Which term is used to describe the action of buying shares followed by an immediate repurchase for no economic benefit?

Which term is used to describe the action of buying shares followed by an immediate repurchase for no economic benefit?

• A. Flipping
• B. Re-aging accounts
• C. Churning
• D. Excessive trading

Answer: (B)

The action of buying shares followed by an immediate repurchase for no economic benefit is best described as churning. Churning refers to the practice of a broker excessively buying and selling securities in a client's account primarily to generate commissions rather than to benefit the client. This activity serves no real economic purpose for the investor and can lead to increased transaction costs, diminished returns, and potential regulatory scrutiny.

In the context of the other terms, flipping typically refers to quickly buying and selling a security to profit from minor price changes, which is not necessarily about generating commissions. Re-aging accounts is a term used in credit and collections, pertaining to the practice of updating the date on an account to avoid delinquencies or negative impacts on credit scoring, which is unrelated to trading activities. Excessive trading is a broader term that can encompass churning but does not specifically capture the intent and manipulative aspect described in this scenario. Hence, churning is the most accurate term for the described action.