Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

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In a best-efforts underwriting, unsold securities are retained by ______________.

  1. The issuer

  2. Underwriter

  3. All-or-None

  4. The public

The correct answer is: The issuer

In a best-efforts underwriting arrangement, the underwriter does not guarantee the sale of the entire offering. Instead, they agree to sell as much of the issue as possible and any unsold securities are returned to the issuer. This means that the issuer retains responsibility for any securities that are not sold. This arrangement is particularly beneficial for issuers who might want to minimize the risks associated with the issuance, as they are not left with unsold inventory on the underwriter's books. The other choices do not accurately reflect the nature of best-efforts underwriting. The underwriter is not responsible for the unsold securities and does not retain them; instead, they only act as an intermediary. An "All-or-None" offering differs from best efforts, as it requires the underwriter to either sell the entire issue or return it to the issuer. Finally, while the public can purchase securities, they do not retain unsold units, as these remain with the issuer.