What does "Selling Away" Mean?

Malcolm Tatum

"Selling away" is a term that is used to describe situations in which a broker-dealer attempts to convince a client to purchase securities that are currently not offered by or in the possession of the brokerage. In many cases, the securities in question are either private placements or some other type of non-public investments. Depending on the nature of the deal itself, selling away may or may not be in line with current governmental regulations regarding the trading of securities.

Man climbing a rope
Man climbing a rope

One of the questionable aspects of selling away is that the business deal is generally not authorized by the firm that employs the broker. For the investor, this means that the usual system of checks and balances within the brokerage that protects the interests of the investor are less likely to apply to the transaction. This adds an additional level of risk to the investor, since the normal avenues of recourse used to resolve issues with transactions may or may not be available. Brokers who indulge in selling away do have the ability to collect commissions on the trade that do not have to be shared with the brokerage firm, but generating income in this manner also comes with some risks.

In many nations, the practice of selling away is closely regulated. This is especially true when there are restrictions on how brokers may legally operate. In nations that require brokers to be associated with only one brokerage firm, the practice of selling away is often considered to be both illegal as well as inappropriate behavior on the part of the broker. Depending on the severity of the trading laws, a broker found guilty of indulging in selling away incur heavy fines or possibly some sort of legal action that could involve jail time. In addition, the broker may lose his or her trading privileges as well as the position with the brokerage firm.

There are inherent dangers involved with selling away. Investors run the risk of losing their initial investment, since the deal has not been subjected to the rigid qualification process that most brokerages use before making an investment opportunity available to clients. This means there is an increased chance of investors sinking money into a venture, only to have the debtor stop paying interest at some point and vanish with the cash. For this reason, a number of countries monitor any trading activities that appear to be examples of selling away and will often attempt to step in as soon as it is clear that an unauthorized trade has taken place.

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