Replies to post #188 on Penson Worldwide Inc fka PNSNQ

[Yosako]

From Penson:

Potential Buy-In Following Sales Triggering the NSCC Illiquid Requirement
The National Securities Clearing Corporation (NSCC) is a subsidiary of DTC which provides clearing,
settlement, risk management, central counterparty services and a guarantee of completion for certain
transactions for virtually all broker-to-broker trades involving equities, corporate and municipal debt,
exchange-traded funds, and other securities. The NSCC Illiquid Requirement is applied to Penson when
one customer (or more than one customer in the aggregate, across the totality of customers of Penson’s
correspondents ) whose account is carried by Penson sell more than 25% of the average daily trading
volume of a security over the last rolling 20 business days. The amount of this requirement depends on
the percentage of the ADV (Average Daily Value) represented by the open sales. The requirement has
very little relation to the value of the trade, and is generally at least ten times the trade value and may
be as high as one hundred times the trade value, or even more. This requirement is incurred even if the
customer owns the shares and even when Penson has these shares long in its DTC account.
If Penson’s customer(s) create a NSCC Illiquid Charge greater than $50,000, the offending trade or
trades will be bought in on T+1, without notice to the customer.
If a customer creates a second NSCC Illiquid Charge greater than $50,000 in a ninety day period, in
addition to the buy-in, the customer account may be subject to closure for ninety days.

From FINRA:

Prohibited Conduct

You should be aware that certain types of conduct in the securities industry are prohibited, including the following:

Recommending to a customer the purchase or sale of a security that is unsuitable given the customer's age, financial situation, investment objective, and investment experience. Investment in a particular type of security may be unsuitable or the amount or frequency of transactions may be excessive and therefore unsuitable for a given customer.

Purchasing or selling securities in a customer's account without first contacting the customer and the customer did not specifically authorize the sale or purchase, unless the broker has received from the customer written discretionary authority to effect transactions in the account or the broker was given discretion as to price and time.

Switching a customer from one mutual fund to another when there is no legitimate investment purpose underlying the switch.

Misrepresenting or failing to disclose material facts concerning an investment. Examples of information that may be considered material and that should be accurately presented to customers include: the risks of investing in a particular security; the charges or fees involved; company financial information; and technical or analytical information, such as bond ratings.

Removing funds or securities from a customer's account without the customer's prior authorization.

Charging a customer excessive markups, markdowns, or commissions on the purchase or sale of securities.

Guaranteeing customers that they will not lose money on a particular securities transaction, making specific price predictions, or agreeing to share in any losses in the customer's account.

Private securities transactions between a broker and a customer that may violate FINRA rules, particularly where such transactions are done without the knowledge and permission of the sales representative's firm.

Trading for a firm's account in preference to a customer by trading ahead of a customer limit order, absent a valid exception.

Failure by a market maker to display a customer limit order in its published quotes, absent a valid exception.

Failing to use reasonable diligence to see that a customer's order is executed at the best possible price, given prevailing market conditions.

Purchasing or selling a security while in possession of material, non-public information regarding an issuer.

Using any manipulative, deceptive, or other fraudulent device or contrivance to effect any transaction in, or induce the purchase or sale of, any security.

Sounds like a RED FLAG. Could those Penson-says-so share buy-ins be illegal? (a Zecco rep told me after a buy-in, those recently sold shares would be returned to the customer account). That's open to interpretation.