Stuffing

AAA

DEFINITION of 'Stuffing'

The act of selling undesirable securities from the broker-dealer's account to client accounts. Stuffing allows broker-dealer firms to avoid taking losses on securities that are expected to decline in value. Instead, client accounts take the losses. Stuffing can also be used as a means to raise cash quickly when securities are relatively illiquid and difficult to sell in the market.

INVESTOPEDIA EXPLAINS 'Stuffing'

While stuffing is widely regarded as unethical, it can be difficult to prove whether such transactions constitute fraud. Often, broker-dealers are given the power to buy and sell without client consent for "discretionary" accounts. Furthermore, the legal standard for broker-dealers buying securities for these accounts is "suitability," which can be broadly interpreted. Since discretionary accounts provide so much power to broker-dealers, many financial advisors suggest that customers insist on providing consent for all transactions in their accounts.

RELATED TERMS
  1. Securities Fraud

    A type of serious white-collar crime in which a person or company, ...
  2. Conflict Of Interest

    A situation where a professional, or a corporation, has a vested ...
  3. Broker-Dealer

    A person or firm in the business of buying and selling securities, ...
  4. Broker

    1. An individual or firm that charges a fee or commission for ...
  5. Discretionary Account

    An account that allows a broker to buy and sell securities without ...
  6. Bad Faith Insurance

    An insurance company’s appalling or malicious refusal to pay ...
Related Articles
  1. Brokers

    Top Broker Excuses For Poor Investments

    It is not uncommon for investors to lose money through misselling or other forms of mismanagement.
  2. Personal Finance

    Losing Money? Don't Blame Your Broker

    Tempting as it is to pass the buck for your losses, the true culprit may be closer to home.
  3. Brokers

    Evaluating Your Stock Broker

    Make sure you're getting the best service by staying informed and involved.
  4. Personal Finance

    4 Dishonest Broker Tactics And How To Avoid Them

    Protecting yourself from unscrupulous practices means knowing how to spot them.
  5. Retirement

    Choosing A Compatible Broker

    We go over the factors that determine different investing personalities, and the services that best suit them.
  6. Brokers

    Is Your Broker Acting In Your Best Interest?

    Learn the clues you'll need to determine whether you've chosen a reputable professional.
  7. Investing

    What's an Agency Problem?

    An agency problem occurs when a conflict of interest arises for an agent -- a person acting on behalf of another person. The conflict of interest arises when the agent’s own interests are different ...
  8. Investing Basics

    The Dodd-Frank Wall Street Reform Act

    The Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly called Dodd-Frank, was passed in 2010. The goal of the act is to prevent another great recession like that of 2008, which ...
  9. Investing

    What's a Transfer Price?

    A transfer price is what one unit of a business charges another unit of the same business for a good or service. The transfer price is usually close to the prevailing market rate when different ...
  10. Stock Analysis

    A New Economic Threat: State-Sponsored Hacking

    State sponsored hacking attempts are becoming a major cause of concern to the US. Here is a list of US sectors most vulnerable to state-sponsored hacking.

You May Also Like

Hot Definitions
  1. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  2. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  3. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  4. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  5. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  6. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
Trading Center