Free-Riding

Definition:

Refers to two types of outdated illegal practices:

1) where an underwriter withholds part of a new securities issue and later sells it at a higher price (typically done in the context of Hot Issues, where investors are willing to purchase stock in the Secondary Market at a price that is significantly in excess of the IPO price); and

2) where a party sells on a security before paying for it.

Free-Riding is expressly prohibited by the SEC and FINRA.

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