RISK OF LOWER LIQUIDITY
Liquidity refers to the ability of market participants to buy and sell securities. Generally, the more orders that are available in a market, the greater the liquidity. Liquidity is important because with greater liquidity it is easier for investors to buy or sell securities, and as a result, investors are more likely to pay or receive a competitive price for securities purchased or sold. There may be lower liquidity in extended hours trading as compared to regular market hours. As a result, your order may only be partially executed, or not at all.
RISK OF HIGHER VOLATILITY
Volatility refers to the changes in price that securities undergo when trading. Generally, the higher the volatility of a security, the greater its price swings. There may be greater volatility in extended hours trading than in regular market hours. As a result, your order may only be partially executed, or not at all, or you may receive an inferior price in extended hours trading than you would during regular market hours.
RISK OF CHANGING PRICES
The prices of securities traded in extended hours trading may not reflect the prices either at the end of regular market hours, or upon the opening the next morning. As a result, you may receive an inferior price in extended hours trading than you would during regular market hours.
RISK OF UNLINKED MARKETS
Depending on the extended hours trading system or the time of day, the prices displayed on a particular extended hours trading system may not reflect the prices in other concurrently operating extended hours trading systems dealing in the same securities. Accordingly, you may receive an inferior price in one extended hours trading system than you would in another extended hours trading system.
RISK OF NEWS ANNOUNCEMENTS
Normally, issuers make news announcements that may affect the price of their securities after regular market hours. Similarly, important financial information is frequently announced outside of regular market hours. In extended hours trading, these announcements may occur during trading, and if combined with lower liquidity and higher volatility, may cause an exaggerated and unsustainable effect on the price of a security.
RISK OF WIDER SPREADS
The spread refers to the difference in price between what you can buy a security for and what you can sell it for. Lower liquidity and higher volatility in extended hours trading may result in wider than normal spreads for a particular security.
RISK OF LACK OF CALCULATION OR DISSEMINATION OF UNDERLYING INDEX VALUE OR INTRADAY INDICATIVE VALUE (“IIV”)
For certain derivative securities products, an updated underlying index value or IIV may not be calculated or publicly disseminated in extended trading hours. Since the underlying index value and IIV are not calculated or widely disseminated during extended hours trading sessions, an investor who is unable to calculate implied values for certain derivative securities products in those sessions may be at a disadvantage to market professionals.
We are furnishing this document to you to provide some basic facts about purchasing securities on margin, and to alert you to the risks involved with trading securities in a margin account. Before trading stocks in a margin account, you should carefully review the margin agreement provided by your broker. Consult your broker regarding any questions or concerns you may have with your margin accounts.
When you purchase securities, you may pay for the securities in full or you may borrow part of the purchase price from your brokerage firm. If you choose to borrow funds from your firm, you will open a margin account with the firm. The securities purchased are the firm s collateral for the loan to you. If the securities in your account decline in value, so does the value of the collateral supporting your loan, and as a result, the firm can take action, such as issue a margin call and/or sell securities in your account, in order to maintain the required equity in the account.
It is important that you fully understand the risks involved in trading securities on margin. These risks include the following:
YOU CAN LOSE MORE FUNDS THAN YOU DEPOSIT IN THE MARGIN ACCOUNT.
A decline in the value of securities that are purchased on margin may require you to provide additional funds to the firm that has made the loan to avoid the forced sale of those securities or other securities in your account.
THE FIRM CAN FORCE THE SALE OF SECURITIES IN YOUR ACCOUNT.
If the equity in your account falls below the maintenance margin requirements under the law, or the firm s higher house requirements, the firm can sell the securities in your account to cover the margin deficiency. You also will be responsible for any shortfall in the account after such a sale.
THE FIRM CAN SELL YOUR SECURITIES WITHOUT CONTACTING YOU.
Some investors mistakenly believe that a firm must contact them for a margin call to be valid, and that the firm cannot liquidate securities in their accounts to meet the call unless the firm has contacted them first. This is not the case. Most firms will attempt to notify their customers of margin calls, but they are not required to do so. However, even if a firm has contacted a customer and provided a specific date by which the customer can meet a margin call, the firm can still take necessary steps to protect its financial interest, including immediately selling the securities without notice to the customer.
YOU ARE NOT ENTITLED TO CHOOSE WHICH SECURITY IN YOUR MARGIN ACCOUNT IS LIQUIDATED OR SOLD TO MEET A MARGIN CALL.
Because the securities are collateral for the margin loan, the firm has the right to decide which security to sell in order to protect its interests.
