Posted in Finance, Accounting and Economics Terms, Total Reads: 304
Stuffing is an act of selling the undesirable securities from account of the broker or a dealer to the accounts of the clients. Stuffing allows the broker or the dealer firms to avoid taking of the losses on the securities which are expected to decline in the value in the near future. Instead, the client accounts take those losses. Stuffing can also be used as a means to raise the cash quickly when securities are relatively not illiquid & they are difficult to sell in the market.
Stuffing is widely regarded as an unethical thing. Still it is very difficult to prove whether or not such transactions constitute as a fraud. Most of the times, the brokers & the dealers are given an authority which gives them the power of buying & selling of the securities without the consent of the client for the discretionary accounts. Furthermore, also the legal standard for this type of the brokers & dealers buying securities of these accounts is the suitability.
The suitability as a word can be broadly interpreted & it is very difficult to define it in the particular words. Now because those discretionary accounts give the brokers & the dealers so much of the power, the financial advisors now a days suggest that the customers must insist them to take their consent before carrying out any of the transactions in their accounts. Since, the brokers & the dealers take an undue advantage of the faith of the customers in them, one must be aware of the transactions being carried out into their accounts to save themselves from going into the loss because of their own negligence.