Subject: File No. S7-41-04
From: Richard D. Levey

January 7, 2005

I have been a retail broker for the past 37 years, and have been active in the IPO market for my entire career.
I think the routine implementation of penalty bids is one of the most devious, discriminatory, and deceitful practices our industry has ever come up with.
Penalty bids should be banned for several reasons, but the most important are:
1. they are not uniformly enforced. just look at the trading volume on the first day of trading. obviously, when an issue trades multiples of the issue size, the penalty bid is not affecting some sellers.
2. they can result in causing issues to be over-priced to the public. If the underwriters dont have the penalty bid
to hold over the brokerage community, they will have to price issues more realisticly.
3. the public is never informed of the penalty, and brokers will hesitate to follow customer wishes if they are in danger of being penalized.
4. at many firms, the penalty is not just the amount of the sales concession, but also can include punitive amounts, and exclusion from future allocations.