Quick Answer
Full discretionary authorization lets a representative decide what to buy or sell, and how much, but needs the customer's prior written authorization, the firm's written acceptance, and a principal's written approval of each order. Limited time-and-price discretion needs none of that, but expires at the end of the business day unless extended in writing.
What Does Full Discretionary Authorization Require?
- Full discretionary authorization lets a representative decide what to buy or sell, or how much, in a customer's account without asking the customer before each transaction.
- Before exercising it, the customer must give prior written authorization to a stated individual or individuals, and the firm must accept the account in writing. That written acceptance may be evidenced either by the firm itself or by a partner, officer, or manager the firm has specifically designated for this purpose. The rule names two alternatives, not one.
- Once authorized, the firm or the person it has duly designated must approve each discretionary order promptly in writing, and must review all discretionary accounts at frequent intervals to detect and prevent excessive trading. Here too the rule names two alternative actors.
- No firm may enter transactions in a discretionary account that are excessive in size or frequency given the account's financial resources and character.
Exam Tip: Gotchas
Full discretionary authorization needs three things in writing: the customer's prior authorization to a named individual, the firm's acceptance of the account, and approval of each order. Missing any one of the three is a common exam trap.
Watch who may do the second and third. The rule lets either the firm itself or a partner, officer, or manager it has designated evidence the acceptance and approve each order. An option naming the firm is not wrong for naming the firm.
How Does Limited Time-and-Price Discretion Differ?
| Full discretionary authorization | Limited time-and-price discretion | |
|---|---|---|
| What it covers | Which security, how much, and whether to buy or sell | Only the price at which, or the time when, an order for a definite amount of a specified security is executed |
| Prior written customer authorization, and firm acceptance evidenced by the firm or its designee | Required | Not required |
| Principal order-by-order approval and periodic review | Required | Not required |
| Duration | Ongoing, until the customer revokes it | Expires at the end of the business day the customer granted it, absent a specific written contrary indication signed and dated by the customer |
| Institutional accounts | Not a separate carve-out | The end-of-day limit does not apply to an institutional account acting under valid good-till-cancelled instructions on a not-held basis |
| Order ticket | Not a separate requirement | Any exercise of time-and-price discretion must be reflected on the order ticket |
- Limited time-and-price discretion is discretion as to the price at which, or the time when, an order for a definite amount of a specified security is executed. Because the representative is not choosing the security or the amount, this narrower discretion falls outside the written-authorization, firm-acceptance, and principal-approval steps full discretion requires.
Exam Tip: Gotchas
- Limited time-and-price discretion is not open-ended. Absent a signed, dated, written extension from the customer, it expires at the end of the business day it was granted, and every use of it must appear on the order ticket. An institutional account acting on valid good-till-cancelled instructions on a not-held basis is not bound by that end-of-day cutoff.
What Is the Other Industry Meaning of Full and Limited?
- The phrase describing customer-authorization documentation can also describe the scope of a third-party power of attorney rather than a representative's discretion.
- In common industry usage, a limited trading authorization lets the appointed agent buy and sell in the account but not withdraw cash or securities. A full trading authorization adds the power to withdraw cash or securities from the account.
- No FINRA or SEC rule defines this withdrawal-scope usage. Treat it as industry convention, and treat the discretion split above as the rule-grounded answer.
- The firm must also keep a record of the dated signature of each associated person authorized to exercise discretion in the account, with the same time-and-price carve-out. The account-opening unit covers that record.
Exam Tip: Gotchas
- "Full" and "limited" carry two different meanings on this exam. For a representative's discretion, full means choosing the security and the amount, limited means only time and price. For a third-party agent's power of attorney, limited means trade only, full adds withdrawal. Read which one a question is asking about before answering.
What Should You Check on Exam Day?
- Confirm all three full-discretion requirements are present: written customer authorization, written firm acceptance, and written approval of each order by the firm or its designated principal.
- Check whether discretion is limited to price and time on an already-specified security and amount; if so, none of the three full-discretion steps apply.
- Watch the time-and-price expiration: end of the business day, unless the customer signs and dates a written extension.
- Confirm whether "full" and "limited" describe a representative's discretion or a third-party agent's withdrawal power before answering.