Margin Disclosure Statement
Your brokerage firm is furnishing this document to you to provide some basic facts about purchasing securities on margin, and to alert you to the risks involved with trading securities in a margin account. Before trading stocks in a margin account, you should carefully review the margin agreement provided by your firm. Consult your firm regarding any questions or concerns you may have with your margin accounts.
When you purchase securities, you may pay for the securities in full or you may borrow part of the purchase price from your brokerage firm. If you choose to borrow funds from your firm, you will open a margin account with the firm. The securities purchased are the firm’s collateral for the loan to you. If the securities in your account decline in value, so does the value of the collateral supporting your loan, and, as a result, the firm can take action, such as issue a margin call and/or sell securities or other assets in any of your accounts held with the member, in order to maintain the required equity in the account.
It is important that you fully understand the risks involved in trading securities on margin. These risks include the following:
You can lose more funds than you deposit in the margin account. A decline in the value of securities that are purchased on margin may require you to provide additional funds to the firm that has made the loan to avoid the forced sale of those securities or other securities or assets in your account(s).
The firm can force the sale of securities or other assets in your account(s). If the equity in your account falls below the maintenance margin requirements, or the firm’s higher “house” requirements, the firm can sell the securities or other assets in any of your account held at the firm to cover the margin deficiency. You also will be responsible for any short fall in the account after such a sale.
The firm can sell your securities or other assets without contacting you. Some investors mistakenly believe that a firm must contact them for a margin call to be valid, and that the firm cannot liquidate securities or other assets in their accounts to meet the call unless the firm has contacted them first. This is not the case. Most firms will attempt to notify their customers of margin calls, but they are not required to do so. However, even if a firm has contacted a customer and provided a specific date by which the customer can meet a margin call, the firm can still take necessary steps to protect its financial interests, including immediately selling the securities without notice to the customer.
You are not entitled to choose which securities or other assets in your account(s) are liquidated or sold to meet a margin call. Because the securities are collateral for the margin loan, the firm has the right to decide which security to sell in order to protect its interests.
The firm can increase its “house” maintenance margin requirements at any time and is not required to provide you advance written notice. These changes in firm policy often take effect immediately and may result in the issuance of a maintenance margin call. Your failure to satisfy the call may cause the member to liquidate or sell securities in your account(s).
You are not entitled to an extension of time on a margin call. While an extension of time to meet margin requirements may be available to customers under certain conditions, a customer does not have a right to the extension.
Boustead Securities, LLC (“BSL”) is a FINRA registered broker-dealer providing brokerage services to its customers. Accordingly, the Firm is furnishing this document to all clients to provide information about its efforts to ensure that BSL securities operations will not be significantly impacted as a result of an emergency or significant business disruption.
Securities Industry regulations require each member firm to create and maintain a business continuity plan reasonably designed to meet its obligations to its clients or other counter-parties. In accordance with these requirements, BSL has designed a business continuity plan to address possible scenarios in efforts to minimize any service impact to our clients.
In keeping with the regulatory requirements, the business continuity plan for BSL is designed to address key areas of concern – including but not limited to the following:
Data back-up and recovery
All mission critical systems
Financial and operational assessments
Alternate means of communication between MBA and its customers
Alternate means of communication between MBA and its employees
Alternate physical locations of employees
Critical business constituent, bank and counter-party impact
Communications with regulators; and
How BSL will ensure that customers have access to their funds and securities in the event that BSL determines it is unable to continue its business. Since events creating business disruptions may vary in nature and scope, BSL has anticipated scenarios in which the following are affected:
A disruption to BSL’s primary or main office location
A disruption to a single building in which MBA’s main office is located
A disruption to the business district or city where MBA’s primary systems are located
A disruption to the region where MBA’s primary systems are locate
Regardless of the scope of potential disruption, BSL intends to continue to provide service to its clients.
