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.
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 646+ Series 63 questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Related Regulation of Broker-Dealers & Agents questions
- An agent executes a trade in a customer's account without the customer's prior knowledge or authorization and without…
- Under NASAA model rules, a Canadian broker-dealer may be exempt from state registration when dealing with a Canadian…
- Agent Mike sells interests in a private real estate fund to his brokerage clients without informing his employing…
- A broker-dealer registered in State A but not State B sends a research report to an investment company headquartered in…