Primary Market
Which type of underwriting arrangement places no risk on the underwriter for unsold securities?
Firm commitment = underwriter risk. Best efforts = issuer risk.
Complete Analysis & Legal Rationale
In a best efforts underwriting, the underwriter acts as an agent and bears no risk for unsold securities. Any unsold shares are simply returned to the issuer. The underwriter only commits to trying its best to sell the offering.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Firm commitment means the underwriter buys all securities and bears full risk.
Matches the verified teaching point in the explanation.
Standby underwriting commits the underwriter to purchase any unsubscribed shares.
All-or-none refers to the offering being cancelled if not fully sold, not underwriter risk.
Official Standard: Outline-level citation pending rule-specific upgrade. Verify against current FINRA materials.