What is a Bulge Bracket?
How Does a Bulge Bracket Work?
When a company issues new securities in the market, groups of investment companies called "underwriting syndicates" offer the security to the public for the first time. The company in the underwriting syndicate that issues the highest volume of the new security in the market is called the bulge bracket. This investment company's name receives the top spot on the tombstone (the advertisement alerting the public of the new issue).
To illustrate, suppose Company XY is issuing a new security called PrimeXY shares. Five investment companies, the underwriting syndicate, come together to spread the risk and profits associated with underwriting a new security issue. The investment companies in the syndicate work to sell the shares of PrimeXY in the market. The bulge bracket will be the investment company in the syndicate with the most sales of PrimeXY. In this case, the investment company in the syndicate with the highest sales volume is ABC Investments; therefore ABC Investment's name will appear on the tombstone first, followed by the next four investment companies in order of their sales.
Why Does a Bulge Bracket Matter?
Companies initially issue securities as a way to raise funds in exchange for a repayment with interest (in the case of a bond) or partial ownership in the company (in the case of stock). The companies in the responsible for successfully putting the new security on the market each take on significant risk since they must raise the intended funds for the issuing company while still ensuring that their company profits from the sales.
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.
Read This Next
By definition, a commodity is a product that tends to come from the earth or is grown. It varies only slightly in quality...Read More →
Trendlines are one of the most common and helpful tools in a trader's kit. They are used to show a stock's upwards, downwards...Read More →