- Mr. Thompson, agent. Mr. Bixby, client. Bixby gave Thompson oral authorization for him to do trades for him. Bixby promised to give Thompson written trading authorization in the next day or two to give Thompson discretion over the account. Thompson immediately executed trades in First Tech for Mr. Bixby to take advantage of. Thompson gets Bixby's written authorization a week later. Bixby's lawyer said Bixby wanted GE shares
- Analysis: Thompson 1)was not authorized without written consent, 2) Bixby's lawyer needs written consent to make investment decisions
Margin documents
- margin agreement must be in place
Commingling of customer and firm assets
- need to keep customer free and customer safekeeping assets separate
- can not put customer shares in firm's proprietary account
- hypothecation, pledging of margin securities
Improper Hypothecation
- lien or written consent must be in place
Timely Prospectus Delivery
- need to give customer a final prospectus or preliminary prospectus no later than the due date of the confirmation of the transaction
- Administrator may make a prospectus be sent to each person no later than the confirmation of the trade as a condition of registration under Coordination
- Administrator may require a prospectus be sent to each person before sale of security as a condition of registration under Qualification
Unreasonable servicing fees
- charging unreasonable and inequitable fees
- CAN charge reasonable fees for 1. collection of monies due for principal, 2. dividends or interest, 3. exchange or transfer of securities, 4. appraisals, 5. safekeeping, 6. custody of securities and other services related to the securities business
Higher than normal commissions
- not all B/D have same level of services
- large array of services, may charge more NOT unethical
- thinly traded security, higher expense for B/D, can justify larger fee
- charges must be clearly disclosed to clients
Dishonoring quotes
- offering to buy from or sell to any person at a states price-be ready to sell at minimum trading unit (100 shares) at his ask/offering price or buy from a client at his bid price
Market manipulation
- manipulative, deceptive, fraudulent
- securities legislation-keep markets honest for securities transactions
- matched orders, market players agree to buy and sell securities among themselves to create the appearance of activity or trading in a security, bids up price. Then sell at a profit.
- wash trade, attempt to manipulate a security's price by creating fake-interest. Buy in one account and sell at the same time in another account. No real change in ownership. Seems like volume/price is increasing
- arbitrage is OK, buy and sell one security in different markets to take advantage of different prices
Guaranteeing against loss
- no performance guarantee
- no loss guarantee
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