Discretionary Accounts: Written Power of Attorney vs. Time/Price Discretion
A client calls their registered representative at 9:45 a.m. and states: 'Buy 500 shares of Microsoft (MSFT) today whenever you feel the price is best.' The representative executes the purchase of 500 shares of MSFT at 1:30 p.m. at $415 per share. The client did not provide prior written discretionary authorization. Has the representative violated FINRA rules?
Time and price discretion (deciding WHEN or at WHAT PRICE to execute a specific stock and quantity) requires only oral consent for that trading day.
Complete Analysis & Legal Rationale
Under FINRA Rule 3260, discretionary trading requires prior written authorization from the customer and written approval by a registered principal. However, an order is NOT considered discretionary if the customer specifies the 'Triple A' criteria: Action (Buy or Sell), Asset (e.g., MSFT), and Amount (e.g., 500 shares). If the customer specifies Action, Asset, and Amount, but leaves Time and Price to the representative's judgment, the order is a time/price exception. This oral authority is valid ONLY for the day the order was given (a day order).
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Fails to recognize the standard statutory exception for time and price discretion on day orders.
Because the client specified Buy, MSFT, and 500 shares, selecting time and price during that trading day is completely lawful without written POA.
Time/price orders are valid for the entire trading day; there is no two-hour limit.
Form 13F is a quarterly institutional holdings report for managers with >$100M in equities, completely unrelated to daily retail trade execution.
Official Standard: Governs written discretionary authorizations and codifies the oral day-order exception for time and price discretion.