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← Series 7: Opens & Maintains Customer Accounts
Series 7 practice questionmediumDiscretionary Accounts — What Constitutes Discretion

A customer calls her representative and says, 'Buy me 200 shares of some tech stock you think is good.' If the representative selects the specific stock and executes the trade, has the representative exercised discretion?

  1. ANo, because the customer specified the quantity and type of security
  2. BYes, because the representative chose the specific security (the asset), which constitutes discretion✓ Correct answer
  3. CNo, because the customer initiated the call
  4. DYes, but only if the trade loses money
Explanation

Why B — Yes, because the representative chose the specific security (the asset), which constitutes discretion

Discretion is exercised when a representative determines any of the three key elements of a trade: the asset (which security), the action (buy or sell), or the amount (how many shares or how much money). In this case, although the customer specified the action (buy), the amount (200 shares), and the general type (tech stock), the representative selected the specific security, which constitutes exercising discretion. Written discretionary authorization is required for this type of order.

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