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Zorluk: OrtaProhibited Market Manipulation and Fraudulent Practices

A registered representative holds discretionary authority over a conservative client's account, which has a stated investment objective of long-term capital preservation. Over a six-month period, the representative executes dozens of frequent, short-term trades across various equity funds. These transactions generate substantial commission revenue for the representative while significantly eroding the client's principal balance through accumulated fees. Which prohibited market practice has the registered representative committed?

  1. A
    Wash trading
  2. ChurningCevap
  3. C
    Unauthorized principal dealer trading
  4. D
    SRO regulatory preemption

Cevap

The registered representative has engaged in churning by executing excessive transactions in a customer's discretionary account to generate commissions, disregarding the client's conservative investment objective.
The correct answer identifies churning, which is defined under FINRA rules and federal securities laws as excessive trading by a broker in a customer's account over which the broker exercises control, done primarily to generate commissions and without regard to the customer's investment objectives.

Adım Adım Çözüm

1
Analyze the customer's stated investment profile and account authorization.
The client has a conservative profile seeking long-term capital preservation, and the representative holds discretionary trading authority.
Establishing the client's profile defines the benchmark for evaluating whether trading activity is suitable and aligned with their interests.
2
Evaluate the pattern of trading activity and financial outcomes.
Frequent short-term trades generated high commission revenue for the representative while depleting the client's principal balance.
A high volume of short-term trading in a conservative account signals that transactions were driven by commission generation rather than client benefit.
3
Map the representative's conduct to FINRA and SEC prohibited activity definitions.
Excessive trading relative to client objectives for the purpose of commission generation constitutes churning.
Regulators explicitly define churning as an abusive, fraudulent practice under securities laws and FINRA conduct rules.

Anahtar Kavram

Churning in Customer Accounts
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Konular

Prohibited Market Manipulation and Fraudulent Practices