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What is Free-Riding?

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What is Free-Riding?

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NASD Rule 2790 or the old “Hot Issues” Rule and the old “Free-Riding and Withholding Interpretation.” Free-Riding is a practice prohibited by the Securities Exchange Commission and the NASD, in which an underwriter holds back a quantity of IPO shares in order to subsequently sell them at a higher price.

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Free-riding is the term used for buying and selling a security without having the funds to pay for original purchase. Purchases must be paid for with settled funds or by depositing new money.

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