What is Western Account?

478 reads · Last updated: December 5, 2024

A Western Account is a type of joint underwriting arrangement where all participating underwriters share the responsibility of selling the securities. Each underwriter is proportionally responsible for any unsold securities. This means that if some securities remain unsold, all underwriters will collectively share the burden of these unsold securities according to their underwriting shares.

Definition

The Western Account is a type of joint underwriting arrangement where all participating underwriters share the responsibility for selling securities. Each underwriter is proportionally responsible for any unsold securities, meaning if some securities remain unsold, all underwriters share these unsold securities according to their underwriting share.

Origin

The concept of the Western Account originated in the U.S. securities market and became widely adopted in the mid-20th century. Its purpose is to increase the success rate of securities issuance by spreading risk, especially in times of high market uncertainty.

Categories and Features

The Western Account is mainly divided into two types: fixed proportion sharing and dynamic proportion sharing. Fixed proportion sharing means each underwriter's share is determined at the outset, while dynamic proportion sharing adjusts according to market conditions and sales progress. The main features of the Western Account are risk diversification and shared responsibility, making it particularly common in large securities issuances.

Case Studies

A typical case is a major tech company's IPO in 2020, which opted for the Western Account underwriting method. Due to market volatility, some securities remained unsold, but through the Western Account, all participating underwriters shared these unsold securities, successfully completing the issuance. Another example is an energy company's bond issuance in 2018, where despite lower-than-expected market demand, the risk-sharing mechanism of the Western Account allowed all underwriters to jointly bear the unsold bonds, ensuring a smooth issuance.

Common Issues

Common issues investors face when applying the Western Account include unclear responsibility for unsold securities and potential additional risks during low market demand. Typically, underwriters clarify the responsibility sharing ratio in contracts to reduce disputes.

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