Business Glossary

temporary association of investment bankers brought together for the purpose of selling securities; also called purchase group. One investment banker in the group, usually the originating house, is selected to manage the syndicate. There are two types of underwriting syndicates, divided and undivided. In a divided account, the liability of each member investment banker is limited in terms of participation. Once a member sells the securities assigned, that investment banker has no additional liability regardless of whether the other members are able to sell their portion of the security or not. In an undivided account, each member is liable for unsold securities up to the amount of its percentage participation irrespective of the number of securities that investment banker has sold. Most syndicates are based on the undivided account arrangement.

Capital budgeting: as used in the phrase "pool of financing," the concept that investment projects are financed out of a pool of funds rather than out of bonds, preferred stock, and common stock individually. A weighted average cost of capital is thus used in analyses evaluating the return on investment projects. See also cost of capital.
Industry: joining of companies to improve profits by reducing competition. Such poolings are generally outlawed in the United States by various antitrust laws.
Insurance: association of insurers who share premiums and losses in order to spread risk and give small insurers an opportunity to compete with larger ones.
Investments:

1. combination of resources for a common purpose or benefit. For example, an investment club pools the funds of its members, giving them the opportunity to share in a portfolio offering greater diversification and the hope of a better return on their money than they could get individually. A commodities pool entrusts the funds of many investors to a trading professional and distributes profits and losses among participants in proportion to their interests.
2. group of investors joined together to use their combined power to manipulate security or commodity prices or to obtain control of a corporation. Such pools are outlawed by regulations governing securities and commodities trading.