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Series 63: Regulation of Broker-Dealers & Agents
Series 63 practice questioneasyChurning vs. Active Trading

An agent at a broker-dealer executes frequent transactions in a retired client's account, claiming it is to take advantage of market volatility, even though the client has a conservative risk profile. Under the Uniform Securities Act, this activity is MOST likely considered:

  1. AChurning, a prohibited practice✓ Correct answer
  2. BSuitability-based trading
  3. CPermitted if the client consents
  4. DNot prohibited if disclosed
Explanation

Why AChurning, a prohibited practice

Churning is excessive trading in a client's account primarily to generate commissions, regardless of client consent or disclosure (USA 402(b), 402(c), 412). Options B, C, and D are incorrect because even with disclosure or consent, churning is prohibited.

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