NASAA Series 63Ethical Practices and ObligationsMedium
An agent receives a verbal order from a client to sell 500 shares of ABC Corp. The client explicitly states, 'Sell them at the market price, immediately.' Due to a busy trading day, the agent delays placing the order for several hours. When the order is finally executed, the market price has dropped significantly, resulting in a lower proceeds for the client. Which unethical practice has the agent engaged in?
- AChurning.
- BFront-running.
- CUnauthorized trading.
- DFailure to follow client instructions.
Show answer & explanationAnswer & explanation
Correct answer: D. Failure to follow client instructions.
The client explicitly requested the order be executed 'immediately.' By delaying the execution, the agent failed to follow the client's specific instructions, leading to potential harm to the client.
Why the other options are wrong
- A. Churning is excessive trading for commissions, which is not suggested by this single delayed trade.
- B. Front-running involves trading on material non-public information ahead of a client, which is not described.
- C. Unauthorized trading involves executing trades without client permission, which is not the case here.
Failure to Follow Client Instructions
Agents have an ethical and regulatory obligation to execute client orders and instructions promptly and precisely as directed, unless doing so would be illegal or unethical.
- Timeliness is crucial, especially for market orders.
- Deviation from instructions requires client re-authorization.
- Can result in client harm and regulatory penalties.
Memory trick: Hear the client, heed the instruction.