Frequently Asked Question
What does churning mean?
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.