UK Accounting Glossary
In sales, the practice of getting consumers to purchase more than they need to, or unnecessary sales made solely to generate income. Can also refer to the general turnover in a client base.
Churning means excessive buying and selling in a client’s account by a broker for the primary purpose of generating commissions rather than furthering the customer’s investment goals. The major securities industry self-regulatory organizations (SROs) have rules that prohibit churning. Churning violates the NASD Fair Practice Rules. While churning is illegal, it is often difficult to prove. An attorney can analyze a broker’s records to determine if churning has occurred. To establish that churning has taken place, the attorney must show that the pattern of trading activity in the account was excessive in size or frequency, given the financial resources and character of a customer’s account. Most churning occurs when a broker has the discretion to trade the account. Most churning involves trades of individual securities, but the SEC also discourages trading of mutual funds on a short-term basis.
Although they’re cheaper, none of that company’s products are designed to last more than six months, and this product churning means that customers don’t get a good deal after all.
The two brokers made millions of dollars through their habit of churning sales to each other so that they could continue to collect commissions.
To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.
Definitions for Churning are sourced/syndicated and enhanced from:
This glossary post was last updated: 4th February 2020.