Churning is best described as which practice?

• A. Buying and selling to reflect market movements
• B. Excessive trading to generate commissions
• C. Executing trades on behalf of clients without consent
• D. Lighting up a position to minimize risk

Answer: (B)

Churning is excessive trading in a client’s account to generate commissions for the broker. This puts the broker’s compensation above the client’s interests, increasing costs and turnover without a legitimate investment reason. It violates fiduciary duties because trades aren’t driven by the client’s goals or risk tolerance. It’s not simply responding to market moves, not unauthorized trading, and not a legitimate risk-management action like hedging; the hallmark is the deliberate, commission-driven activity that isn’t warranted by the client's objectives.