Series 63 practice questionmediumProhibited Practices — Churning
An agent executes 47 trades in a customer's account during a single month, generating substantial commissions while the account shows minimal gains. This practice is BEST described as:
- AMarket making
- BChurning✓ Correct answer
- CHedging
- DPortfolio rebalancing
Explanation
Why B — Churning
Under USA Section 502 and NASAA model rules, churning is the excessive trading in a customer's account primarily to generate commissions for the agent rather than to benefit the customer. The high volume of trades relative to the account's performance is a hallmark indicator of churning, which is a prohibited dishonest and unethical business practice.
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