Online commodity trading and broker forex 2130
The types of investments that have been sold as cash alternatives include:. Many of these products are well-known. Treasury bills are backed by the full faith and credit of the United States government. Money market mutual funds, though traditionally lacking federal insurance and not without risk, are highly regulated under federal law and historically have provided a dependable level of stability and liquidity.
Other investments that are marketed and sold as cash alternatives may not be as well-understood by the financial markets and may present risks that are less apparent to some investors.
Recent experience with auction rate securities is a case in point. Since their development in the s, some firms have sold these securities as a cash alternative, and in recent years they became a popular choice among both retail and institutional investors. Developments in the credit markets led many auctions to fail in recent months.
As a result, many investors who believed their auction rate securities holdings to be almost as conservative and liquid as cash found themselves with illiquid holdings of uncertain value. Similarly, some investors may have failed to appreciate the differences between ultra-short bond funds and money market mutual funds.
Ultra-short bond funds, like money market funds, are mutual funds that generally invest in fixed-income securities with short maturities. In some cases, firms have sold these funds as "cash-enhanced" products. However, money market funds may only invest in certain high-quality, short-term investments issued by the U. Ultra-short bond funds are not subject to these requirements and typically pursue strategies aimed at producing higher yields by investing in securities with higher risks.
Indeed, during the recent credit crisis, some ultra-short bond funds experienced a dramatic increase in redemptions and decline in their share price. Sales materials and oral presentations regarding cash alternatives must present a fair and balanced picture regarding both the risks and benefits of investing in these products. FINRA reminds firms that NASD Rule and IM require firms to ensure that statements are not misleading within the context in which they are made, and that firms must consider the nature of the audience to which a communication is directed.
In virtually all cases, a statement to retail investors that an investment is a "cash equivalent," that it is as "safe as cash" or that it carries no market or credit risk would raise serious questions under FINRA's advertising rules. Firms must take reasonable steps to ensure that any communication that presents an investment as a cash alternative discloses, if applicable, that it is not federally guaranteed and that it is possible to lose money with the investment.
Firms may not claim that a product is an alternative to cash unless the statement is fair and accurate. When it is appropriate to describe a product as a cash alternative, this description must be balanced with disclosures of the corresponding risks and limitations of the product.
In the case of cash alternatives, this includes, but is not limited to, factors that could reasonably be anticipated to affect the liquidity or price stability of the investment, as well as the ability of the issuer to repay its obligation in full. In the event that market or economic developments affect the continued accuracy of a characterization of a product as a cash alternative, firms should promptly review their promotional materials and promptly make the necessary changes to ensure that investors are not misled.
FINRA reminds firms, however, that simply providing a prospectus or offering memorandum does not cure unfair or unbalanced sales or promotional materials. A reasonable-basis suitability determination helps ensure that an investment is suitable for at least some investors as opposed to a customer-specific suitability determination, which is undertaken on a customer-by-customer basis.
A reasonable-basis suitability analysis requires a firm to understand the investment products it sells. Accordingly, a firm must perform appropriate due diligence to ensure that it understands the nature of a product that it is recommending, including its potential risks and rewards.
A firm must have a reasonable basis for characterizing an investment as a cash alternative, and it is not sufficient simply to rely upon a third-party's characterization. The firm also must monitor market and economic developments that may affect the continued accuracy of a characterization of an investment as a cash alternative, and have procedures to quickly alert its sales and marketing staff to developments that will make such a characterization unwarranted.
The fact that a firm intends to describe an investment as a cash alternative only to institutional investors does not relieve the firm of its responsibility to conduct due diligence and a reasonable-basis suitability analysis. Firms must reasonably believe that a product is suitable for a customer seeking a cash alternative before recommending it as such. FINRA cautions firms that the fact that an investment may meet established accounting standards for treatment as a cash holding in a financial statement does not conclusively establish that the investment is an appropriate cash alternative for a particular investor.
