A registered representative has written discretionary authorization from a customer. Specific customer approval is needed for which transaction?

• A. Sell naked calls
• B. Purchase a municipal bond where the broker-dealer has a control relationship with the issuer
• C. Purchase a municipal bond where the broker-dealer is a market maker in the security
• D. Sell covered calls

Answer: (B)

When a registered representative has discretionary authority, they can place trades for the client, but certain arrangements create conflicts that require the client’s explicit consent. If the broker-dealer has a control relationship with the issuer, the client must specifically approve any purchase of that issuer’s municipal securities. The control relationship can give the dealer ties to the issuer that might influence pricing or allocation, so the client’s informed consent is required before such a purchase is made.

The other scenarios don’t involve that required conflict disclosure in the municipal-securities context. Being a market maker in a bond or engaging in options-style transactions isn’t, by itself, the type of relationship that mandates pre-trade client approval under these rules.