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Securities, Options and Futures Consultants

STOCK ISSUES

Unauthorized Trading ...

Brokerage industry rules and regulations require that brokers discuss and seek investor approval for every purchase or sale on behalf of his or her account unless the investor has granted specific, written authorization for such discretionary trading. The one exception arises in the case of margin accounts in which falling prices might trigger asset sales to maintain adequate margin ratios as specified in the agreements establishing the margin account. Even here, the conditions that might cause such selling must be disclosed to the customer in advance.

Failure to consult the client before trading in a non-discretionary account can be used to support claims for rescission, breach of contract or fraud, depending on the situation. At times, brokers may trade in an account without approval in anticipation that the share price will rise and the investor will not complain. In all cases, the client should raise the issue promptly, since claims made after transactions have taken place are subject to the defense of ratification if certain short time requirements stated in either trade confirmation slips or monthly statements have been exceeded. Investors are cautioned to closely examine such confirmation slips or monthly statements to identify unauthorized transactions, since acceptance of these notices without objection can subsequently serve to indicate approval of the broker’s actions.