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Some Questions about Churning by Derivatives
[K některým otázkám zjišťování churningu u derivátů]

Author

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  • Petr Dvořák

Abstract

Churning is one of the unethical practices used by brokers while trading in a customer's account. It consists in an excessive trading in a customer's account that is disadvantageous for the client. This technique is described in more details in the field of non-leverage financial instruments, including quantitative indicators. The aim of this paper is to clarify the differences between the leverage and non-leverage financial instruments in terms of trading volume measurement methods for churning's assessing. The author concludes that the churning assessment has to be based on consistency of number and characteristics of the trades with the investor's strategy. Difference among derivative contracts does not provide single quantitative indicators that could indicate churning by trading of the derivative. It would be possible to use quantitative indicators only for comparing the same type of investment instrument, investment strategy and especially of the same leverage.

Suggested Citation

  • Petr Dvořák, 2012. "Some Questions about Churning by Derivatives [K některým otázkám zjišťování churningu u derivátů]," Český finanční a účetní časopis, Prague University of Economics and Business, vol. 2012(4), pages 6-14.
    • Handle: RePEc:prg:jnlcfu:v:2012:y:2012:i:4:id:2:p:6-19
    DOI: 10.18267/j.cfuc.2
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    More about this item

    Keywords

    Churning; Derivatives; Broker; Leverage financial instruments; Non-leverage financial instruments; Deriváty; Nepákové finanční nástroje; Pákové finanční nástroje;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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