To ensure that a particular investment is suitable as a cash alternative for a specific customer, firms and their registered persons must examine the customer's need for liquidity and price stability, and the ability of the investment to meet that need. As with other suitability determinations, the following factors are relevant:.
Firms must train registered persons about the characteristics, risks and rewards of each product before they allow registered persons to recommend that product to investors. Likewise, firms should train registered persons about the factors that would make such products either suitable or unsuitable for certain investors. In the case of a cash alternative, training should encourage extreme caution in characterizing a product to an investor as an alternative to cash.
The FDIC coverage does not insure securities or mutual funds. More information can be found at www. FINRA is issuing this Notice to remind firms of their obligations in the sale of securities such as bonds, bond funds, structured products and non-conventional investments, in a high-yield environment.
FINRA reiterates the guidance set forth in previous Notices and reminds firms that they are obligated to balance any discussion of yield with an appropriate discussion of the features of these instruments and the risks presented. Notice to Members reminds firms that while bonds and bond funds can play an important role in stabilizing diversified portfolios, neither product is risk-free. Terms, conditions, risks, and returns vary widely, and in some cases risks may be substantial.
The Notice reminds firms of their responsibility to take appropriate steps to ensure that their associated persons understand and present balanced discussions about the risks as well as the returns of the products that they sell.
Higher yield may make an investment more appealing to some investors. However, firms must take appropriate steps to understand the terms, conditions, risks and rewards of any security that they sell to retail customers by performing a "reasonable-basis suitability analysis. Sales materials and oral presentations must present a fair and balanced picture regarding both the risks and benefits of investing in these products. Firms must take appropriate steps to ensure that any discussion between an associated person and a customer concerning the high yield associated with a particular security is balanced with a discussion of its risks.
Firms must avoid encouraging a customer to place undue reliance on yield as a factor to be considered in selecting an investment.
For example, any presentation to a customer concerning an investment's yield should be balanced with a discussion of any applicable credit risk or risk of default associated with the issuer, and how that risk might affect the safety of the invested principal.
Similarly, a presentation concerning the high yield of a bond fund should be balanced by a discussion concerning the credit risk associated with the fund's portfolio and the risk that the fund's net asset value could decline.
The discussion also should address interest rate risk—the risk that interest rate changes might affect the market value of an instrument prior to its call or maturity date.
Finally, the firm should consider the liquidity risk that might be associated with the product. Since many bonds and unconventional products trade infrequently or irregularly and not like exchange traded equities , customers should be made aware that their sales may not always be executed immediately or that sales may occur at prices well below a customer's purchase price or anticipated market price.
Firms also must adequately train and supervise employees who sell these securities, and implement adequate supervisory controls to reasonably ensure compliance with FINRA and SEC sales practice rules.
Firms are encouraged to review the previous FINRA guidance referenced in this Notice for a fuller discussion of applicable sales practice obligations. The disclosure would provide transaction-specific information relating to charges, credit ratings, the availability of last-sale transaction information, and certain interest and call provisions. See Securities Act Rel. There are four primary proposed amendments that are described in this Notice:.
Questions concerning this Notice should be directed to the Office of General Counsel, at Comments must be received by January 29, The proposed rule change was filed with the SEC on November 27, , but has not yet been published for comment in the Federal Register. Paragraph g 4 of the rule includes definitions of terms used in paragraph g 2. Of note, directed orders are excluded from the order routing statistics required to be produced under Rule of Regulation NMS.
This Interpretive Material addresses certain interpretive questions concerning the applicability of the best execution rule. The proposed amendments to the interpositioning provisions of the rule, which are also reflected in the draft text, have not been noticed for comment by the SEC.
FINRA is not seeking comment on the proposed amendments to the interpositioning provisions of the rule. The text of Rules and is set forth in Attachment A. The rules apply to expungement orders issued by arbitrators on or after January 26, Questions concerning this Notice should be directed to: CRD, an online registration and licensing system, contains administrative and disclosure information about broker-dealers and associated persons.
