Replies to post #314 on Best OTC Brokers (BROKER)

[Yosako]

In a Spanish forum I've already reccommended some guys to stop trading OTC/Pinks and sub $1 stocks for a while until the witch hunt is over. Penson is the one leading the slaughter but it's likely that others follow 'cos the NSCC is behind this. The NSCC illiquid requirement is just plain nuts.

"An NSCC Illiquid Deposit Requirement is applied when a customer sells more than 25% of the average daily trading volume of a security during any three day settlement cycle. The amount of this Deposit Requirement depends on the percentage of the Average Daily Volume represented by the open sales. The Deposit Requirement has very little relation to the value of the trade, and is generally at least ten times the trade value and may be one hundred times the trade value, or even more. This Deposit Requirement is incurred even if the customer owns the shares and even when Penson has these shares long in its DTC account. The Deposit Requirement is imposed during the time period between trade and settlement date.


If a customer creates an NSCC Illiquid Deposit Requirement greater than $50,000, the offending trade or trades will be bought in on T+1, with notice through customary channels.
If a customer creates a second NSCC Illiquid Deposit Requirement greater than the $50,000 in a ninety day period, in addition to the buy-in, the customer account may be subject to closure for ninety days."

The NSCC illiquid rule has been implemented by Zecco by prohibiting online trading of sub $1 stocks if order size is > 25% 20-day average daily volume. It's way too much of a radical measure...as by definition it will cause a dead-end situation where if a stock has a period of small or no volume, the stock finally becomes untradeable as valid order sizes shrink down to zero. To add insult to injury, the formula to calculate the requirements is known by the NSCC and the clearing firms but brokerages don't actually know it. That way, brokerages can't know what to allow and what to block.

In my opinion the way to getting out of this mess is by reverse spliting the heck out of the OTC stocks then reducing A/S, so stocks get to trade at a $1 per share minimum.

[hellcatjr]

TDA does use Penson.