A Disruption to the Firm and/or Single Building
In the event that there is a significant business disruption to the firm and/or the building in which the Firm is located, BSL has duplicative systems that will be operated from a separate back-up (“alternate”) site. This disruption may be caused by physical damage, technology problems, or an inability to have personnel arrive at the office. As such, BSL will transfer its securities operations to one or more designated alternate site(s) located in the same city or in adjoining cities that are sufficiently separated from BSL’s main operations. The alternate site will be used to restore internal operations as well as electronic access and communications as soon as key employees are relocated to the designated sites. In this process, Clients may experience a minor delay in reaching BSL due to increased telephone calls, technology delays, or other minor difficulties arising from the transfer of operations. BSL expects that any delay will be less than twelve (12) hours. Nevertheless, the unlikely failure of the telephone or other ancillary communication systems could result in a delay of up to twenty-four (24) hours.
A Business-District, Citywide, or Regional Disruption
In the event there is a significant business disruption that affects the business district or city where any of BSL’s primary systems are located, BSL will transfer operations to its designated back-up (“alternate”) site located in separate and distinct business district and city from BSL’s main operations (see Alternate Location). The alternate site will be used to restore internal operations as soon as key employees are relocated to the site.
In the event of a significant business disruption to the region where BSL’s primary systems are located, BSL would intend to take advantage of any available branch or other facilities that may be located in other geographical regions to use in limited capacity to resume operations temporarily (see Alternate Location). As a secondary back-up, BSL may enter into a “BCP Joint Pact” with another broker-dealer or similar firm that currently operates in an adjoining region that will effectively leverage the use of technology and infrastructure to continue operations. Under the BCP Joint Pact, the selected firm will be determined as sufficiently capable to operate as a designated back-up facility. In this process, Clients may experience minor delays in reaching BSL due to increased telephone calls, technology delays, or other minor difficulties arising from the transfer of operations. BSL expects that any delay will be less than 24 hours.
Nevertheless, there can be no assurance that service will continue without interruption in certain circumstances, such as a regional blackout, a natural disaster or a terrorist attack. However, in the unlikely event that BSL has determined that it cannot resume operations within a reasonable amount of time; it will provide as much advance notice as possible regarding its ongoing operations.
Please be advised that the BSL BCP is reviewed and updated on an annual basis and subject to change and modification. Therefore, any changes and updated information will be promptly sent to customers. Alternatively, customers may obtain a copy of BSL business continuity plan by requesting a written copy in writing.
Additionally, our primary internal and external application and service providers periodically conduct testing of their own back-up capabilities to ensure that, in the event of an emergency or significant business disruption, they will be able to provide us with the critical information and applications we need to continue or promptly resume our business.
Making sure that any type of disruption does not unduly impact our clients is extremely important to us, and our business continuity plan is designed to allow us to continue to provide the quality service to all of our clients.
Day-Trading Risk Disclosure Statement
You should consider the following points before engaging in a day-trading strategy. For purposes of this notice, a “day-trading strategy” means an overall trading strategy characterized by the regular transmission by a customer of intra-day orders to effect both purchase and sale transactions in the same security or securities.
Day trading can be extremely risky. Day trading generally is not appropriate for someone of limited resources and limited investment or trading experience and low risk tolerance. You should be prepared to lose all of the funds that you use for day trading. In particular, you should not fund day-trading activities with retirement savings, student loans, second mortgages, emergency funds, funds set aside for purposes such as education or home ownership, or funds required to meet your living expenses. Further, certain evidence indicates that an investment of less than $50,000 will significantly impair the ability of a day trader to make a profit. Of course, an investment of $50,000 or more will in no way guarantee success.
Be cautious of claims of large profits from day trading. You should be wary of advertisements or other statements that emphasize the potential for large profits in day trading. Day trading can also lead to large and immediate financial losses.
Day trading requires knowledge of securities markets. Day trading requires in-depth knowledge of the securities markets and trading techniques and strategies. In attempting to profit through day trading, you must compete with professional, licensed traders employed by securities firms. You should have appropriate experience before engaging in day trading.
