Stuffing

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.

BREAKING DOWN '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. Channel Stuffing

    A deceptive business practice used by a company to inflate its ...
  2. Principal Orders

    A type of order carried out by a broker-dealer which involves ...
  3. Broker-Dealer

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

    The trading of securities, such as stocks, that occurs within ...
  5. Call Loan Rate

    The short term interest rate charged by banks on loans extended ...
  6. Know Your Client - KYC

    A standard form in the investment industry that ensures investment ...
Related Articles
  1. Financial Advisor

    What are the Different Types of Financial Advisors?

    There are two primary types of financial advisors: investment advisors and investment brokers, who work for broker-dealers.
  2. Professionals

    Series 63 Exam Prep: The Broker-Dealer

    Before you take the series 63, you need to understand jurisdiction and how it affects broker-dealers.
  3. Financial Advisor

    How Brokers Are Compensated for Selling Bonds

    Find out how brokers are paid for selling bonds and how the transaction costs are passed on to the investor through a markup or commission.
  4. Financial Advisor

    Broker-Dealer Industry 101: The Landscape

    Independent broker-dealers are a great choice for experienced, self-starter planners who have established practices.
  5. Financial Advisor

    Choosing A Financial Advisor: Suitability Vs. Fiduciary Standards

    Discover the differences between the Suitability and Fiduciary Standards when hiring a financial advisor.
  6. Financial Advisor

    Should You Offer Alternative Investments?

    Find out what problems arise for financial representatives when they start to diversify their client offerings.
  7. Financial Advisor

    BD Loans Raise Fines, Conflict of Interest Worries

    This week, the SEC levied fines against two RIAs for failing to disclose to clients that they had received forgivable loans from their broker-dealers.
  8. Markets

    Steps to Starting Up an Independent Broker Dealer

    Launching your own broker-dealer is a lot of work, but the potential payoff is great, both personally and financially.
  9. Financial Advisor

    How the New Fiduciary Rule Will Hit Broker-Dealers

    While the new rules are likely to impact all financial advisors, it is expected that those in the brokerage world will be hit the hardest. Here's why.
  10. Financial Advisor

    The Top 25 Broker-Dealer Firms in 2015

    The country's largest broker-dealer firms by annual revenue are clearly doing lots of things right, but they're also facing a massively shifting market.
RELATED FAQS
  1. When an agent of a broker-dealer begins employment with another broker-dealer ... ...

    The correct answer is D). When an agent moves from one broker-dealer's employ to another, all parties are responsible for ... Read Answer >>
  2. ABC Broker-dealer has no office in state and transacts fewer than five trades during ...

    The correct answer is b. Under these circumstances, the broker-dealer is not required to register with the state and the ... Read Answer >>
  3. Do financial advisors need to be approved by FINRA?

    Learn about whether a financial advisor may be required to be approved by FINRA, and what exams a financial advisor needs ... Read Answer >>
  4. A sales representative or broker-dealer that violates the Uniform Securities Act ...

    The correct answer is a. The sales representative or broker-dealer is required to pay interest, court and attorney’s fees ... Read Answer >>
  5. A sales representative solicits and executes a mutual fund trade ...

    The correct answer is c). This would be considered a private securities transaction, which is not permitted. All securities ... Read Answer >>
  6. When a corporation wishes to open a margin account with a broker-dealer ...

    The correct answer is b. Whenever a corporation opens an account with a broker-dealer, a resolution by the board of directors, ... Read Answer >>
Hot Definitions
  1. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  2. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  3. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  4. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  5. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  6. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
Trading Center