In most instances, your stockbroker is required to obtain your permission
before making a purchase or sale in your investment account. When your
broker does not get your authorization and goes ahead and makes a transaction
anyway, you may have an unauthorized trading claim.
Unauthorized trading is defined by the
Financial Industry Regulatory Authority (FINRA), as “the purchase or sale of securities in a customer’s
account without the customer’s prior knowledge and authorization.”
The broker must have your express authorization before making any trades
on your account. However, even if you gave your broker authorization,
this authority cannot be misused or exceeded, by making
unsuitable trades or trades. This type of broker misconduct can lead to financial
loss and your broker may be liable.
There are some things you can do to reduce the likelihood of unauthorized
trading in your account. These tips are mentioned on FINRA’s website
- Be sure to repeat instructions to your broker to confirm that he or she
understands the transaction.
- Maintain notes of all conversations with your broker.
Review your monthly
account statements and any confirmations you receive in the mail regarding investments that
were made on your behalf. You should keep these documents for future reference.
- Report any unauthorized transaction immediately. Contact the branch manager
at your broker’s firm and send a registered letter to the compliance
department. If you wait too long, it may impact your claim against your broker.
Learn more about broker prior authorization by watching the video below.