NASAA Series 63

An agent handles a conservative retiree's account and generates 60 round-trip trades in six months, producing commissions that consume a large share of the account's value. This practice is best described as:

1. AChurning, which is excessive trading in light of the customer's resources, objectives, and account characterCorrecta
2. BA permissible active-management style, because the retiree received confirmations of every trade and never objected
3. CSelling away, because the agent handled the retiree's account outside the supervision and approval of the employing firm
4. DFront-running, because the agent traded for his own account ahead of the retiree's orders to profit from the expected price move

Por qué: Churning is trading that is excessive in size or frequency given the customer's financial resources, investment objectives, and the nature of the account, and it is judged by the pattern rather than by any single trade. The customer's silence is not consent and does not cure the violation. Front-running involves trading ahead of a known block order, and selling away involves transactions outside the employing firm, neither of which is described here.NASAA Model Rule

An individual is hired by a start-up corporation to sell the corporation's own common stock to retail investors in State A, and she is paid a commission on each sale. Under the Uniform Securities Act, this individual is:

1. AAn agent who must register in State ACorrecta
2. BAn investment adviser representative, because she recommends the company's stock to retail investors
3. CA broker-dealer, because she effects securities transactions for compensation
4. DExcluded from the definition of agent because she represents an issuer rather than a broker-dealer

Por qué: An agent is an individual who represents a broker-dealer or an issuer in effecting or attempting to effect sales, so representing an issuer does not by itself create an exclusion. The narrow issuer-representative exclusions cover certain exempt securities, exempt transactions, and sales to the issuer's own employees with no commission, none of which fits commissioned retail sales of common stock. She is not an investment adviser representative, because she is paid to sell stock rather than to advise, and she is not a broker-dealer, because a natural person representing an issuer is an agent.Uniform Securities Act