Penalty Bid Rule needs to be overhauled

Posted On: July 18, 2011 by Ralph Behr, Esq

It is illegal to fix the price or control the price of any security; that rule is one of the basics of a fair marketplace, and the function of government regulation, i.e. FINRA, is to make, or create, the perception that the market is fair to all bidders. With the vast amount of cash looking for a home the expected boom in underwriting and new issues is exploding, and market makers have sounded the call for FINRA to change the Penalty Bid Rule. Pitting market makers and issuers of new securities against savvy investors, this will be a bloody battle. Penalty bidding permits the underwriter to fix the bottom price on any new issue during initial distribution. Also known by its evil-twin name “pegging” it is permitted under SEC Rule 10b-7 but only for syndicate managers and underwriters of new issues. Fixing prices of securities is the antithesis of fair markets and the implausible arguments used by FINRA to support the Penalty Bid Rule are under attack. Keep tuned for more follow-up on this page. If your financial advisor has been pegging your account then you have the right to file a complaint. Contact a securities fraud lawyer in South Florida for more information about abuses and corrupt practices of financial advisors if you feel like you have been the victim of securities professional.