Sharpen your FINRA Series 7 prep with a fresh free question, updated daily.
14 September 2026
Discretionary Accounts and Trading Authorization
Sean Matthews, a registered representative, receives an oral instruction from a long-standing client: "Sean, I want to acquire shares of XYZ Corp. I'm flexible on the exact number of shares, but please purchase them today when you believe the price is most favorable, ensuring the total investment does not exceed $10,000. Proceed with the trade today."
Which of the following actions is REQUIRED for Sean to execute this Series 7 order?
A.Obtain prior written authorization from the client for a discretionary account, and secure principal approval of the account before executing any trades.
B.Execute the trade as time and price discretion, provided the order is entered and a principal reviews and approves the trade promptly after execution but before the end of the day.
C.Execute the trade promptly, then obtain written confirmation from the client within a reasonable timeframe, with a principal reviewing the trade immediately.
D.Obtain principal approval for this specific trade prior to execution, as the client's oral instructions for single-day discretion are permissible if documented immediately.
Rationale:
For an order to be executed without a discretionary account, the client must specify three A's: Action (buy/sell), Asset (specific security), and Amount (number of shares). In this scenario, the client states, 'I'm flexible on the exact number of shares,' which means the 'Amount' is left to Sean's discretion. When a representative has discretion over the amount, asset, or action, it constitutes a full discretionary order. Full discretionary accounts require prior written authorization from the client and prior principal approval of the account before any discretionary trades can be executed. The phrase 'when you believe the price is most favorable, ensuring the total investment does not exceed $10,000. Proceed with the trade today' is secondary; the lack of a specified amount is the critical trigger.
The option suggesting execution as time and price discretion is incorrect because time and price discretion only applies when the client specifies the action, asset, and amount, leaving only the time and/or price to the representative's discretion. Here, the amount is also discretionary. The option regarding obtaining written confirmation after execution is incorrect; written authorization for a discretionary account must be obtained *prior* to the first discretionary trade. The option about obtaining principal approval for this specific trade prior to execution, with oral instructions for single-day discretion, is also incorrect because oral instructions are insufficient for discretion over the amount, and 'single-day discretion' refers specifically to time/price, not quantity.
