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Series 7 practice questionhardDiscretionary Accounts — Time and Price Exception

A customer instructs his representative: 'Buy 500 shares of Microsoft whenever you think the price is right today.' The representative does not have written discretionary authorization. Is this trade permissible?

  1. ANo, this is an unauthorized exercise of discretion
  2. BYes, because choosing only the time and/or price of execution for a specified security does not constitute discretion, as long as the order is executed by the end of the business day✓ Correct answer
  3. CYes, but only if the representative gets verbal confirmation before executing
  4. DNo, because all customer orders must specify an exact price
Explanation

Why B — Yes, because choosing only the time and/or price of execution for a specified security does not constitute discretion, as long as the order is executed by the end of the business day

Under FINRA rules, if a customer specifies the asset (Microsoft), the action (buy), and the amount (500 shares), leaving only the time and/or price to the representative's judgment, this does not constitute the exercise of discretion. This is known as the 'time and price' exception. However, the order must be executed by the end of the business day on which it is received. If the order is not executed that day, new instructions would be needed.

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