SIE Exam Question 4: Answer and Explanation

Question: 4

Excessive trading in a customer's account for no apparent reason other than to generate commissions is _______________.

• A. Churning
• B. Rebalancing
• C. Market-timing
• D. Front-running

Correct Answer: A

Explanation:

Churning is excessive trading in a customer's account for no reason other than to generate commissions. Rebalancing refers to adjusting a customer's portfolio to return to previously set ratios of investment types. Market-timing is the practice of timing or calculating the market's low and high points, buying when it is low and selling when it is high. Front-running is an unethical, and generally illegal, activity in which a broker makes advantageous trades by using non-public information about an impending transaction.