This is a copy of an email sent by Zecco regarding new policies affecting Penny Stock traders.
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| Policy Changes Impacting “Penny Stock” Trading |
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Dear User,
Penson Financial Services, Zecco Trading’s clearing firm, has recently implemented two new policies which impact Zecco customers who trade low priced equities (stocks priced under $1.00 per share, commonly called “Penny Stocks”). These policy changes were necessary due to the significant risks, costs and increasingly burdensome regulatory requirements related to trading these equities.
Briefly, these policies relate to:
- Settlement fees for non-DTC-eligible equities
- Potential “buy-in” of low priced equity transactions based on NSCC requirements
These new policies impact the customers of all brokers clearing through Penson Financial, including Zecco Trading. Included below is a brief outline of these policies. Please read our Low Priced Equities Disclosures to thoroughly familiarize yourself with all the aspects and implications of the policies.
Settlement Fees for Non-DTC-Eligible Equities
The Depository Trust & Clearing Corporation (DTC) provides electronic clearing and settlement for equities, bonds and other securities. The vast majority of equities traded by Zecco Trading customers are DTC-eligible. However, certain low priced equities are not DTC-eligible or have had their eligibility revoked. The DTC eligibility of any given equity can change over time.
Settlement of non-DTC-eligible requires physical processing, which can result in significant execution, deposit, transfer agent and other fees. The fees generated by the settlement of these physical positions are passed through by our clearing firm, Penson Financial, directly to our customers - neither Zecco Trading nor Penson mark up these fees.
Customers who trade non-DTC-eligible securities are responsible for these fees, which can be as high as $700.00 per trade. Orders that require executions with multiple contra-parties will result in settlement fees for each separate transaction. These charges may not be immediately charged to your account following a trade, as Penson may receive notice of such fees as much as three weeks later. Zecco Trading reserves the right to withhold funds in a customer’s account pending potential assessment of fees.
It is your responsibility to investigate the eligibility status of a low-priced equity before trading it. You may consult the Known Non-DTC Eligible List in our Disclosures Page or contact the specific company whose equity in which you intend to trade to confirm eligibility. Please note that there is no guarantee that the Known Non-DTC Eligible List will contain a complete and updated list of non-DTC-eligible stocks.
Potential Buy-In of Low Priced
Equity Transactions Based on NSCC Requirements
The National Securities Clearing Corporation (NSCC) provides a guarantee of completion for certain transactions for broker-to-broker trades. The NSCC imposes additional deposit requirements on Penson based on the sell volume of low priced equities, in order to limit settlement risk.
When a customer sells more than 25% of the average daily trading volume (ADV) of a single equity in a three-day settlement period, that security may be “bought-in” by Penson up to three business days later without notice. A group of unrelated customers collectively trading more than 25% of a security’s ADV across all brokerages clearing through Penson can also trigger this policy. The ADV is calculated over the last rolling 20 business days.
Although this occurrence is rare, customers selling low priced equities must be aware of the risk a buy-in would occur without notice.
Low Price Equity FAQs
We apologize for any inconvenience due to these industry-related changes. If you have additional questions, please do not hesitate to contact us at 877-700-STOCK (7862) and a representative will be happy to assist you.
Sincerely,
Thomas Boykin
Manager, Trading and Risk Operations
Zecco Trading, Inc. |
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