penalty bid

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Penalty Bid

An offer to buy the security offered in an IPO with the guarantee that the buyer will retain the security for a certain period of time. If the buyer sells the security before the time is over, the underwriter offering the security assesses a penalty on the buyer's broker, who may or may not pass the penalty on to the buyer. Usually the penalty is equal to the broker's commission on the trade. Underwriters accept penalty bids during an IPO to prevent the price of the security from declining through a sell-off.

penalty bid

A financial penalty sometimes imposed by the underwriter of a new securities issue against a broker whose customer(s) sold shares of the issue immediately after purchase. Penalty bids are imposed in order to keep the price of a newly issued security from declining.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

References in periodicals archive ?

Stenhouse was off the mark with three penalty bids in quick succession from long range, but the tails of the revitalised Greens were clearly up as they began to claim the bulk of the 50-50 situations.

Rugby: GAV DROPS IN FOR EXTRA JOY; GLASGOW HAWKS ...............17 HAWICK ..............................20

Aitken, who had squandered two more penalty bids, re-discovered his touch to land the extra points.

Rugby Union: Tired-looking Exiles keep title hopes alive; Exiles 16 Caledonia 3

He was off target with two penalty bids before a breakaway Ponty try by flanker Richard Parks put the match back into the melting pot.