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December 30, 2020 in Forex Trading

Can a Broker Sell My Stocks Without My Permission?

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In this piece, we’ll look at the two scenarios where a broker can sell assets without informing or getting permission from the client first. This process may entail mediation or arbitration, depending on the nature of the dispute. Arbitration strikes a middle ground that is more formal than mediation, but less rigid (and less costly) than litigation, making it a popular method of dispute resolution among investors.

It is important to note that your broker may not utilize a certain technique when selecting equities to sell out of your account. Instead, the stocks that are sold to meet the whole gap in the equity level may be chosen in alphabetical order, for example. To top it all off, while selling such securities, the broker may charge the whole fee. Another path where the broker may be authorized to sell an investor’s stock shares is if the investor sold put options against the stock positions.

Sell Shares to Transfer Agents

Unauthorized trading or unauthorized transactions occur when a broker sells, buys, or exchanges, securities without the prior consent or authority from the investor-client. The Financial Industry Regulatory Authority (FINRA) prohibits unauthorized trading. In order for a broker to sell stocks in a discretionary account, they must have what is called “discretion.” This means that the broker must have reasonable grounds to believe that the sale is in the best interests of the client.

Private company stock includes shares issued by the company to employees or investors. One way to avoid a broker is to contact the investor relations department of the corporation whose shares you own and identify the company’s transfer agent. If you have possession of the stock certificates, you’ll need to sign them and send them to the transfer agent, along with whatever paperwork the agent needs. You’ll probably have to include a fee, although some agents may perform this service for free. Robinhood is not allowed to sell investors’ stocks without permission. Any non-discretionary broker, such as Robinhood, is performing an illegal act to sell investor positions without first obtaining consent from the shareholder.

  • Any non-discretionary broker, such as Robinhood, is performing an illegal act to sell investor positions without first obtaining consent from the shareholder.
  • If you are a long-term investor who doesn’t trade frequently, you can save some money by selling your stock without a broker.
  • In addition, an insider may be able to provide leads about current shareholders or potential investors who have expressed interest in buying the company’s shares.
  • We hope you have learned whether a broker can sell your shares without your permission.
  • What tends to happen more often is brokers will steer you into investments that benefit them or into investments they wouldn’t themselves make.

Alternatively, the account holder will have authorized the broker to make investment and distribution decisions on their behalf based on an investment policy statement (IPS). Therefore, the broker’s transactions must adhere to the IPS and account agreement terms. Your risk appetite and long-term objectives should coincide with them. However, while a broker should always have the appropriate authorization, getting formal permission for every transaction is unnecessary.

Can Any Broker Sell Shares Without Owner’s Permission?

Many corporations, especially blue chips, will buy and sell their own stock through a direct purchase plan or dividend reinvestment plan. Frequently, the plans pick up all the expenses, and you don’t have to spend a penny to buy or sell shares. The plan keeps your shares on account and can automatically reinvest your dividends, even if it needs to create fractional shares. You can sell shares through the plan website or by contacting the plan administrator. Robinhood only offers self-directed, non-discretionary accounts on its platform, so this particular exception would never apply on Robinhood.

How Do Private Companies Issue Stock?

As a final word of caution, investors should note that filing a claim is not the same as filing a complaint. As described above, the former initiates the dispute resolution process (and critically, opens the door to potential compensation), broker sold stock without permission whereas the latter simply involves submitting a complaint form online. Even if the complaint results in disciplinary action, fines, or other sanctions against the advisor, it may not result in recovery of compensation.

The conditions leading to a forced liquidation of your securities will be spelled out by your broker in the margin account agreement that you signed upon opening the account. To ensure that the broker receives the money (and interest) you borrowed, they will sell your securities regardless of whether you lose money on the trades. It’s conceivable that the broker and company were ignorant of the information and will handle them appropriately once they’re brought to their notice. You will also receive formal verification of your claim as a result of the correspondence.

Consequences of Unauthorized Trading

Opinions, market data, and recommendations are subject to change at any time. In a discretionary account, often called a managed account, your broker and financial advisor can execute trades on your behalf without seeking your approval beforehand. Instead, you may have been subject to selling in an account where the broker had discretion to place trades, or you had a margin account that experienced sufficient losses to warrant an unmet margin call.

Your company usually has the right of first refusal, which means it can buy back your stock before other investors do. Regardless of the motivation, unauthorized trading is illegal and brokers who choose to overstep their authority potentially face severe penalties. The Financial Industry Regulatory Authority (FINRA), formerly NASD, provides the rules and regulations that investment professionals who are members must follow.

However, even when a client acquiesces after the purchase or sale has been executed, the broker’s conduct is still a technical violation. The broker’s actions may also be a breach of fiduciary duty, which could result in a civil lawsuit. Investors who lose money or sustain damages due to unauthorized trading may sue for negligence; breach of agency; breach of contract; breach of fiduciary duty; and fraud. Selling stocks out of an investor’s brokerage account without authorization in order to increase the broker’s commissions is considered illegal and unauthorized trading. The circumstances under which selling stock is unauthorized or authorized depend on the type of brokerage account and the broker agreement the investor has signed.

Stockbrokers are regulated by a federal agency, the Financial Industry Regulatory Agency, or FINRA. One of the tools offered by FINRA is BrokerCheck, a free online service that allows you to take a look at your broker’s disclosures, employment history, licenses, customer complaints, and more. To protect investors and ensure the market’s integrity, FINRA—the Financial Industry Regulatory Authority—is a government-authorized not-for-profit organization that oversees U.S. broker-dealers. It’s important to understand that, despite an authorization, a company may not buy back shares at all, if management changes its mind, a new priority arises or a crisis hits. Stock buybacks are always done at the prerogative of management, based on the needs of the firm.




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