Required Approvals and Documentation

Now that you understand how the supervisory system is structured, this section covers the specific approvals required when customers open and operate accounts, plus the added scrutiny that certain account types trigger.

Who Approves a New Account, and What Do They Check?

• All new customer accounts must be approved by a registered principal, typically at the Office of Supervisory Jurisdiction (OSJ) level
• The principal reviews the new account form for:
  • Completeness: all required fields filled
  • Accuracy: information appears consistent and reasonable
  • Appropriateness: the account type suits the customer
• Approval must be documented in writing (signature, initials, or electronic equivalent) with the date recorded

Which Account Types Need Heightened Approval?

Certain account types carry additional risk and require specialized principal approval beyond the standard new account process:

Exam Tip: Gotchas

• Options accounts are approved by the branch office manager, a Registered Options Principal (ROP), or a Limited Principal-General Securities Sales Supervisor (GSSS). A Series 24 general securities principal alone is not among those roles. If the branch office manager holds neither the ROP nor the GSSS qualification, the account approval must go to an ROP or GSSS within 10 business days.
• Margin accounts require both principal approval AND signed agreements (margin agreement + hypothecation consent). Approval alone is not enough.
• Day-trading accounts require delivery of a written risk disclosure; a verbal warning does not satisfy the requirement.

What Extra Scrutiny Applies to Discretionary Accounts?

Discretionary accounts receive the most scrutiny because the representative is making investment decisions on behalf of the customer:

• The customer must give prior written authorization to a stated individual
• The account must be accepted by a principal in writing
• Each discretionary order must be promptly approved in writing by the designated principal
• All discretionary accounts must be reviewed at frequent intervals to detect transactions that are excessive in size or frequency relative to the account's financial resources

Exam Tip: Gotchas

• Discretionary authority requires written authorization BEFORE any discretionary trading begins. The authorization must name a specific individual, and each order still needs prompt principal approval.

When Does Time-and-Price Discretion NOT Require Written Authority?

• Time-and-price discretion means choosing when and at what price to execute a customer's specified order (e.g., "Buy 100 shares of XYZ at the best price today")
• This does not require written discretionary authority, but only if exercised by the end of the business day on which the customer granted it
• If the representative holds the order to the next day, full discretionary authorization is required, unless one of two exceptions applies:
  • The customer gives a specific, written, signed, and dated contrary indication extending it beyond the same day
  • Institutional accounts with valid Good-Till-Cancelled instructions issued on a "not-held" basis may extend time/price discretion beyond the same day
• Every exercise of time-and-price discretion, same-day or under either exception, must be identified on the order ticket

Exam Tip: Gotchas

• Time-and-price discretion is same-day only by default. A customer says "Buy 100 shares of XYZ sometime today at the best price you can get" - no written authority needed. But if the rep waits until tomorrow to execute, that requires full written discretionary authorization, unless the customer already gave a specific written, signed, dated instruction extending it, or the institutional not-held GTC exception applies.
• The institutional carve-out isn't just "GTC instructions"; it specifically requires the instructions to be issued on a not-held basis. A GTC order without that "not-held" designation does not qualify for the extended-discretion exception.

What Approval Does an Account Name or Designation Change Need?

• Changes to the name or designation of any customer account (including related or error accounts) require approval by a registered principal
• The principal must be personally informed of the essential facts behind the change and must approve it in writing before the change takes effect
• The essential facts the principal relied on must themselves be documented in writing and preserved under the same retention rule that governs the firm's other records
• This is a narrower documentation rule than it might sound: the rule itself does not impose a separate customer-verification step for name and designation changes
• This prevents unauthorized transfers or name changes on accounts

Exam Tip: Gotchas

Do not confuse this rule with the separate inspection requirement to verify customer account information changes (address, investment objectives, and similar details) with documented customer confirmation, which is tested when it comes up under internal inspections, not under this account-name-and-designation-change rule. The two rules govern different kinds of changes.

What Should You Check on Exam Day?

• Do you know that new accounts need principal approval documented in writing, and that the review covers completeness, accuracy, and appropriateness of the account type?
• Can you identify who approves an options account (branch manager, ROP, or GSSS, with a 10-business-day backstop) versus who approves a margin account (principal, plus signed agreements)?
• Do you know the difference between discretionary authority (prior written authorization, principal acceptance, prompt written order approval) and time-and-price discretion (no written authority needed, but only until end of business day unless the not-held institutional exception applies)?
• Can you explain that an account name or designation change needs principal approval of the essential facts, without a separate customer-verification step?