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:
- AChurning, a prohibited practice✓ Correct answer
- BSuitability-based trading
- CPermitted if the client consents
- DNot prohibited if disclosed
Explanation
Why A — Churning, 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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