| During these periods of increased price
volatility and record trading volume, customers eager to trade Internet
stocks have flooded their brokers with large numbers of orders, leading
to large order imbalances, system queues, and backlogs. Investors should
be aware that, during these extreme market conditions, many firms have
implemented procedures that are designed to preserve the continuous
execution of customers' orders while also decreasing the exposure of the
firm to extraordinary market risk. For example, some Market Maker firms
temporarily discontinued normal automatic order executions and handled
orders manually. Firms also reduced their size guarantees on individual
stocks or groups of stocks (i.e., stocks of Internet issuers) on a
going-forward basis.
What Investors Should Ask
Their Brokers
It is important that investors educated themselves about how
securities transactions are executed, particularly during times of
volatile prices and high volume. Before opening an online account or
placing the first trade, investors should ask on-line firms a number of
questions so they can make appropriate investment decisions.
Delays
High volumes of trading at the market opening or intra-day may cause
delays in execution and executions at prices significantly away from the
market price quoted at the time the order was entered. Investors should
ask firms to explain how order executions are handled by Market Makers,
particularly when the market is volatile. It is particularly important
for on-line investors to make this inquiry, since most have come to
expect quick executions at prices at or near the quotes displayed on
their computer screens.
Back to top
Types of Orders
Investors should ask the firm they are working with to explain in
detail the difference between market and limit orders and the benefits
and risks of each. In particular, firms are required to execute a market
order fully and promptly without regard to price. In some market
conditions, execution may be at a price significantly different from the
current quoted price of that security. Limit orders will be executed
only at a specified price or better. Customers using limit orders
receive price protection, but there is the possibility that the order
will not be executed.
As a related matter, if you are investing in initial public offerings
trading in the secondary market, particularly those that trade at a much
higher price than their offering price, or in "hot stocks"
(those that have recently traded for a period of time under what is
known as "fast market conditions," in which the price of the
security changes so quickly that quotes do not keep pace with the
trading price of the stock), you should be aware that your risk of
receiving an execution substantially away from the market price at the
time you place your order may be significantly reduced if you place a
limit order.
Access
You should be aware that you may suffer market losses during periods
of volatility in the price and volume of a particular stock if there are
delays in effecting buy or sell orders. You may have difficulty
executing your trades due to limitations on system capacity. In
addition, if you are trading on-line, you may have difficulty accessing
your account due to high Internet traffic. Customers trading through
brokers at full-service or discount brokerage firms or through
representatives of on-line firms when on-line trading has been disabled
or is not available may have difficulty reaching account representatives
on the telephone during periods of high volume. You should ask your firm
to explain its procedures for responding to these access issues.
Communications with the Public
Investors may see a firm using advertisements or sales literature to
make claims about the speed and reliability of their trading services.
These communications with the public must not exaggerate the
broker/dealer's capabilities or omit material information about the
risks of trading and the possibilities of delayed executions. Moreover,
broker/dealers should have the systems capacity to support any claims
they make about their trading services. Misrepresentations or omissions
of material facts in public communications violate National Association
of Securities Dealers (NASD©) Rules. You should ask your firm whether
it has adequate systems capacity to handle high volume or high
volatility days.
Back to top
Be Prepared !
Basically, investors should be aware and armed with adequate
information, particularly before engaging in on-line trading activities.
The market is an ever-changing environment, making it more important
than ever for investors to use investing tools they understand. Get to
know the firm you are dealing with, and make sure that when you choose
to trade online, you do so commensurate with your investment objectives
and ability to tolerate investment risks.
For more investor information in general, visit the NASDR Web Site at
www.nasdr.com under "Investors
Resources" or visit the NASD's Investor Web Site at www.investor.nasd.com.
© Copyright 1999, NASD Regulation. Inc All rights reserved
Please read our Copyright and Trademark notices and Disclaimer
SPECIAL NOTICE: "Day Trading" in cash accounts
Recently, the New York Stock Exchange (NYSE) conducted review of
"day trading" in cash accounts at Freedom Investments, Inc.
"Day trading" as stated in NYSE rule 43 1, is the purchasing
and selling of the same security on the same day. According to this
rule, this type of trading is not permitted in cash accounts. An account
that completes a "day trade" may be subject to a 90-day
restriction. A restricted account would be required to have settled
funds cover all buys made on a single day. If you have additional
questions, please contact customer service at (800) 944-4033.
Back to top
Nothing herein is to be construed
as a solicitation or any transaction. The information presented has been
obtained from sources considered to be reliable, but it is not purported
to be complete or without error. Freedom Investments Inc. and Fahnestock
& Co. Inc. and/or the officers and directors, and/or members of
their families, may at times have positions in any securities mentioned.
All commissions and fees are subject to change without notice. |
