Kiting

Kiting

1. The act of misrepresenting the value of a financial instrument for the purpose of extending credit obligations or increasing financial leverage.

2. A fraudulent act involving the alteration or issuance of a check or draft with insufficient funds.

Notes:

1. Kiting generally occurs when securities firms fail to deliver securities of buy and sell transactions in a timely manner (before the three-day settlement period). The firm failing to receive the securities is required to purchase the shortage on the open market and charge the delinquent firm any associated fees. The delinquent firm is practicing the fraudulent act of kiting if it fails to purchase the securities on the open market and maintains a short position, delays delivery or takes part in transactions contrary to SEC regulations regarding the proper settlement of trades.

2. In the past, clearing checks between banks took extended periods of time. Individuals used to take advantage of this delay and wrote "bad" checks to deposit funds before the checks were cashed. Banks have tried to cut down on kited checks by placing holds on deposited funds and charging for returned checks.

Both of these kiting practices are considered illegal.

See also: Bounced Check, Check, Clearing, Leverage, Pairing Off, Parking, Rubber Check, SEC, Settlement Date, Trade Date

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Kiting

Used in banking to refer to the practice of depositing and drawing checks at two or more banks and taking advantage of the time it takes for the second bank to collect funds from the first bank.
Also refers to illegally increasing the face value of a check by changing the numbers on the check.
In the context of securities, refers to the manipulation and inflation of stock prices.