Free-Riding. The prohibited practice of purchasing and selling a security in a Cash Account without meeting the payment obligation under Regulation T of the Federal Reserve Board created by the initial purchase. Free-Riding generally entails using the proceeds of a sale of a security to meet the obligation to pay for the earlier purchase of the same security, and includes similar practices, such as improper options transactions in which proceeds of uncovered options writing are used to finance other stock or option positions in violation of the payment obligations in Regulation T. Free-riding includes trades made using the proceeds of invalid transfers or ACH transfers supported by insufficient funds.
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