A registered representative frequently buys and sells securities in a customer's discretionary account primarily to generate additional sales commissions, without regard for the customer's stated investment objectives or financial profile. Which of the following statements correctly identifies this prohibited activity and the regulatory body with direct oversight over FINRA member conduct?
- This practice is defined as churning, and SROs such as FINRA enforce rules prohibiting member firms and registered representatives from engaging in excessive trading.Cevap
- BThis practice is defined as wash trading, and FINRA maintains exclusive criminal prosecution powers over representatives engaging in excessive commission generation.
- CThis practice is defined as churning, but FINRA lacks jurisdiction over sales practice violations because SRO authority is limited strictly to government bond auctions.
- DThis practice is defined as principal trading, which prohibits broker-dealers from acting as agents when handling discretionary customer accounts.
Cevap
The prohibited practice is churning, and Self-Regulatory Organizations (SROs) like FINRA hold authority to enforce rules against excessive trading in customer accounts.
Executing transactions in a customer's account primarily to generate commissions without regard for the customer's investment goals constitutes churning, a major violation of SRO (FINRA) conduct rules.
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Anahtar Kavram
Churning and SRO Regulatory Authority