freeriding

Freeriding

1. An illegal practice in which an underwriting syndicate member withholds part of a new securities issue and later sells it at a higher price.

2. The illegal activity of buying a stock and selling it before paying for the purchase.

Notes:

Due to the unfair advantage both of these practices give to those able to exploit freeriding opportunities, freeriding is illegal and prohibited by the Securities & Exchange Commission and the National Association of Securities Dealers.

See also: Bucket Shop, Front Running, National Association of Securities Dealers - NASD, New Issue, Securities & Exchange Commission - SEC, Underwriting

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freeriding

1. An action taken by a syndicate member to withhold a portion of a new security issue from sale because of a belief that a later reselling of the withheld security will yield a higher price. Freeriding is prohibited by the SEC.

2. The purchase and sale of a security in a short period of time without putting up any money. Freeriding by investors is prohibited by Federal Reserve Board's Regulation T. Compare frozen account.