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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.


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.
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References in periodicals archive ?
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.
KLEIN, BENJAMIN (2009) Competitive Resale Price Maintenance in the Absence of Free-riding.
Both Posner and the Marburgers believe the very fate of the newspaper business hangs on solving the problem of free-riding aggregators.
If the copyright law doesn't open the way for originators of news to stop the free-riding, newspapers will die," David Marburger told columnist Schultz.
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.
The third section establishes the risk premium required to assure retailer-provided special services to consumers under a RPM regime given that the dismissal of a free-riding retailer occurs only after it happens and that losses are incurred in the interim by rival retailers.
Figure 1 displays the solution values to this free-riding behavior.
Learning the correct strategy of free-riding was the second most frequent strategy, followed closely by the strategy of thinking that an individual's return from group investment was more than an individual's return from private investment.