Jan. 15, 2013
Churning occurs when a broker engages in excessive buying and selling of securities in a customer’s account chiefly to generate commissions that benefit the broker. For churning to occur, the broker must exercise control over the investment decisions in the customer’s account, such as through a formal written discretionary agreement. Frequent in-and-out purchases and sales of securities that don’t appear necessary to fulfill the customer’s investment goals may be evidence of churning.
Churning is illegal and unethical. It can violate SEC Rule 15c1-7 and other securities laws.
FINRA also has rules that include interpretative material on churning, or what FINRA calls “quantitative suitability.”
If you believe a broker has engaged in churning, excessive trading or other sales practice abuse, please send us your complaint using our online complaint form.