Free-riding


Also found in: Dictionary.

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.
Mentioned in ?
References in periodicals archive ?
Willingness to contribute may also fall as the threat of being attacked and thus the cost of free-riding falls; in a scenario where the threat of aggression is halved, an individual may offer only half his original contribution.
The assumption that free-riding will undermine efficient voluntary provision among large groups will still hold, regardless of what the efficient quantity of defense is.
Becker and Linsday (1994) find a considerable degree of government free-riding behavior in the context of appropriations to public higher education institutions.
Other cases, which may seem more costly and with more uncertain benefits, for example, vertical issues, monopolization, restrictive contracts, and so forth might be expected to lead to greater free-riding behavior.
The company has punished 117 of its conductors and other staff for failing to exert control on free-riding passengers.
"BDZ Holding will continue its uncompromising actions to restrict free-riding as much as possible.
In other words, this is the reason why "The primary accepted pro-competitive efficiency rationale for resale price maintenance is the prevention of retailer free-riding" (KLEIN, 2009).
"The standard analysis concludes that the reduction in retailer-supplied services in response to free-riding, therefore, ultimately leads to both consumers and the manufacturer being worse off, consumers are worse off because they do not receive retailer services that they desire and the manufacturer is worse off because the demand for its products is reduced" (KLEIN, Op.
Both Posner and the Marburgers believe the very fate of the newspaper business hangs on solving the problem of free-riding aggregators.
Those participants did not signal out of kindness or because of apparent confusion but to maximize their return by free-riding on the group contributions of others.
Here the problem is the classic free-riding opportunity." (60) Thus where more than one channel of distribution is used, free riding is identified as an important form of cannibalization that can harm firm performance.
Not every individual participating in these experiments discovered, in the context of the experiments, that free-riding was the best personal strategy.