Series 79 practice questioneasyStabilization
What is a penalty bid in the context of an IPO?
- AA fine imposed by the SEC for violating registration requirements
- BA bid placed by investors to purchase shares below the offering price
- CAn additional fee charged to the issuer for excess roadshow expenses
- DA provision allowing the lead manager to reclaim the selling concession from syndicate members whose customers quickly sell (flip) their allocated shares✓ Correct answer
Explanation
Why D — A provision allowing the lead manager to reclaim the selling concession from syndicate members whose customers quickly sell (flip) their allocated shares
A penalty bid is a mechanism that allows the lead underwriter to reclaim the selling concession from syndicate or selling group members whose customers flip their IPO allocations (sell the shares shortly after the offering). This discourages syndicate members from allocating shares to short-term speculators and promotes stable aftermarket trading. Penalty bids must be disclosed in the prospectus and must be reported to the relevant exchange when imposed.
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 477+ Series 79 questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Related Underwriting & New Financing questions
- Under Regulation M, which of the following activities is NOT permitted during the restricted period for a distribution?
- After an IPO is priced at $20 per share, the lead underwriter oversold the offering by 15% through the overallotment…
- What must be disclosed in the prospectus regarding stabilization activities?
- Under Regulation M, at what price may the lead underwriter enter stabilizing bids in the aftermarket?