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Finance: What are Eastern and Western Accounts? 15 Views

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What are Eastern and Western Accounts? The majority of new securities issues are distributed via syndication, where the underwriter of record runs the book and other firms participate in selling the new issue for profit participation. The syndication agreements are usually structured as an Eastern Account, which is a 3 Musketeers type “All for 1 and 1 for all” type of shared liability among all participants for selling the entire issue; or a Western Account, in which each syndicate member only is obligated to handle its designated allocation, i.e., “Every man for himself.”

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00:00
finance a la shmoop what are a stern and Western accounts what are they well
00:08
there are two different team methods in which underwriters or stockbrokers or
00:13
investment bankers sell securities to their constituencies and that's $5 word [under writers, brokers and bankers on a stage]
00:19
for mutual funds hedge funds and just generally wealthy people their
00:23
constituencies of stock brokers quote team unquote is only a notional thing on

00:29
Wall Street and the line between the two types of teams gets drawn clearly in a
00:33
Western V Eastern style of selling think the Mississippi River a Western account [world map with western account/eastern account division]
00:39
is a divided account what does that mean well like the Old West
00:43
this style agreement is more or less every man woman or other for him/her or [western account paper on desk]
00:48
itself it includes armadillos they're people and since in most deals there are [hand signing document]
00:53
multiple syndicate partners who is responsible to sell is what really
00:59
matters so in any given deal when the partners sign up to bid for the business
01:04
to take whatever dot-com public it is those partners in a western-style [partners receiving stock]
01:09
account who are each on the hook to sell whatever amount of shares or dollar
01:15
volumes that they individually have committed to sell in other words you
01:20
break it you bought it or rather you bid for it you own it in a Western account
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the allegory is the cowboy who has his own set of twenty eight cows he feeds [western account cowboy]
01:31
clothes manages and you know provides a social life for all on his own at the [cows in a field]
01:37
other end of the country yeah over here lives the eastern style account [map of USA with Eastern accounts]
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arrangement not sure what it is about East Coasters
01:44
maybe it's the history of unions there but they all seem to want to work [people on strike]
01:48
together and then go figure well Eastern account syndicates oblige
01:52
members to sell not only their own allotment of shares but also the amount
01:58
that is not sold by other syndicate members that is each individual member
02:03
is not only on the hook to sell the shares that they have committed to sell
02:07
but they're also responsible for selling the shares of the other players in their
02:13
syndicate think like there's now 300 cows and each Cowboys got his 28 or so
02:19
but he's got to worry about all 300 you can imagine that for a company nervous
02:23
about getting all of their shares placed properly well they would lean hard on
02:27
the investment bank to adopt an Eastern style team sales approach instead of a
02:32
Western one regardless of eastern or western style deals the most important
02:36
element in offering getting properly placed as of course that the bankers get
02:40
paid as long as the contract is set up so that the banker only makes money if a
02:45
successful deal happens well usually everyone selling securities is kept fat [guy throws money into the air]
02:50
and happy and the same may not necessarily be said for the people who
02:54
bought them
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