Churning (Excessive Trading)

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Chapters in this video

  1. 0:00 The crime of churning: definition and cast
  2. 1:59 Element one: actual and de facto account control
  3. 3:17 Element two: excessive trading and turnover ratios
  4. 4:40 Element three: scienter and reckless disregard
  5. 5:13 Suitability versus churning: the aggregate trap
  6. 6:06 Rapid-fire exam recap

What this video covers

  • The definition of churning and why it applies to both broker-dealers (BDs) and investment advisers (IAs)
  • The three elements of a churning claim: control, excessive trading, and intent to defraud (scienter)
  • Actual control versus de facto control, and why the latter needs no signed discretionary agreement
  • The turnover ratio thresholds for a risk-averse retail account: 2 is suggestive, 4 is presumptive, 6 is conclusive
  • How scienter can be satisfied by reckless disregard without proving specific intent for each trade
  • Why suitability evaluates individual recommendations while churning evaluates the account as a whole
  • Why independently initiated client trades destroy element one and make churning nearly impossible to establish

Read the full lesson, free

This video's complete written lesson is free to read in the CertFuel app, no signup wall. When you're ready to drill the topic, the full Series 63 course adds adaptive practice questions and spaced-repetition flashcards.

Read the Free Lesson → free · no signup wall