General Securities Sales Supervisor (Series10) Practice Exam

In which situation is it necessary for a corporation to have the annual consent of the customer?

1. For all purchase orders

2. For transactions exceeding $1 million

3. For VWAP transactions

4. For insider trading compliance

The correct answer is: For VWAP transactions

In the context of securities transactions, the requirement for a corporation to obtain the annual consent of the customer is particularly relevant for Volume Weighted Average Price (VWAP) transactions. VWAP is a trading benchmark that traders use to measure execution quality. It is calculated by taking the average price a stock has traded at throughout the day, based on both volume and price. Having the annual consent of the customer is critical for VWAP transactions because these transactions may involve multiple or complex orders that aggregate at the average price over a specified period. The consent ensures that customers are fully aware of the method used for pricing these transactions and are in agreement with the trading strategy being employed. Without this consent, there would be a lack of transparency and potentially, the risk of misalignment with the customer's expectations regarding pricing. In contrast, the other options do not necessitate annual customer consent on the same scale. For instance, all purchase orders and transactions exceeding certain monetary thresholds might have other forms of customer agreement or compliance, but they do not specifically require annual consent in the same way that VWAP does. Insider trading compliance focuses on adhering to legal and regulatory standards regarding the use of non-public information, rather than an ongoing consent framework from customers. Therefore, annual consent is uniquely pertinent