These procedures, among other things, cover expungement of information from CRD. The new procedures ensure that arbitrators have the opportunity to consider the facts that support or weigh against a decision to grant expungement. The procedures add transparency to the process and safeguards designed to ensure that the extraordinary relief of expungement is granted only under appropriate circumstances. The following questions and answers provide more detail on the purpose of the rules and how they will be applied.
What steps must the arbitration panel take before it may order expungement of information related to arbitration cases from an associated person's CRD record? What will happen if, on the effective date of the rule, arbitrators are about to issue an award containing an order to expunge customer dispute information from the CRD system, but no hearing was held on the expungement issue?
Such an award must comply with the new procedures. In this situation, FINRA will require the arbitrators to convene or reconvene the parties for a telephone or in-person hearing to resolve the expungement issue.
In cases involving settlements, the arbitrators will be required to review the settlement documents and consider the amount of payments made to any party and any other terms and conditions of the settlement. The arbitrators will be required to assess all forum fees for the hearing session against the parties that requested expungement relief, and to provide a brief written explanation of the reasons for ordering expungement.
What happens when an expungement request is made in a Simplified Arbitration case? In cases being administered under FINRA Rules or Simplified Arbitration , a hearing on the merits normally is held only at the request of a customer or claimant, respectively.
Rules and make it clear that, if parties request expungement relief in such cases, the arbitrator will hold a hearing session to determine the appropriateness of the request even if the customer or claimant did not request a hearing on the merits. The arbitrator will assess any forum fees for hearing sessions associated with a request for expungement against the parties making the request.
Do the new rules apply to expungement of non-customer dispute information in intra-industry disputes? No, the new rules only apply to the expungement of customer dispute information. The rules do not affect FINRA's current practice of permitting expungement, without judicial intervention, of information from CRD as directed by arbitrators in intra-industry arbitration awards in which the arbitration panel states that expungement relief is being granted because of the defamatory nature of the information ordered expunged.
Are arbitrators required to complete training or otherwise familiarize themselves with the new rules and accompanying procedures prior to considering a request for expungement relief under Rule ? FINRA is revising its online expungement training module and is encouraging every arbitrator to take this free training course.
In addition, arbitrators must certify that they have completed one or more of the training methods listed below. FINRA sent a letter to every arbitrator explaining how to fulfill the training requirement concerning the new expungement rules. Rules and will become effective on January 26, , and will apply to expungement orders issued by arbitrators on or after the effective date. In order to grant expungement of customer dispute information under Rule , the panel must:.
The attachment to this Notice sets forth additional information regarding these new consolidated rules and includes a hyperlink to the related rule filing. Firms should be aware that the chart is intended as a reference aid only. FINRA reminds firms that the chart does not in any way serve as a substitute for diligent review of the relevant new rule language. The Rule Conversion Chart is located at www.
The effective date of these rules is February 17, The hyperlink to the rule filing is included. The warrants, options and security futures rules were adopted by FINRA to address the specific risks that pertain to these derivative securities, and to implement provisions of the federal securities laws and SEC rules. The rules also contain provisions imposing limits on the size of an options or warrant position and on the number of options contracts or warrants that can be exercised during a fixed period.
In recent years, broker-dealers have begun to provide estimates of income, dividend and yield information concerning specific securities in their customers' accounts. According to some broker-dealers that prepare and distribute customer account statements, customers consider this information important data in their customer account statements.
Some customers may use the estimated annual income EAI 1 and estimated yield EY to monitor and review the income and yield of securities they hold, while other customers may use EAI as a financial planning tool to estimate annual cash flow. FINRA is concerned that some customers might confuse EY with the actual performance of their investments, although EY is not designed to depict total investment returns or actual yields. This Notice provides guidance on how broker-dealers can best meet their responsibilities with respect to the presentation of estimated annual income and estimated yield in customer account statements.
