In Finance, What is Churning?
Churning is a slang term that is defined as excessive trading on a client account by a broker. The purpose of the activity is not to benefit the investor, but to generate additional commissions for the broker. Also referred to as twisting, the practice of churning is considered to be highly unethical and is illegal in many markets. Abuse of a client’s account is a practice that is expressly considered illegal in the United States. The Securities and Exchange Commission understands churning to be a form of unauthorized trading in a discretionary account. For this reason, the practice is subject to fines, up to and including imprisonment. However, churning is not always easy to prove, since the activity could simply be a series of poor decisions on the part of the broker, with no intent to defraud the investor. Along with the SEC, churning is also a breach of the NASD rules as they relate to the trading process. Brokers who appear to be violating the rules may find themselves temporarily
Churning is a slang term that is defined as excessive trading on a client account by a broker. The purpose of the activity is not to benefit the investor, but to generate additional commissions for the broker. Also referred to as twisting, the practice of churning is considered to be highly unethical and is illegal in many markets. Abuse of a client’s account is a practice that is expressly considered illegal in the United States. The Securities and Exchange Commission understands churning to be a form of unauthorized trading in a discretionary account. For this reason, the practice is subject to fines, up to and including imprisonment. However, churning is not always easy to prove, since the activity could simply be a series of poor decisions on the part of the broker, with no intent to defraud the investor. Along with the SEC, churning is also a breach of the NASD rules as they relate to the trading process. Brokers who appear to be violating the rules may find themselves temporari
