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CandleFocus Glossary Editor
A western account is a type of underwriting agreement formed by an underwriting syndicate. Such agreements are widely used when issuing new securities in a capital markets transaction, including stocks and bonds. In a western account structure, each party in the syndicate takes responsibility for its own allocation of the new securities issuance and does not share that liability with the other members. In other words, each member will take on the risk of its portion of the overall securities issuance, rather than all members being liable for the entire securities offering.
The major benefit of a western account is that it allows each member of the syndicate to manage its own risk by taking on responsibility for its own portion of the issuance, rather than every member sharing the risk equally. This can be beneficial to small members of an underwriting consortium who may not have the resources or expertise to manage a full issue on their own. It also helps to ensure that the underwriters are being properly compensated for their work on the deal, as they are able to go after larger rewards if they are able to successfully market their own allocations.
At the same time, there can be issues with western accounts in that they can result in lower liquidity in the secondary market for the new securities issuance. With a traditional eastern account structure, an individual investor can purchase shares from any of the underwriters, as the members of the syndicate agree to share liability for the entire issue. However, a western account structure may restrict the availability of the new securities because each member of the syndicate is responsible for selling its own portion of the offering.
Overall, western accounts are an important type of agreement used in the underwriting of new securities. The structure allows each participant to manage its own risk, but can lead to lower liquidity for the new securities. As such, western accounts can provide flexibility to underwriters, but should be carefully considered and weighed against the potential drawbacks.
The major benefit of a western account is that it allows each member of the syndicate to manage its own risk by taking on responsibility for its own portion of the issuance, rather than every member sharing the risk equally. This can be beneficial to small members of an underwriting consortium who may not have the resources or expertise to manage a full issue on their own. It also helps to ensure that the underwriters are being properly compensated for their work on the deal, as they are able to go after larger rewards if they are able to successfully market their own allocations.
At the same time, there can be issues with western accounts in that they can result in lower liquidity in the secondary market for the new securities issuance. With a traditional eastern account structure, an individual investor can purchase shares from any of the underwriters, as the members of the syndicate agree to share liability for the entire issue. However, a western account structure may restrict the availability of the new securities because each member of the syndicate is responsible for selling its own portion of the offering.
Overall, western accounts are an important type of agreement used in the underwriting of new securities. The structure allows each participant to manage its own risk, but can lead to lower liquidity for the new securities. As such, western accounts can provide flexibility to underwriters, but should be carefully considered and weighed against the potential drawbacks.