Penny stocks get their name from their price range, each priced between 1 cent and $5 and they are traded through the Pink Sheets or the OTC Bulletin Board. These stocks are also traded through foreign and other securities exchange on a regular basis. The rules that regulate stock trading are different from those that regulate the trading of penny stocks.
The SEC or Securities and Exchange Commission has set out the rules that regulate the trade of penny stocks, these rules are as follows:
The SEC needs the brokerage house to have documented evidence of the transaction between them and their customer, which can only happen if their customer is in a position to complete the transaction.
The SEC requires all brokerage firms to supply their clients with documentation that outlines that risks involved with trading penny stocks.
The rules also state that the consumer must be notified if there is a market quotation and what that market quotation is for the penny stocks they wish to buy.
The brokerage firm must also disclose to their customers what their commission will be for the trades.
The SEC requires that each brokerage house provides it's customers with a monthly statement outlining the market value of each of their penny stocks.
These rules were put in place to make sure that each investor knew the risks that they were taking on and to ensure that penny stocks were traded responsibly. The SEC outlines these rules that brokers must follows so that potential investors are fully ware of the risks and are less likely to get in over their heads.
Rule 15c3-3 or the Customer Protection Rule which states that the money you pay to the broker is now in there control. Periodically your broker will need to figure out how much of the money they have on their hands belongs to you or has been gained via your investments. If the broker decides that there is more money on their books than what is owed to the customer or if the customer has over paid, the excess must be placed into a reserve bank account. This money is then set aside for the specific use of the customers. The rule stops brokers from using a customers money to advance their own business.
These rules are designed to protect all aspects of stock trading, the investors as well as the brokers and also the stock market. If a broker breaks any of these rules set down be the SEC they can be the subject of SEC investigations which can lead to problem within the brokerage house. Learning these rules is a good idea for any new investor, this can help you to make sure that your broker is following the rules and helps you to make sure that your investments are not compromised.
The SEC or Securities and Exchange Commission has set out the rules that regulate the trade of penny stocks, these rules are as follows:
The SEC needs the brokerage house to have documented evidence of the transaction between them and their customer, which can only happen if their customer is in a position to complete the transaction.
The SEC requires all brokerage firms to supply their clients with documentation that outlines that risks involved with trading penny stocks.
The rules also state that the consumer must be notified if there is a market quotation and what that market quotation is for the penny stocks they wish to buy.
The brokerage firm must also disclose to their customers what their commission will be for the trades.
The SEC requires that each brokerage house provides it's customers with a monthly statement outlining the market value of each of their penny stocks.
These rules were put in place to make sure that each investor knew the risks that they were taking on and to ensure that penny stocks were traded responsibly. The SEC outlines these rules that brokers must follows so that potential investors are fully ware of the risks and are less likely to get in over their heads.
Rule 15c3-3 or the Customer Protection Rule which states that the money you pay to the broker is now in there control. Periodically your broker will need to figure out how much of the money they have on their hands belongs to you or has been gained via your investments. If the broker decides that there is more money on their books than what is owed to the customer or if the customer has over paid, the excess must be placed into a reserve bank account. This money is then set aside for the specific use of the customers. The rule stops brokers from using a customers money to advance their own business.
These rules are designed to protect all aspects of stock trading, the investors as well as the brokers and also the stock market. If a broker breaks any of these rules set down be the SEC they can be the subject of SEC investigations which can lead to problem within the brokerage house. Learning these rules is a good idea for any new investor, this can help you to make sure that your broker is following the rules and helps you to make sure that your investments are not compromised.
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