Day trading requires knowledge of a firm’s operations. You should be familiar with a securities firm’s business practices, including the operation of the firm’s order execution systems and procedures. Under certain market conditions, you may find it difficult or impossible to liquidate a position quickly at a reasonable price. This can occur, for example, when the market for a stock suddenly drops, or if trading is halted due to recent news events or unusual trading activity. The more volatile a stock is, the greater the likelihood that problems may be encountered in executing a transaction. In addition to normal market risks, you may experience losses due to system failures.
Day trading will generate substantial commissions, even if the per trade cost is low. Day trading involves aggressive trading, and generally you will pay commissions on each trade. The total daily commissions that you pay on your trades will add to your losses or significantly reduce your earnings. For instance, assuming that a trade costs $16 and an average of 29 transactions are conducted per day, an investor would need to generate an annual profit of $111,360 just to cover commission expenses.
Day trading on margin or short selling may result in losses beyond your initial investment. When you day trade with funds borrowed from a firm or someone else, you can lose more than the funds you originally placed at risk. A decline in the value of the securities that are purchased may require you to provide additional funds to the firm to avoid the forced sale of those securities or other securities in your account. Short selling as part of your daytrading strategy also may lead to extraordinary losses, because you may have to purchase a stock at a very high price in order to cover a short position.
Potential Registration Requirements. Persons providing investment advice for others or managing securities accounts for others may need to register as either an “Investment Advisor” under the Investment Advisors Act of 1940 or as a “Broker” or “Dealer” under the Securities Exchange Act of 1934. Such activities may also trigger state registration requirements.
Penny Stock Disclosure Statement
This statement is required by the U.S. Securities and Exchange Commission (SEC) and contains important information on penny stocks. You are urged to read it before making a purchase or sale.
Penny stocks can be very risky.
Penny stocks are low-priced shares of small companies not traded on an exchange or quoted on NASDAQ. Prices often are not available. Investors in penny stocks often are unable to sell stock back to the dealer that sold them the stock. Thus, you may lose your investment. Be cautious of newly issued penny stock.
Your salesperson is not an impartial advisor but is paid to sell you the stock. Do not rely only on the salesperson, but seek outside advice before you buy any stock. If you have problems with a salesperson, contact the firm’s compliance officer or the regulators listed below.
Information you should get.
Before you buy penny stock, [effective January 1, 1993] federal law requires your salesperson to tell you the “offer” and the “bid” on the stock, and the “compensation” the salesperson and the firm receive for the trade. The firm also must mail a confirmation of these prices to you after the trade.
You will need this price information to determine what profit, if any, you will have when you sell your stock. The offer price is the wholesale price at which the dealer is willing to sell stock to other dealers. The bid price is the wholesale price at which the dealer is willing to buy the stock from other dealers. In its trade with you, the dealer may add a retail charge to these wholesale prices as compensation (called a “markup” or “mark-down”).
The difference between the bid and the offer price is the dealer’s “spread.” A spread that is large compared with the purchase price can make a resale of a stock very costly. To be profitable when you sell, the bid price of your stock must rise above the amount of this spread and the compensation charged by both your selling and purchasing dealers. If the dealer has no bid price, you may not be able to sell the stock after you buy it, and may lose your whole investment.
Brokers’ duties and customer’s rights and remedies.
If you are a victim of fraud, you may have rights and remedies under state and federal law. You can get the disciplinary history of a salesperson or firm from FINRA at 1-800-289-9999, and additional information from your state securities official, at the North American Securities Administrators Association’s central number: (202) 737-0900. You also may contact the SEC with complaints at (202) 272-7440.
FURTHER INFORMATION THE SECURITIES BEING SOLD TO YOU HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION. MOREOVER, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT PASSED UPON THE FAIRNESS OR THE MERITS OF THIS TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN ANY PROSPECTUS OR ANY OTHER INFORMATION PROVIDED BY AN ISSUER OR A BROKER OR DEALER.
