General Securities Sales Supervisor (Series10) Practice Exam

What must a firm do if a trade is designated as discretionary?

1. Label the order ticket as discretionary

2. Obtain client approval for each trade

3. Notify the SEC of the discretionary nature

4. None of the above

The correct answer is: Label the order ticket as discretionary

When a trade is designated as discretionary, it is essential for the firm to label the order ticket as discretionary. This labeling serves several important purposes. First, it provides proper documentation that the trade was made at the discretion of the registered representative, which is crucial for both regulatory compliance and record-keeping. By clearly identifying the nature of the order, the firm also ensures that the responsibilities and authority associated with discretionary trading are transparent, both internally and for any oversight entities. Labeling the order ticket allows for an understanding that the broker has the authority to make decisions on behalf of the client regarding the timing and pricing of the trades, rather than requiring prior client approval for each individual transaction. This is particularly significant in discretionary accounts, as it aligns with the expectations established in the client-broker relationship. Additionally, regulatory bodies and compliance departments rely on the nature of the order being clearly indicated in order to monitor adherence to applicable rules and regulations. The other options presented do not apply as appropriate actions in this context. For example, obtaining client approval for each trade is a characteristic of non-discretionary accounts, and notifying the SEC is not a standard requirement for each discretionary trade. Therefore, labeling the order ticket is the correct and most relevant action for managing