Penalty Bid

AAA

DEFINITION of 'Penalty Bid'

A bid, or offer to purchase securities, provided by a lead underwriter or other member of a syndicate as part of early IPO trading. The bid comes with the restrictions; if it is used, a penalty will be assessed to the broker offering the shares back to the underwriter. The penalty bid is created to deter investors from "flipping" IPO shares shortly after trading begins.

INVESTOPEDIA EXPLAINS 'Penalty Bid'

This penalty may be passed on from the broker to the client selling the IPO shares, but typically involves the broker returning some or all of the internal commission income back to the underwriting syndicate. At the very least, a broker whose client insists on selling shares back and incurring the penalty bid will not be pleased with the client, and will be unlikely to refer IPO shares back to that client in the future.

RELATED TERMS
  1. Nasdaq

    A global electronic marketplace for buying and selling securities, ...
  2. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs ...
  3. Underwriting

    1. The process by which investment bankers raise investment capital ...
  4. Syndicate

    A professional financial services group formed temporarily for ...
  5. Securities And Exchange Commission ...

    A government commission created by Congress to regulate the securities ...
  6. Freed Up

    1. A slang phrase used in the underwriting process to refer to ...
Related Articles
  1. Brokers

    Brokerage Functions: Underwriting And Agency Roles

    Learning about these various activities can give insight into how securities are issued and traded.
  2. Investing Basics

    A Look At Primary And Secondary Markets

    Knowing how the primary and secondary markets work is key to understanding how stocks trade.
  3. Investing

    5 Tips For Investing In IPOs

    Thinking of investing in IPOs? Here are five things to remember before jumping into these murky waters.
  4. Retirement

    IPO Basics Tutorial

    What's an IPO, and how did everybody get so rich off them during the dotcom boom? We give you the scoop.
  5. Investing Basics

    How Does Alibaba Make Money? A Simple Guide

    Alibaba broke IPO headlines--but making news and making money are two different things.
  6. In 2014, stock markets traded at record levels and the US IPO market enjoyed activity not seen since the 2000 tech bubble. Here is a snapshot of some of the year’s most successful IPOs.
    Investing News

    5 IPOs That Broke The Markets In 2014

    In 2014, stock markets traded at record levels and the US IPO market enjoyed activity not seen since the 2000 tech bubble. Here is a snapshot of some of the year’s most successful IPOs.
  7. Investing Basics

    Alibaba IPO: Why List In the U.S.?

    For companies like Alibaba, a U.S. listing can provide some benefits that they can't find at the exchanges nearer to home.
  8. Despite a booming market, some IPOs crashed and burned. Sure, going public brings a flood of capital, but it can also expose a company to unpredictable market forces.
    Investing News

    IPO Stinkers: The Biggest IPO FAILS of 2014

    Despite a booming market, some IPOs crashed and burned. Sure, going public brings a flood of capital, but it can also expose a company to unpredictable market forces.
  9. Investing News

    What is Alibaba?

    Alibaba might not yet have the name recognition of other ecommerce players like Amazon, but with its record-breaking IPO, it's due to be a global player.
  10. Investing Basics

    The Top Five Alibaba Shareholders

    In addition to the new public shareholders, BABA has several prominent major stakeholders. Here are the top five.

You May Also Like

Hot Definitions
  1. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  2. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  3. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  4. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  5. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  6. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
Trading Center