Freeriding

Freeriding

In a cash account, an investor must pay for the purchase of a security before selling it.  If an investor buys and sells a security before paying for it, the investor is “freeriding” which is not permitted under the Federal Reserve Board’s Regulation T and may require the investor’s broker to “freeze” the investor’s cash account for 90 days.  During this 90-day period, an investor may still purchase securities with the cash account, but the investor must fully pay for any purchase on the date of the trade.  For more information on the freeriding, please read our investor bulletin “Trading in Cash Accounts – Beware of the 90-Day Freeze under Regulation T,” and the cash account provisions of the Federal Reserve Board’s Regulation T.

We have provided this information as a service to investors.  It is neither a legal interpretation nor a statement of SEC policy.  If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.