Securities Law Definitions
trading involves the purchase or sale of a security by a broker
without the prior consent of the customer, in a non-discretionary
account. Unauthorized trading allegations are common in securities
arbitrations, and usually turn on the timing of the customer's
complaint to the brokerage firm. Customers who first raise
an unauthorized trade allegation months, or years after the
trade has occurred usually do not fair well in arbitrations,
particularly where the customer has been receiving confirmation
slips and monthly account statements. Unauthorized trading
allegations also bring into play a number of SRO regulations,
including NYSE Rule 408 and Article III, Section 15 of the
NASD Rules of Fair Practice, both of which require brokers
to have discretionary authority in writing from the customer.
Trading without the customer's prior consent, is viewed as
using discretion, and thus, a broker who engages in unauthorized
activity violates Rule 408 and Section 15.
more information, see Typical
Customer Disputes at the Securities
Law Home Page.