Freeriding

AAA

DEFINITION of '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.

INVESTOPEDIA EXPLAINS 'Freeriding'

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.

RELATED TERMS
  1. Public Good

    A product that one individual can consume without reducing its ...
  2. Racketeering

    Racketeering refers to criminal activity that is performed to ...
  3. Front Running

    The unethical practice of a broker trading an equity based on ...
  4. Free Rider Problem

    1. In economics, the free rider problem refers to a situation ...
  5. Underwriting

    1. The process by which investment bankers raise investment capital ...
  6. National Association Of Securities ...

    The NASD was a self-regulatory organization of the securities ...
RELATED FAQS
  1. How does investment banking differ from commercial banking?

    Investment banking and commercial banking are two primary segments of the banking industry. Investment banks facilitate the ... Read Full Answer >>
  2. What types of companies hire a chartered financial analyst (CFA)?

    The Chartered Financial Analyst, or CFA, program is a professional certification awarded by the CFA Institute. CFA candidates ... Read Full Answer >>
  3. What are the major categories of financial institutions and what are their primary ...

    In today's financial services marketplace, a financial institution exists to provide a wide variety of deposit, lending and ... Read Full Answer >>
  4. What's the difference between investment banks and commercial banks?

    Investment banking and commercial banking are two divisions of the banking industry that provide substantially different ... Read Full Answer >>
  5. What is the difference between an investment and a retail bank?

    The activities and types of clients for an investment bank versus those for a retail bank highlight the primary difference ... Read Full Answer >>
  6. Who facilitates buying and selling on the primary market?

    There are several important actors that facilitate buying and selling on the primary market, the home of initial public offerings ... Read Full Answer >>
Related Articles
  1. Brokers

    Brokerage Functions: Underwriting And Agency Roles

    Learning about these various activities can give insight into how securities are issued and traded.
  2. Investing

    5 Tips For Investing In IPOs

    Thinking of investing in IPOs? Here are five things to remember before jumping into these murky waters.
  3. Brokers

    Uncovering The Securities Firm

    Learn about the various departments of a securities firm and the professionals who make it work.
  4. Investing Basics

    Policing The Securities Market: An Overview Of The SEC

    Find out how this regulatory body protects the rights of investors.
  5. Brokers

    10 Most Famous Public Companies That Went Private

    Here’s a list of the most popular listed companies that went private in recent decades.
  6. Trading Strategies

    IPO Flippers And The Companies Who Hate Them

    Learn how flipping activity affects an initial public offering.
  7. Professionals

    What Does an Investment Banker Do?

    An investment banker works for a financial institution that helps companies, governments and agencies raise money by issuing securities.
  8. Investing Basics

    Explaining the Volcker Rule

    The Volcker Rule prevents commercial banks from engaging in high-risk, speculative trading for their own accounts.
  9. Investing Basics

    What is a Greenshoe Option?

    A greenshoe option is a provision in an underwriting agreement that allows the underwriter to buy up to 15% of the shares in an IPO at the offer price.
  10. Personal Finance

    Top Spots to Wine and Dine Clients in New York

    New York City is one the world's best places to wine and dine a client. From power lunches to sushi to celebrity chef spots, these restaurants impress.

You May Also Like

Hot Definitions
  1. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  2. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  3. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  4. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  5. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  6. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!