Generally, penny stock is a security that:
Is priced under five dollars;
Is not traded on a national stock exchange;
May be listed in the “pink sheets” or the OTC Bulletin Board;
Is issued by a company that has less than $5 million in net tangible assets and has been in business less than three years, by a company that has under $2 million in net tangible assets and has been in business for at least three years, or by a company that has revenues of $6 million for 3 years.
Use caution when investing in penny stocks:
1. Do not make a hurried investment decision. High-pressure sales techniques can be a warning sign of fraud. The salesperson is not an impartial advisor, but is paid for selling stock to you. The salesperson also does not have to watch your investment for you. Thus, you should think over the offer and seek outside advice. Check to see if the information given by the salesperson differs from other information you may have. Also, it is illegal for salespersons to promise that a stock will increase in value or is risk-free, or to guarantee against loss. If you think there is a problem, ask to speak with a compliance official at the firm, and, if necessary, any of the regulators referred to in this statement.
2. Study the company issuing the stock. Be wary of companies that have no operating history, few assets, or no defined business purpose. These may be sham or “shell” corporations. Read the prospectus for the company carefully before you invest. Some dealers fraudulently solicit investors’ money to buy stock in sham companies, artificially inflate the stock prices, then cash in their profits before public investors can sell their stock.
3. Understand the risky nature of these stocks. You should be aware that you may lose part or all of your investment. Because of large dealer spreads, you will not be able to sell the stock immediately back to the dealer at the same price it sold the stock to you. In some cases, the stock may fall quickly in value. New companies, whose stock is sold in an “initial public offering,” often are riskier investments. Try to find out if the shares the salesperson wants to sell you are part of such an offering. Your salesperson must give you a “prospectus” in an initial public offering, but the financial condition shown in the prospectus of new companies can change very quickly.
4. Know the brokerage firm and the salespeople with whom you are dealing. Because of the nature of the market for penny stock, you may have to rely solely on the original brokerage firm that sold you the stock for prices and to buy the stock back from you. Ask the Financial Industry Regulatory Authority (FINRA) or your state securities regulator, which is a member of the North American Securities Administrators Association, Inc. (NASAA), about the licensing and disciplinary record of the brokerage firm and the salesperson contacting you. The telephone numbers of FINRA and NASAA are listed on the first page of this document. -
5. Be cautious if your salesperson leaves the firm. If the salesperson who sold you the stock leaves his or her firm, the firm may reassign your account to a new salesperson. If you have problems, ask to speak to the firm’s branch office manager or a compliance officer. Although the departing salesperson may ask you to transfer your stock to his or her new firm, you do not have to do so. Get information on the new firm. Be wary of requests to sell your securities when the salesperson transfers to a new firm. Also, you have the right to get your stock certificate from your selling firm. You do not have to leave the certificate with that firm or any other firm.
Disclosures to you. Under penalty of federal law, [effective January 1, 1993] your brokerage firm must tell you the following information at two different times—before you agree to buy or sell a penny stock, and after the trade, by written confirmation:
The bid and offer price quotes for penny stock, and the number of shares to which the quoted prices apply. The bid and offer quotes are the wholesale prices at which dealers trade among themselves. These prices give you an idea of the market value of the stock. The dealer must tell you these price quotes if they appear on an automated quotation system approved by the SEC. If not, the dealer must use its own quotes or trade prices. You should calculate the spread, the difference between the bid and offer quotes, to help decide if buying the stock is a good investment.
A lack of quotes may mean that the market among dealers is not active. It thus may be difficult to resell the stock. You also should be aware that the actual price charged to you for the stock may differ from the price quoted to you for 100 shares. You should therefore determine, before you agree to a purchase, what the actual sales price (before the markup) will be for the exact number of shares you want to buy.