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InvestHub.com's
Finance Dictionary and Glossary of Investment Terms

penalty bid  

Definition 1.

A syndicate manager's or underwriter's offer to buy a security at specific price during a new issue distribution. The bid acts to stabilize the price of the stock, to facilitate distribution. The bid, also called "pegging," is permitted under Securities and Exchange Commission Rule 10b-7; otherwise the practice is prohibited. (See bid, new issue, syndicate manager, underwriter)
 

Definition 2.

A penalty bid is intended to facilitate a securities offering by stabilizing its price during the distribution period. This bid is typically entered by the managing underwriter on behalf of a syndicate.
 
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