General Securities Sales Supervisor (Series10) Practice Exam

What is the purpose of an "assignment and power of substitution" document?

1. To appoint a third party to have trading authority

2. To transfer a personal interest in a security to a third party

3. To provide discretion in a brokerage account

4. To validate a mutilated security certificate

The correct answer is: To transfer a personal interest in a security to a third party

The "assignment and power of substitution" document primarily serves to transfer a personal interest in a security to a third party. This document is typically used when an individual wishes to assign their rights or ownership of a security, allowing someone else to take over those rights. This process is crucial in securities transactions as it aids in ensuring that the new party has the legal authority to act on behalf of the original owner regarding that security. While appointing a third party to have trading authority could involve aspects of an assignment, it does not fully capture the essence of the document's primary purpose, which focuses more specifically on the transfer of ownership. Providing discretion in a brokerage account pertains to investment management rather than the transfer of interest in a security. Validating a mutilated security certificate is a distinct process that involves confirming the authenticity of a damaged security, which is unrelated to assigning ownership or interest through a power of substitution. Thus, the most accurate understanding of the document's function aligns with the transfer of ownership.