Securities Industry Essentials (SIE) ExamUnderstanding Trading, Customer Accounts, and Prohibited ActivitiesMedium
Which of the following would be considered a 'third-party' account, requiring specific authorization for trading?
- AA joint tenants with right of survivorship (JTWROS) account.
- BAn individual account where the owner is a minor.
- CA corporate account managed by its CFO.
- DAn individual account where a spouse has trading authority.
Show answer & explanationAnswer & explanation
Correct answer: D. An individual account where a spouse has trading authority.
A third-party account is one where someone other than the primary account holder has trading authority. In an individual account, if a spouse (or anyone else) has trading authority, they are considered a third party and require a written power of attorney. JTWROS involves co-owners, a minor's account is a custodial account, and a CFO managing a corporate account is acting on behalf of the legal entity, not as a third party to an individual.
Why the other options are wrong
- A. JTWROS accounts are co-owned, and each owner typically has trading authority, not a third party.
- B. A minor's account (UGMA/UTMA) is managed by a custodian, who is the account controller, not a third party to the minor in the sense of trading authorization.
- C. A CFO acts as an authorized agent of the corporation, which is the legal client, not a third party to an individual.
Third-Party Trading Authority
Permission granted by an account owner to another individual (a 'third party') to place trades in their account. This requires a written Power of Attorney (POA).
- Requires written Power of Attorney (POA).
- Can be full (discretionary) or limited.
- Must be kept on file by the broker-dealer.
- Expires upon death of the account holder.
Memory trick: Third-party: 'T'rust 'P'ower 'A'uthority.