Unauthorized 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.

For more information, see Typical Customer Disputes.

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Mark Astarita

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Mark Astarita

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