now seems like a good time to post this.. I posted a similar article here a couple days ago, but it was deleted.. I think it's pertinent to those of you CONCERNED about your trades and PENSON brokers. If it gets deleted again... I tried.
Penson Statement: Important Notice to All Correspondents – New Low Priced Securities Deposit Policy
In recent months, the depositories (DTCC/NSCC) have exponentially increased the requirements associated with the trading of illiquid securities. Their rationale is based, in part, in the inherent volatility in the price of these securities in addition to the fact they are often very low in price. They are also concerned when a trade in an illiquid security is relatively large when compared to the security’s historical trading volume.
To date, Penson Financial Services, Inc. (PFSI) has allowed trading in illiquid and very low priced securities within certain prescribed guidelines in an effort to accommodate our correspondents. We have also, to a large degree, absorbed the substantial additional requirements associated with these trades, which have not been fully passed through to the correspondent.
Also, the regulatory community has recently become more focused on the deposits of physical certificates, particularly those that trade on the Pink Sheets or OTC Bulletin Board. The securities industry has experienced a significant spike in fraudulent transactions related to reduced valuations or non-existent or fraudulent transfer agent services for sub-penny securities. In addition, the potential for the use of these types of securities for money laundering or investor fraud are also of serious concern. As a result, the regulators have increased their scrutiny of transactions in these types of securities.
The combination of the deposit of a physical certificate and a subsequent trade in that security, which the depository has deemed to be illiquid, can result in exceptionally large requirements from the depository.
The risk deposit formula is based in part on liquidity and concentration and is also reflective of current regulatory and depository risk perspective of trading in low priced securities. In some cases, the deposit requirements exceed the value of the underlying trade by more than 100 times. For example, the depository requirement for one unsettled trade in an illiquid security done recently was $1.2 million, while the value of the underlying trade was less than $10,000.
After careful analysis and strong guidance from our regulators, and in response to the exorbitant additional requirements imposed by the depositories, we are modifying our policies to reflect a dramatically changed industry landscape.
Accordingly, effective immediately, PFSI has instituted the following changes to its securities processing policies.
PFSI will no longer accept deposits of equity securities traded on the Pink Sheet or OTC Bulletin Board markets priced below $0.10, to include but not limited to, utilizing the following methods of deposit:
1. Any form of Physical Certificate Deposit
a. Through the Penson SPS application (Securities Processing System)
b. Through the Transit System (TNST)
c. Via Mail
2. DWAC (Deposit/Withdrawal at Custodian)
3. DRS (Direct Registration Service)
4. ACAT Transfer of Restricted Stock -although, we will continue to accept deposits of certain low priced securities without any restrictive legend via ACAT, we reserve the right to reject any account that has a concentration of low priced securities (Penny Stocks).
To the extent that PFSI has received qualifying certificates that have not been processed, we will return those certificates to you immediately.
We are also reviewing ongoing trading activity in accounts with large, low priced securities positions, especially positions established by the deposit of certificates in some way. On a case-by-case basis, we may be restricting sale activity in such accounts, or even closing accounts when necessary.
PFSI recognizes that these new requirements pose certain challenges, however this decision is not negotiable. Our policy to cease processing deposits for these securities is an effort to reduce the exposure to both PFSI as well as its Introducing Broker-Dealers correspondents related to these securities.
To the extent you have questions, please contact your Relationship Manager for assistance.
Thank you,
Penson Financial Services, Inc.
Brokerages that use Penson as a clearinghouse - may not allow trading of certain pennies, or charge exorbitant fees
- eOption
- Firstrade
- Noble trading
- OptionsHouse
- Scottrade- can buy/sell MMTE, but cannot transfer in.
- Sogotrade
- SpeedTrader
- Thinkorswim
- Tradeking
- ZECCO
- Choicetrade
Brokerages that don't use Penson
- Fidelity
- TD Ameritrade
- E-Trade- can buy/sell MMTE, but cannot transfer in OTCs
- Interactive brokers
- Merrill Lynch
- Schwab
- Sharebuilder
- Vanguard
- WellsTrade
- USAA
www.onlinebrokerrev.com/2011/01/broker-clearing-firms.html
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