Discretionary Authority
Chapters in this video
- 0:00 The AAA memory aid: asset, action, amount
- 1:11 When a broker-dealer agent exercises discretion: Iris and Erin
- 3:06 The Great Divide: broker-dealer versus investment adviser rules
- 5:30 Exceeding the scope and unauthorized trading
- 6:51 Stan the state administrator and churning
- 7:52 Rapid-fire exam recap
What this video covers
- The three elements of the AAA framework (asset, action, amount), and why missing any one means discretion exists
- Why time-and-price direction alone is not discretion, and how a "not held" order differs from a discretionary order
- The hard rule that a broker-dealer or agent must obtain written discretionary authorization before the first trade, with no oral grace period
- The narrow exception allowing an investment adviser to act on oral authority for the first discretionary trade, then obtain written authorization within 10 business days
- What happens when an agent exceeds the scope of granted discretionary authority, and why that constitutes unauthorized trading
- The heightened supervisory obligations brokerage firms must maintain over discretionary accounts, including principal review and written procedures
- How churning is defined and why it is the signature abuse regulators look for in discretionary accounts
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