A:

A. Trading with yourself, or with someone else in attempt to make the tape appear more active than it really is.

B. Trading in front of client orders in a principal account.

C. Excessively trading in a client's account, in an effort to generate commissions.

D. Trading concurrent to large institutional orders to piggyback the order flow.


Correct answer: C

The SEC specifically defined churning as: Churning refers to excessive buying and selling in your account by your broker. For churning to occur, your broker must exercise control over the investment decisions in your account, either through a formal written discretionary agreement or otherwise, and must engage in excessive trading in light of the financial resources and character of the account for the purpose of generating commissions.

RELATED FAQS
  1. What does it mean when they refer to the churn rate of a telecommunications company?

    Learn what companies in the telecommunications industry mean when they refer to a churn rate, and discover tactics companies ... Read Answer >>
  2. I overcontributed to my 401(k). What are my options?

    If you overcontributed (made excess deferral contributions) to your 401(k) plan account, you should notify your employer ... Read Answer >>
  3. My broker just sold securities out of my account without my permission. Is this legal?

    Your broker's actions are not legal unless he or she sold the securities under certain conditions. Let's look at the two ... Read Answer >>
  4. How do I place an order to buy or sell shares?

    Read a brief overview of how to open a brokerage account, how to buy and sell stock, and the different kinds of trade orders ... Read Answer >>
Related Articles
  1. Investing

    Is Your Broker Churning Your Account?

    Is your broker churning your account to generate fees? Here's how to know and what recourse you have.
  2. Investing

    4 Dishonest Broker Tactics And How To Avoid Them

    Protecting yourself from dishonest broker practices means knowing how to spot them.
  3. Financial Advisor

    Deal Effectively With Difficult Clients

    Learn how to tame the most shrewish clients with these simple methods.
  4. Small Business

    Six Rut-Busting Business Moves For Brokers

    Find out how to beat a plateau and boost your sales to the next level.
  5. Financial Advisor

    Broker Commissions Are Here To Stay

    With two developed nations adopting a firm anti-commission stance, questions have arisen over whether or not the United States should follow suit. Find out why such a development is unlikely.
  6. Personal Finance

    When (And How) To Fire A Client

    Firing the clients who take more of your time and effort than the revenue they contribute is a great way to improve your bottom line.
  7. Financial Advisor

    Choosing A Financial Advisor: Suitability Vs. Fiduciary Standards

    Discover the differences between the Suitability and Fiduciary Standards when hiring a financial advisor.
  8. Trading

    Understanding Order Execution

    Find out the various ways in which a broker can fill an order, which can affect costs.
  9. Financial Advisor

    Top Tips for Inheriting a Book of Clients

    Inheriting another advisor's book of clients can be a big boon. Here are some tips on how to handle the transition.
  10. Financial Advisor

    Top Ways Advisors Can Get Fired from a Practice

    These are the most common reasons why advisors get fired.
RELATED TERMS
  1. Churning

    Excessive trading by a broker in a client's account largely to ...
  2. Churn Rate

    The percentage of subscribers to a service that discontinue their ...
  3. Discretionary Account

    An account that allows a broker to buy and sell securities without ...
  4. Indian School of Business - ISB

    An international school of business located in Hyderabad, India. ...
  5. Half Commission Man

    A half commission man is an individual who introduces clients ...
  6. Agency Broker

    A broker that acts as an agent to its clients. When acting as ...
Hot Definitions
  1. Operating Ratio

    A ratio that shows the efficiency of a company's management by comparing operating expense to net sales. Calculated as:
  2. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
  3. Pro Forma

    A Latin term meaning "for the sake of form". In the investing world, it describes a method of calculating financial results ...
  4. Trumpcare

    The American Health Care Act, also known as Trumpcare and Ryancare, is the Republican proposal to replace Obamacare.
  5. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
  6. Portable Alpha

    A strategy in which portfolio managers separate alpha from beta by investing in securities that differ from the market index ...
Trading Center