Your broker cannot sell your securities without getting permission from you. A financial advisor needs the proper authorization to execute any transaction on your brokerage account. Whether it is buying a stock, selling securities, or moving money around, unauthorized trading is a very serious legal violation.
That being said, while the proper authorization must always be obtained, a broker does not always need to obtain express permission for every individual transaction. In this article, our FINRA arbitration attorneys highlight the two scenarios in which a broker could sell your stocks without getting explicit permission from you.
Do You Have a Discretionary Account or a Non Discretionary Account?
One of the most important things that investors need to know is the difference between a discretionary account and a non discretionary account. Do you know what type of brokerage you currently have? If you are not sure, you are certainly not alone. Though, you need to find out the answer immediately. This is very important information.
If you have a discretionary account, it means that you have signed a customer agreement that gives your broker authorization to conduct trades without notifying you or receiving your permission. With this type of brokerage account, your financial advisor has the general authority to buy and sell stocks on your behalf.
This is not to say that your broker can do whatever they want. Your broker must stick within the parameters that you set. They must make trades that are suitable for you, that comply with your risk tolerance, and that further your overall investment objectives. If they fail to do so, and you sustain damages as a result, your broker could be held legally liable for your losses. Still, with a discretionary trading account, your broker can sell an individual stock without asking you.
Was Your Broker Making a Margin Call?
The second scenario in which a broker can sell stocks without your permission occurs when they are making a margin call. Buying a stock on ‘margin’ means that you borrowed from your broker to make the transaction. Under securities industry regulations, and the internal policies of individual brokerage firms, investors must meet the minimum maintenance margin threshold at all times.
If your equity in a position falls below the required amount, then your brokerage firm has the right to sell your securities. If you are purchasing stock on margin, it is imperative that you have an in-depth understanding of your brokerage firm’s margin agreement. You do not want to be caught by surprise. Make sure that you understand exactly what will happen in every situation. Remember, buying on margin is risky: it is not suitable for all investors.
Get Help From a Broker Fraud Lawyer Today
At Sonn Law Group, our securities fraud lawyers are strong advocates for investors throughout the United States. We have deep experience handling claims involving unauthorized transactions. If you sustained substantial losses because your broker sold your stocks without your permission, we can help. For a free consultation, please contact our law office today.