When a broker fails to execute a buy or sell order from a customer, the broker may be liable to the customer under several different legal theories, including negligence, breach of fiduciary duty, and/or breach of contract.
“A duty of reasonable care applies to the broker’s performance of its obligations to customers with nondiscretionary accounts.” Broker’s liability for failure to execute customer’s orders, 11 NY Jur Brokers § 110. It follows that, “[o]nce an order for the sale of securities is accepted, the broker is liable for the resultant loss if the broker fails to execute it in accordance with instructions given.” Id. In such a case, damages are measured by the “difference between the price at which the customer could have executed the trade were it not for the broker’s failure to carry it out, and the price at which the customer could have executed the transaction within a reasonable time after learning that it had not been carried out earlier.” Id.
Breach of Fiduciary Duty
A securities broker owes fiduciary duties of diligence and competence in executing its customers’ trade orders. De Kwiatkowski v. Bear, Stearns & Co., Inc., 306 F.3d 1293, 1302 (2d Cir. 2002); Anspacher & Assocs., Inc. v. Henderson, 854 F.2d 941, 945 (7th Cir. 1988). Failure to execute a customer’s order faithfully is a breach of fiduciary duty. Id.
Breach of Contract
A broker’s failure to execute a sale order may give rise to a breach of contract claim. 7 P.L.E. BROKERS § 42 (2018). “The measure of damages for a stockbroker’s breach of contract by failing to sell the principal’s stock when ordered to do so is the difference between the price at which it was stipulated the stock should be sold, or the value of the stock on the day it should have been sold, and the price finally received, plus interest, less the broker’s commission.” Id.
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