Which term describes trading a client's stocks frequently to generate large commissions?

• A. Fraud
• B. Insider Trading
• C. Stock Manipulation
• D. Churning

Answer: (D)

Churning is the practice of trading a client’s stocks excessively to generate large commissions. It happens when a broker places trades primarily to boost their own compensation rather than to benefit the client, violating the duty of loyalty and care owed to the client. This can harm the client through higher costs and poorer overall performance, and it is illegal in many jurisdictions.

Fraud covers a broad range of deceptive acts, insider trading involves exploiting material nonpublic information, and stock manipulation refers to actions intended to move a stock’s price. The scenario described specifically matches excessive trading for commissions, which is exactly what churning denotes.