Broker-dealers voluntarily provide estimated annual income EAI and estimated yield EY in customer account statements for a wide variety of securities that produce income, such as dividend-paying common stock, preferred stock, bonds, mutual funds, unit investment trusts, closed-end funds, direct participation programs and collateralized mortgage obligations.
The manner in which EAI and EY are presented in customer account statements could raise a variety of regulatory concerns. By their very nature, EAI and EY merely "estimate" the income that a particular security will distribute every year, and the yield based on that estimated annual income and current price.
This estimation of annual income and yield is often rough. If a customer trades the shares, then the number of shares that are owned at the time the statement is produced, a factor in the calculation of EAI, may vary from the number that will be held in the future. If the amount or frequency of an issuer's dividend payments fluctuate, then the actual income and yield of the security will fluctuate accordingly. EAI does not reflect the amount of income that the customer has already earned during the previous year from a particular security, and EY does not reflect the yield that the customer has already earned on that security.
The number of units or shares that the customer owns at the time the statement is produced, a factor in the calculation of EAI and EY, may not be the same number that the customer owned throughout the year. Additionally, a decline in the share or unit price of a security, such as a bond fund share, will typically cause the EY to increase.
Vendors that compile dividend and income data relevant to particular securities supply the dividend and income information to broker-dealers. Broker-dealers that include EAI and EY on customer account statements should be familiar with the criteria imposed by their vendors in order to understand the types of data they will receive and the extent to which the conversion of that data into EAI and EY is reasonable.
The vendors often impose their own criteria on when they will provide the data to broker-dealers or when they will calculate EAI and EY. For example, a vendor may provide a broker-dealer with an indicated annual dividend IAD calculated by using either a projected or historical methodology.
In a "projected" methodology, the vendor uses the latest regular cash dividend and the number of scheduled payments in any twelve-month period to determine the IAD; this is often the method used for equities. In a "historical" methodology, the vendor bases the IAD on the accumulated regular cash dividends paid during the previous twelve months or some other recent historical time period.
The EAI is then derived by multiplying the total units of a given security in a customer's account by the annual interest or dividend figure for that security. EY typically is calculated by dividing the EAI by the product of 1 the price per share or unit owned and 2 the number of shares or units owned.
Consistent with the standards of NASD Rule d 1 , broker-dealers should present EAI and EY in a fair and balanced manner and provide an appropriate context in which customers can evaluate this information. For example, the presentation of EAI and EY on customer account statements should be clearly distinguished from income received by the customer or the performance of a security e.
FINRA is particularly concerned with the reclassification of previously issued dividends as a return of principal with respect to some securities, such as closed-end investment companies, direct participation programs and real estate investment trusts.
Even when the vendor or product sponsor, and not the broker-dealer, makes this reclassification, the resulting EAI and EY figures could confuse customers. In order to help customers more clearly understand EAI and EY, broker-dealers should, at a minimum, provide in substance the following disclosure in customer account statements that present EAI and EY data:. Broker-dealers are responsible for using a method to calculate EAI and EY that is reasonable given that customers may rely on this information.
The presentation of EAI and EY should reflect any change that can be reasonably known about a security, such as a scheduled change to the coupon rate of a debt security or a change in the dividend paid by an equity security. Several circumstances could undermine a broker-dealer's ability to meet its responsibilities to present EAI and EY in a fair and balanced manner, such as the inclusion of a special one-time dividend in the EAI calculation, which by its nature, is not expected to recur.
Other examples include calculating EAI for:. If the broker-dealer believes there is a high probability that these concerns will arise and can not address the concerns by reasonably designed procedures, providing EAI or EY usually would not be appropriate.
EY is typically calculated as follows: This is derived from the following calculation: FINRA-only member firms are requested to provide this information on a voluntary basis. Member firms that do not carry accounts, clear transactions or act as an intermediary in a clearing arrangement are not subject to this reporting obligation.
