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Fast Markets Important Notice: Please take the time to read the information below. If you’re unsure about the risks of a fast market and how they may affect a particular trade you’re considering, you may want to place your trade through a phone agent at Higher Margin Maintenance Requirements on Volatile Issues Wide price swings in intra-day trading have caused our clearing broker to impose higher margin maintenance requirements for certain stocks, specifically Internet, e-commerce and high-tech issues. Due to their high volatility, some of these stocks will have an initial and a maintenance requirement of up to 70%. Stocks may be added to this list daily based on market conditions. Please call Please note: This higher margin requirement applies to both new purchases and current holdings. A change in the margin requirement for a current holding may result in a margin maintenance call on your account. Fast Markets A fast market is characterized by heavy trading and highly volatile prices. These markets are often the result of an imbalance of trade orders, for example: many “buys” and few “sells.” Many kinds of events can trigger a fast market, for example a highly anticipated Initial Public Offering (IPO), an important company news announcement, or a favorable analyst recommendation. Remember, fast market conditions can affect your trades regardless of whether they are placed with an agent or over the internet. Real-Time Price Quotes May Not Be Accurate Prices and trades move so quickly in a fast market that there can be significant price differences between the quotes you receive one moment and the next. Even “real-time quotes” can be far behind what is currently happening in the market. The size of a quote, meaning the number of shares available at a particular price, may change just as quickly. A real-time quote for a fast moving stock may be more indicative of what has already occurred in the market rather than the price you will receive. Your Execution Price and Orders Ahead In a fast market, orders are submitted to market makers and specialists at such a rapid pace that a backlog may build up which can create significant delays. Market makers may execute orders manually or reduce size guarantees during periods of volatility. When you place a market order, your order is executed on a first-come first-served basis. This means if there are orders ahead of yours, those orders will be executed first. The execution of orders ahead of yours can significantly affect your execution price. Your submitted market order cannot be changed or canceled once the order has been executed. Initial Public Offerings IPOs for some Internet, e-commerce and high tech issues may be particularly volatile as they begin to trade in the aftermarket. Customers should be aware that Large Orders in Fast Markets Large orders are often filled in smaller blocks. An order for 10,000 shares will sometimes be executed in two blocks of 5,000 shares each. In a fast market, when you place an order for 10,000 shares and the real-time market quote indicates there are 15,000 shares at 5, you would expect your order to execute at 5. This may not reflect the state of the market at the time your order is received by the market maker or specialist. Once the order is received, it is executed at the best prices available, depending on how many shares are offered at each price. Volatile markets may also cause the market maker to reduce the size of guarantees. This could result in a large order being filled in unexpected smaller blocks and at significantly different prices. For example: an order for 10,000 shares could be filled as 2,500 shares at 5 and 7,500 shares at 10, even though you received a real-time quote indicating that 15,000 shares were available at 5. In this example, the market moved significantly from the “real-time” market quote received at the time the order was submitted. Internet Trading and Duplicate Orders Because fast markets can cause significant delays in the execution of a trade, you may be tempted to cancel and resubmit your order. Please consider these delays before canceling or changing your market order, and then resubmitting it. There is a chance that your order may have already been executed, but due to delays at the exchange, not yet reported. When you cancel or change and then resubmit a market order in a fast market, you run the risk of having duplicate orders executed. Limit Orders Can Limit Risk A limit order establishes a “buy price” at the maximum you’re willing to pay, or a “sell price” at the lowest you are willing to receive. Placing limit orders instead of market orders can reduce your risk of receiving an unexpected execution price. A limit order does not guarantee your order will be executed – however, it does guarantee you will not pay a higher price or receive a lower price than you expected. Telephone and Online Access During Volatile Markets During times of high market volatility, customers may experience delays with the System response times may vary due to a variety of factors, including but not limited to, trading volumes, market conditions, and system performance. It is possible that losses may be suffered due to difficulty in accessing accounts, high Internet traffic, or extended wait times for speaking to a telephone agent. Freeriding is Prohibited Another activity related to fast moving markets is day trading. This is the practice of buying and selling a security in the same day. There is no prohibition against day trading, however you must avoid freeriding. Freeriding occurs when a customer buys a security and sells it high, seeking to use the proceeds of its sale to pay for the original purchase of the security. To avoid freeriding, the funds for the original purchase of the security must come from some other source. Freeriding violates Regulation T of the Federal Reserve Board concerning the extension of credit by the broker-dealer (WRH+Co and Pershing, LLC.) to its customers. The penalty requires that the customer’s account be frozen for 90 days. |