Lucky the Banker mascotLTB
← Series 79: Underwriting & New Financing
Series 79 practice questioneasyStabilization

What is a penalty bid in the context of an IPO?

  1. AA fine imposed by the SEC for violating registration requirements
  2. BA bid placed by investors to purchase shares below the offering price
  3. CAn additional fee charged to the issuer for excess roadshow expenses
  4. DLead manager may reclaim concessions when customers quickly flip allocated shares✓ Correct answer
Explanation

Why D — Lead manager may reclaim concessions when customers quickly flip 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 995+ Series 79 questions, weak-area tracking, and timed mock exams. No credit card, no paywall.

Practice Series 79 freeSeries 79 exam guide

Spot an error in this question or explanation? Tell us — we fix these fast.

Related Underwriting & New Financing questions