An agent and a customer agree over the phone that the agent will pick the security, the amount, and the action for trades in the account going forward. Before the agent may begin exercising that authority, the customer must provide:
Correct answer: B. Full discretion (choosing the security, the amount, and whether to buy or sell) requires prior written authorization from the customer before the agent exercises it. Acting on full discretion without that written authority is a prohibited practice.
Why not the others?
- A (nothing further, because the oral agreement is sufficient): An oral agreement does not authorize full discretion. Written authorization must be in place first.
- C (a verbal confirmation repeated back on a recorded line): A recorded verbal confirmation is still not written authorization. The standard for full discretion is prior written authority.
- D (written authorization only after the first ten discretionary trades): There is no allowance to exercise full discretion before the written authorization exists. It must precede the discretionary trading.
Discretion is one of the most heavily tested ethics concepts on the Series 63. The bright line is that full discretion (security, amount, and action) needs prior written authority, while limited time-and-price discretion on an order the customer already specified does not.