THE FIRM CAN INCREASE ITS HOUSE MAINTENANCE MARGIN REQUIREMENT AT ANY TIME AND IS NOT REQUIRED TO PROVIDE YOU ADVANCE WRITTEN NOTICE.
These changes in firm policy often take effect immediately and may result in the issuance of a maintenance margin call. Your failure to satisfy the call may cause the member to liquidate or sell securities in your account.
YOU ARE NOT ENTITLED TO AN EXTENSION OF TIME ON A MARGIN CALL.
While an extension of time to meet margin requirements may be available to customers under certain conditions, a customer does not have a right to the extension.
You should consider the following points before engaging in a day-trading strategy. For purposes of this notice, a “day-trading strategy” means an overall trading strategy characterized by the regular transmission by a customer of intra-day orders to effect both purchase and sale transactions in the same security or securities.
DAY TRADING CAN BE EXTREMELY RISKY.
Day trading generally is not appropriate for someone of limited resources and limited investment or trading experience and low risk tolerance. You should be prepared to lose all of the funds that you use for day trading. In particular, you should not fund day-trading activities with retirement savings, student loans, second mortgages, emergency funds, funds set aside for purposes such as education or home ownership, or funds required to meet your living expenses. Further, certain evidence indicates that an investment of less than $50,000 will significantly impair the ability of a day trader to make a profit. Of course, an investment of $50,000 or more will in no way guarantee success.
BE CAUTIOUS OF CLAIMS OF LARGE PROFITS FROM DAY TRADING.
You should be wary of advertisements or other statements that emphasize the potential for large profits in day trading. Day trading can also lead to large and immediate financial losses.
DAY TRADING REQUIRES KNOWLEDGE OF SECURITIES MARKETS.
Day trading requires in-depth knowledge of the securities markets and trading techniques and strategies. In attempting to profit through day trading, you must compete with professional, licensed traders employed by securities firms. You should have appropriate experience before engaging in day trading.
DAY TRADING REQUIRES KNOWLEDGE OF A FIRM’S OPERATIONS.
You should be familiar with a securities firm’s business practices, including the operation of the firm’s order execution systems and procedures. Under certain market conditions, you may find it difficult or impossible to liquidate a position quickly at a reasonable price. This can occur, for example, when the market for a stock suddenly drops, or if trading is halted due to recent news events or unusual trading activity. The more volatile a stock is, the greater the likelihood that problems may be encountered in executing a transaction. In addition to normal market risks, you may experience losses due to system failures.
DAY TRADING WILL GENERATE SUBSTANTIAL COMMISSIONS, EVEN IF THE PER-TRADE COST IS LOW.
Day trading involves aggressive trading, and generally you will pay commissions on each trade. The total daily commissions that you pay on your trades will add to your losses or significantly reduce your earnings. For instance, assuming that a trade costs $16 and an average of 29 transactions are conducted per day, an investor would need to generate an annual profit of $111,360 just to cover commission expenses.
DAY TRADING ON MARGIN OR SHORT SELLING MAY RESULT IN LOSSES BEYOND YOUR INITIAL INVESTMENT.
When you day trade with funds borrowed from a firm or someone else, you can lose more than the funds you originally placed at risk. A decline in the value of the securities that are purchased may require you to provide additional funds to the firm to avoid the forced sales of those securities or other securities in your account. Short selling as part of your day trading strategy also may lead to extraordinary losses, because you may have to purchase the stock at a very high price in order to cover a short position.
POTENTIAL REGISTRATION REQUIREMENTS.
Persons providing investment advice for others or managing securities accounts for others may need to register as either an “Investment Advisor” under the Investment Advisors Act of 1940 or as a “Broker” or “Dealer” under the Securities Exchange Act of 1934. Such activities may also trigger state registration requirements.
Lime may receive liquidity provider rebates on orders that add liquidity to certain market centers. The source and nature of such compensation received will be furnished upon written request.
Securities and Exchange Commission Rule 606 of Regulation NMS requires all broker-dealers to make publicly available a quarterly report with regard to their order routing practices for non-directed orders. The Rule excludes from the quarterly report those orders that are directed by a customer to a particular exchange or market for execution.
Lime Brokerage LLC’s report is available on the Quarterly Order Routing Disclosure Reports page. Click on the appropriate quarter to access the data for the relevant time-period.
In addition, customers may request disclosure of the venues to which their orders were routed in the six months prior to the request, whether the orders were directed orders or non-directed orders, and the time of the transactions, if any, that resulted from such orders. Contact the Lime Brokerage Order Desk at 212-824-5500 for any such request.
