A law student at Seton Hall University, Braeden Anderson possesses long-standing interest in securities regulation, with a particular focus on algorithmic trading. Braeden Anderson is currently undertaking a legal externship with the Financial Industry Regulatory Authority, Inc. (FINRA).
The industry-funded regulator has oversight of 3,700 brokerage firms, as well as 630,000 registered representatives, and recently proposed steps to increase actions against churning. This practice involves brokers trading excessively using client accounts, with an aim of boosting their revenues.
The proposed new regulation would not require the broker to have control and discretion over the client’s account in order to be liable for churning it. At issue are situations where the customer relies on guidance from the broker, although the client authorizes investment buying and selling within the account. For clients used to brokers making decisions for them, the potential for churning may not be evident and such activities go unnoticed.
Even with the change in rules, FINRA would require that, in specific cases, it must be demonstrated that the transactions at issue were “excessive and unsuitable.”
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