Unauthorized Trading
Executing a trade in a customer's account without the customer's permission and without written discretionary authority — including 'one free trade' a rep expects the customer to ratify later.
The exam loves the “one free trade” fact pattern: a rep buys a stock without asking, planning to call the customer afterward for a thumbs-up. Pick unauthorized trading even if the trade made money and even if the customer later approves — after-the-fact ratification does not cure it. The tell is timing: consent (or written discretion) must exist before the order is entered. A verbal “buy what you think is good” is still unauthorized, because choosing the security, amount, or action requires written discretionary authorization (a customer may verbally delegate only time or price on an order they already specified).
Don’t confuse it with its neighbors. Churning needs control plus excessive activity for commissions; unauthorized trading can be a single trade and needs neither control nor a profit motive. A discretionary account is the lawful version — prior written authority makes the same trade fine. And a customer’s written objection becomes a reportable customer complaint. Memory hook: no signature, no discretion — discretion lives on paper, not in conversation.
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