Such firms will, however, be able to view information pertaining to them that has been filed by the reporting firms and will receive an email notice if a reporting firm adds or removes them as a correspondent.
Questions related to the information to be reported under this Notice should be directed to Ornella Bergeron at ornella. Technical questions should be directed to Elena Shuvalov at elena. Firms also must update the form on an ongoing basis with any changes no later than 30 days after the information has changed. FINRA has certain information regarding firms' clearing arrangement details and memberships in clearing organizations, obtained from the NYSE Firm Profiler system and Rule c filings made by firms.
Each clearing firm for which FINRA has such information, received a spreadsheet listing such information and was requested to verify the accuracy of the spreadsheet and add any missing data prior to December Any firm that is required to file the form and has not been granted the firm administrator privilege must request the new privilege as soon as possible, but no later than January 15, , by contacting the FINRA Call Center at The email will list the change addition or deletion by the clearing firm and contain information on how to resolve any discrepancies.
These emails will also be sent to the introducing firm's chief compliance officer and chief financial officer when an intermediary firm files the FINRA Firm Clearing Arrangement Form, adding or removing the introducing firm. All member firms will have access to the new Firm Profile information available on the Firm Gateway system effective December 15, In addition to the Firm Clearing Arrangement Form, firms may also use Firm Profile to view and update their information.
Introducing firms should contact their clearing firm if they have questions about the details of the clearing arrangement contained in their Firm Profile.
Information pertaining to a firm's owners and officers, name and address information, legal entity type, and control affiliates information will be maintained via Form BD in the Web CRD system, which is also accessible from the Firm Gateway.
The Tri-Party Firm Details will display and be required if the option i is selected from the above list. Provide the CRD number and name of the firm s for whom you act as an intermediary to facilitate the clearance of accounts by a clearing and carrying firm:. Provide the CRD number, name, approximate number of accounts, the type of accounts and the effective date of the firm s for whom you carry or clear transactions:. The Fixed Income Transaction Details section will display and be required if the option d is selected from the above list.
Does your firm maintain a 15c Reserve bank account s? Name of Person Filing Form: Title of Person Filing Form: See 73 FR November 26, The text of the amendments is set forth in Attachment A of this Notice. The forms firms must use to notify FINRA under the amendments are provided in Attachment B of this Notice and are available along with any updates online at www. On September 11, , the SEC approved a proposed rule change that, among other things: Regulation M is designed to prevent manipulation by persons with an interest in the outcome of an offering and prohibits activities and conduct that could artificially influence the market for an offered security.
Regulation M also governs certain market activities i. Finally, Regulation M prohibits any person from selling short a security that is the subject of a public offering and purchasing the security in the offering, if such short sale was effected during the restricted period which, for purposes of the short sale restrictions, generally is the five-day period prior to pricing.
Firms are reminded that certain rules under Regulation M apply to some, but not all, offerings, e. For example, transactions in Rule A securities during a distribution of such securities are not prohibited under SEC Rule , subject to certain conditions set forth in the rule.
As part of FINRA's program to monitor for compliance with Regulation M, FINRA's Market Regulation Department reviews over-the-counter OTC trading and quoting activity for prohibited purchases, bids or attempts to induce bids or purchases during the applicable restricted period and for prohibited short sales during the five-day period prior to the pricing of an offering.
Pursuant to its rules, FINRA must receive pertinent distribution-related information in a timely fashion to facilitate this component of its Regulation M compliance program. The guidance in this Notice relates only to firms' Regulation M-related notification obligations under FINRA rules and does not address other obligations that may apply, e.
Unlike FINRA's current rules, the new rule applies uniformly to distributions of listed and unlisted securities. Requirements applicable to distributions subject to a restricted period Rule c 1. Rule c 1 sets forth the notification requirements applicable to distributions of listed and unlisted securities that are "covered securities" 13 subject to a restricted period under Rule or of Regulation M. Specifically, firms must determine, in accordance with Regulation M, whether the applicable restricted period commences one day or five days prior to pricing a "one-day" or "five-day" restricted period , and notify FINRA in writing of the firm's determination and the basis for such determination.
