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Free-Riding |
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Free-riding A forbidden practice in which the member of an underwriting syndicate retains a portion of an initial public offering (IPO) and resells the securities at a higher price determined by the market at a later time. Also forbidden is a brokerage customer's rapid buying and selling of a security without putting up money for the purchase. Free-Riding 1. The practice of buying a security and then selling it without having enough cash or cash-equivalent to pay for the original purchase. In the United States, transactions do not settle for three days; that is, a buyer does not pay for a security until three days after he/she buys it. If the buyer does not have the cash to pay for the purchase, he/she may theoretically sell the security on the same day and use that money to pay for the purchase. Free-riding is illegal under SEC rules and is prohibited by the Financial Industry Regulatory Authority. 2. An illegal practice in which an underwriter does not place a new issue of a security and then later sells it for a higher price. Want to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit the webmaster's page for free fun content. |
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