Securities Industry Essentials (SIE) ExamUnderstanding Trading, Customer Accounts, and Prohibited ActivitiesMedium
A registered representative receives an order from a client to purchase 1,000 shares of XYZ stock. The client states, 'Buy me 1,000 shares of XYZ whenever you think the time is right today.' Which type of authority is the client granting?
- AAsset and action discretion
- BFull discretionary authority
- CLimited trading authorization
- DTime and price discretion
Show answer & explanationAnswer & explanation
Correct answer: D. Time and price discretion
The client has specified the asset (XYZ stock) and the action (buy 1,000 shares). They have left the decision of when (time) and at what price to execute the order to the registered representative's discretion. This is known as time and price discretion, which does not require written authorization and is valid only for the day the order is placed.
Why the other options are wrong
- A. Asset and action discretion would imply the RR can choose the security and whether to buy/sell, which is not the case here.
- B. Full discretionary authority would allow the RR to determine asset, action, quantity, time, and price, which requires written authorization.
- C. Limited trading authorization is a broader term for discretionary accounts, which requires written consent and covers more than just time/price.
Time and Price Discretion
Occurs when a client gives a registered representative discretion over only the time and/or price of an order. The asset and action (buy/sell) must be specified by the client. This type of discretion does not require written authorization and is valid only for the day it is granted.
- Client specifies asset and action.
- RR chooses time and/or price.
- No written authorization required.
- Valid for the day only.
Memory trick: Discretion: Who decides What, How Much, When, and Price?