Accounts & CustomersQuestion 72 of 125
A customer buys stock in a cash account for $10,000 with the intent to pay for it by selling the same securities before paying. This practice is known as and prohibited as:
a.A legitimate day trade
b.Freeriding, which violates Regulation T
c.A short sale against the box
d.A permissible good-faith deposit
Explanation
Freeriding occurs when a customer buys securities in a cash account and sells them without ever paying for the purchase, using sale proceeds to cover the buy. This violates the Federal Reserve's Regulation T, and the penalty is typically freezing the account for 90 days, requiring cash up front for purchases.
Law Reference: Securities Exchange Act of 1934Practice all 125 questions free — no signup required.
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