Sarasota County Bar Association
Manatee Chamber of Comerce

Excessive Trading

Excessive trading is also known as “churning”. It happens when a broker is buying and selling excessively in an investors account. Investment professionals will engage in this activity to generate commissions and profits for the broker.

A good attorney that specializes in investment law will help you to determine if your losses are due to excessive trading.

Churning is both unethical and illegal. It violates securities laws and goes against SEC rules. Many investors trust in their brokers, and this breaks that confidence.

Churning, or excessive trading, is a common way that unscrupulous brokers generate extra commissions and fees. These fees add up, and you may be able to recover both the fees and any trading losses that your broker incurred.

Churning Explained

The first red flag you’ll notice is a high volume of transactions in your account. Your brokerage firm must send you a confirmation whenever your broker makes a trade. In general, your broker should not be making very many transactions in your account. If you notice a sudden uptick or a decline in your account value relative to the market, you may be a victim of churning.

What’s the Rule?

FINRA Suitability Rule 2111 states that brokers must have a reasonable basis for recommending transactions in your account and that they must match your investment profile. FINRA lists churning as one of its top 15 issues that cause customer arbitration claims.

A FINRA arbitration claim for excessive training relies on two elements; 1) that the stockbroker controlled or solicited the trades in your account AND 2) the level of activity in your account was excessive based on your risk profile and investment objectives.

There are numerous factors that go into assessing a churning claim including both statistical measures of the activity and an assessment of the client’s investment profile. Our team can assess your case and tell you if you have a claim against your broker.

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