What are volatile markets? A volatile market is a high-volume trading session marked by extreme price fluctuations and order imbalances resulting from numerous investors entering buy or sell orders for the same security simultaneously. Because of these imbalances, wide price variances in short periods of time are common. On any given day, volatile markets can affect a particular security, groups of securities or the market as a whole. Volatile markets can be caused by material news announcements, market developments and even trading halts taking place in less volatile securities. System access, system response times, system performance and trade executions may be adversely affected during volatile market conditions.
There are risks of trading in volatile markets including, but not limited to, the following: Inaccurate or late price quotes, market order execution prices significantly different from the current price quote, delays in trade executions, delays in open order cancellation requests and delays in trade confirmation reporting. Limit orders can eliminate several of the risks associated with volatile markets. A limit order will limit the execution price to the limit price specified or better, whereas a market order will execute at the current market price. Failure to use a limit order in volatile market conditions could result in customers paying more to purchase securities or receiving less on the sale of securities.
Placing cancel requests on open orders means the customer is sending a message to the system, which in turn sends that cancellation request to the exchange. In volatile markets this process can be significantly delayed. Order execution confirmations may be delayed during volatile markets.
Important Information You Need To Know About Opening A New Account
To help the government fight the funding of terrorism and money laundering activities, federal law requires financial institutions to obtain, verify and record information that identifies each person who opens an account.
This Notice answers some questions about Lime Brokerage’s Customer Identification Program.
What types of information will you need to provide?
When you open an account, Lime Brokerage is required to collect information such as the following from you:
- Your Name
- Date of Birth
- Identification Number:
- US Citizen: taxpayer identification number (social security number or employer identification number)
- Non-US Citizen: taxpayer identification number, passport number and country of issuance, alien identification card number, or government-issued identification showing nationality, residence and a photograph of you.
You may also need to show your driver’s license or other identifying documents.
A corporation, partnership, trust or other legal entity may need to provide other information, such as its principal place of business, local office, employer identification number, certified articles of incorporation, government-issued business license, a partnership agreement, or a trust agreement.
US Department of the Treasury, Securities and Exchange Commission, FINRA, and New York Stock Exchange rules already require you to provide most of this information. These rules may also require you to provide additional information, such as your net worth, annual income, occupation, employment information, investment experience and objectives, and risk tolerance.
What happens if you don’t provide the information requested or your identity cannot be verified?
Lime Brokerage may not be able to open an account or carry out transactions for you. If Lime Brokerage has already opened an account for you, it may have to be closed.
We thank you for your patience and hope that you will support the financial industry’s efforts to deny terrorists and money launderers access to America’s financial system.
Lime Brokerage LLC (“Lime”) has developed a Disaster Recovery and Business Continuity Plan (“Plan”) in the event that a function deemed critical to Lime’s ongoing business operations fails. The plan will assist Lime in minimizing any business operational issues that result from an unexpected event or disaster.
Lime’s policy is to respond to a Significant Business Disruption (SBD) by safeguarding employees’ lives and Company property, making a financial and operational assessment, quickly recovering and resuming operations, protecting all of the firm’s books and records, and allowing customers to transact business. In the event that the Company determines that it is unable to continue business, Lime will assure customers prompt access to their funds and securities.
Lime’s plan anticipates two kinds of SBDs, internal and external. Internal SBDs affect only Lime’s ability to communicate and do business, such as a failure of a critical system, or a fire in the Lime offices. External SBDs prevent the operation of the securities markets or a number of firms, such as a terrorist attack, a city flood, or a wide-scale, regional disruption.
In the event of an SBD, Lime intends to continue its operations to the extent reasonable and practical under the circumstances and will place utmost priority in re-establishing the data and operational systems necessary to provide our customers with prompt access to their funds and securities, and with the ability to close out open positions. We will continue to take orders through any of the methods that are available and reliable, and in addition, as communications permit, we will inform our customers what alternatives they have to send their orders to us.
Lime does not maintain custody of customers’ funds or securities, which are maintained by our clearing firm. In the unlikely event that we determine we are unable to continue our business as a result of an SBD, we will assure customers prompt access to their funds and securities through our clearing firms. Customers who are not introduced by Lime to their clearing firm are advised to contact that firm for information about business continuity plans and contingencies in the event of a business disruption to their trading.
Lime backs up its records on a periodic basis, keeping copies of essential databases, software programs, and other records offsite. Additionally, our clearing brokers have records of all customer activity that has been submitted to them.
