members, and how profits and expenses will be shared. By formalizing these details, the syndicate letter ensures that all parties are clear on their roles and obligations, facilitating a smooth process for the distribution of the securities. This collaborative approach is essential in managing large offerings effectively, minimizing individual risk while increasing market reach.