While the new rule places the responsibility of determining the applicable restricted period on the firm, as a practical matter, FINRA will accept a firm's notification that the five-day restricted period applies to a prospective distribution without providing the basis for that determination. If, on the other hand, a firm asserts that a one-day or no restricted period applies to a particular distribution, FINRA will require that the firm demonstrate the basis for that determination.
As discussed below, firms must notify FINRA that the "actively traded securities" exception applies, and hence there is no restricted period, under new Rule d.
Firms must provide notification no later than the business day prior to the first complete trading session of the applicable restricted period, unless later notification is necessary under specific circumstances. Firms must submit the notification no later than the close of business the next business day following the pricing of the distribution, unless later notification is necessary under specific circumstances. Requirements applicable to issuers or selling security holders subject to a restricted period Rule c 2.
Rule c 2 requires that any firm that is an issuer or selling security holder in a distribution of a security, including an "actively traded" security, subject to a restricted period under Rule of Regulation M comply with the notification requirements of Rule c 1 , discussed above. This requirement ensures that FINRA is notified of any distribution in which a firm is participating as an issuer or selling security holder, to the extent that notice of such distribution has not already been provided under Rule Requirements applicable to distributions of "actively traded" securities Rule d.
Rule d sets forth the notification requirements applicable to distributions of listed and unlisted securities that are considered "actively traded" securities and thus are not subject to a restricted period under Rule of Regulation M.
In connection with such distributions, firms must notify FINRA in writing of the firm's determination that no restricted period applies and the basis for such determination. Upon pricing a distribution of a security that is considered "actively traded," firms must provide written notification to FINRA, including the pricing-related information required under Rule c 1 B , discussed above, and identify the distribution participants and affiliated purchasers.
Firms must notify FINRA of their intention to conduct such activity prior to imposing the penalty bid or engaging in the first syndicate covering transaction, and identify the security and its symbol and the date such activity will occur.
In addition, firms are required to subsequently confirm such activity within one business day of completion, and identify the security and its symbol, the total number of shares and the date s of such activity.
Pursuant to paragraphs c 1 and d of Rule , the member firm acting as manager or in a similar capacity is responsible for notifying FINRA of the distribution. However, if no member firm is acting as manager or in a similar capacity , then each firm that is a distribution participant or affiliated purchaser is required to notify FINRA, unless another member firm has assumed responsibility in writing for compliance with the notification requirement.
Pursuant to Rule c 2 , a firm that is an issuer or selling security holder must comply with the notification requirements of paragraph c 1 , unless another member firm has assumed responsibility in writing for compliance with those requirements. Similarly, pursuant to Rule e , a firm that intends to impose a penalty bid or effect a syndicate covering transaction is responsible for notifying FINRA, unless another member firm has assumed responsibility in writing for compliance with the rule.
Firms must use the following forms to provide notification under Rule Submission to the Corporate Financing Department does not constitute compliance with Rule Firms are reminded that they must update any notification submitted to the Market Regulation Department, as necessary e. Nasdaq Stock Exchange rules impose certain notification requirements that are similar to those of Rule Consistent with the amendments discussed above, and as part of the rule change approved by the SEC, FINRA has clarified the scope and application of these marketplace-specific requirements.
Nadex accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representations or warranties are given as to the accuracy or completeness of this information.
Consequently any person acting on it does so entirely at their own risk and any trading decisions that you make are solely your responsibility. Trading on Nadex involves financial risk and may not be appropriate for all investors. Past performance is not necessarily indicative of future results. Nadex contracts are based on underlying asset classes including forex, stock index futures, commodity futures, cryptocurrencies, and economic events.
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