Overviews of the Plans of our clearing brokers can be found online at the following web sites:
TYPES OF DISRUPTIONS
Lime’s Plan foresees three general classes of business disruptions:
1. Significant but not catastrophic disruption at Lime’s main office
2. Catastrophic disruption at Lime’s main office
3. City-wide, regional or other disruption that temporarily limits access to and/or the functioning of the Lime main office or data center (“Office”)
Significant but not Catastrophic Disruption at Lime’s Office
Limited disruptions affecting communications lines, computer hardware, or other related systems typically can be addressed through the use of certain redundant systems used by staff in various office locations.
Catastrophic Disruption at Lime’s Office
The Company’s response to a catastrophic disruption at our Office will depend on the extent of the damage. In the event of a total loss of Lime’s Office, the Firm is able to shift various data processing and service duties to alternative offices of Lime. We also will coordinate with our clearing firms to permit customers to close out open positions. In addition, as communications permit, we will inform our customers what alternatives they have to send their orders to us.
Beyond the initial aftermath of the total loss of Lime’s Office, the Company would evaluate the nature of the disruption, the availability of our systems and personnel, our financial condition, the condition of the national and global financial markets, and other factors, as appropriate, to determine whether to restore full brokerage operations or to discontinue brokerage operations and assist customers in transferring their accounts elsewhere.
City-Wide, Regional or Other Disruption that Temporarily Limits Access and/or the Functioning of the Lime Office
For a city-wide, regional or other disruption that temporarily limits access to and/or the functioning of the Lime Office, the Company’s response would vary dependent upon the exact nature of the disruption and its impact on the financial markets and our Waltham office. These types of disruptions include the Company having to evacuate the Office temporarily due to a bomb threat or smoke damage on another floor. Lime’s response would be similar to a catastrophic disruption to the Lime offices; however, restoration of full services would be quicker, but resumption time is dependent upon the exact nature of the disruption.
The Waltham office is in a geographically separate region and is intended to be able to assume most functions of our other locations when dealing with the Lime trading system and related activities in the event of a disruption in the Main or other offices. Please contact Lime at (212) 824-5000 for further details about these capabilities. Lime’s Business Continuity Plan, including this disclosure, will be amended to reflect new capabilities and enhancements.
There are innumerable potential causes of a business disruption, and the events that cause them may vary significantly in nature, size, scope, severity, duration and geographic location, and will result in distinct degrees of harm to human life; firm assets; the banks, exchanges, securities firms and ECNs with which the firm conducts business; and local, regional and national systems infrastructure (e.g., telecommunications, Internet connectivity, power generation and transportation) that could affect Lime’s recovery in a variety of ways. Lime reserves the right to flexibly respond to business disruptions in a situation-specific manner which the Company deems appropriate.
Nothing in this document is intended to provide a guarantee or warranty regarding the actions or performance of Lime Brokerage LLC, its computer systems, or its personnel in the event of a significant business disruption.
Lime may modify its Disaster Recovery and Business Continuity Plan and this disclosure at any time. The Company will post updates to this disclosure on our website.
Stop prices are not guaranteed execution prices. A “stop order” becomes a “market order” when the “stop price” is reached and firms are required to execute a market order fully and promptly at the current market price. Therefore, the price at which a stop order ultimately is executed may be very different from the entered “stop price.” Accordingly, while you may receive a prompt execution of a stop order that becomes a market order, during volatile market conditions, the execution may be at a significantly different price from the stop price if the market is moving rapidly.
Stop orders may be triggered by a short-lived, dramatic price change. During periods of volatile market conditions, the price of a stock can move significantly in a short period of time and trigger an execution of a stop order (and the stock may later resume trading at its prior price level). It is important to understand that if your stop order is triggered under these circumstances, you may sell at an undesirable price even though
the price of the stock may stabilize during the same trading day.
Sell stop orders may exacerbate price declines during times of extreme volatility. The activation of sell stop orders may add downward price pressure on a security. If triggered during a precipitous price decline, a sell stop order also is more likely to result in an execution, well below the stop price.
Placing a “limit price” on a stop order may help manage some of these risks. A stop order with a “limit price” (a “stop limit” order) becomes a “limit order” when the stock reaches the “stop price.” A “limit order” is an order to buy or sell a security for an amount no worse than a specific price (i.e., the “limit price”). By using a stop limit order instead of a regular stop order, you may receive additional certainty with respect to the price the you receive for the stock. However, you should be aware that, because brokers cannot sell for a price that is lower (or buy for a price that is higher) than the limit price selected, there is the possibility that the order will
not be executed at all. Lime Brokerage encourages the use of limit orders in cases where you prioritize achieving a desired target price more than getting an immediate execution irrespective of price.