Discretionary Trading
Dealers are not allowed to make discretionary trades unless the customer clearly permits it in writing ahead of time and unless the trade has been determined to be suitable for the customer’s needs. Typically, a customer will provide written discretionary authorization to the representative, so that written permission is not required before each transaction.
A discretionary trade is one in which the dealer has been given authority to select one or more of the following order-related items without approval from the client:
• Action: whether to buy or sell
• Asset: the asset to be bought or sold
• Amount: the amount to be bought or sold
Example: If a customer with an account containing a variety of securities instructs a dealer, “Sell $100,000 of my portfolio,” the dealer would be required to have discretionary authority. The customer has only specified the action and the amount, requiring the dealer to select the securities.
Example: If a customer calls her broker and as