Comments to NASD on maintenance margin issues:
To the thread:
Everyone should be aware that the NASD is currently reviewing member firms' maintenance margin practices. I find these practices and their implementation insufferable and unacceptable and have sent the following letter of complaint to NASD. Although the comment period has officially closed, I encourage you all to let your voices be heard. The email address is pubcom@nasd.com.
The relevant document, NASD Notice to Members 99-33, can be viewed at:
nasdr.com
VIA EMAIL
May 31, 1999
Ms. Joan C. Conley
Office of the Corporate Secretary
NASD Regulation, Inc.
1735 K Street, NW
Washington, DC 20006-1500
Re: Special NASD Notice to Members 99-33
(Maintenance Margin Requirements and Practices)
Dear Ms. Conley:
I am writing to offer some brief comments with respect to the matters
discussed in the above Notice. As a private investor and client of a
member firm, I am keenly aware of the issues and controversy surrounding
this Notice.
1) Member firms must be required to furnish, in writing, information to
holders of margin accounts regarding the selection criteria relied upon
to designate certain securities for increased maintenance margin
requirements. Such disclosure should include specific formulas or
algorithms employed to calculate, and procedures undertaken to
implement, increased maintenance margin requirements for such stocks,
along with a complete list of such securities and the increased
maintenance margin requirements pertaining thereto. A failure to
furnish such information should be regarded as a violation of Rule
10b-16, or other provision(s), of the Securities Exchange Act of 1934.
2) Member firms must be required to furnish to holders of margin
accounts revisions in their lists of stocks so affected on a periodic
basis, including additions, deletions and changes in maintenance margin
requirements for individual securities.
3) Member firms must be required to post prominently on their public
Web sites (to the extent they maintain such Web sites) a copy of their
current increased maintenance margin requirements for any and all stocks
so affected such that investors may compare directly member firms'
differing maintenance margin requirements.
4) Increased maintenance margin requirements, including additions and
deletions, should be revised no more frequently than monthly.
5) An investor who has purchased securities subject to a member firm's
current maintenance margin requirements should not be subject to higher
requirements for a period of at least 10 (ten) business days from the
trade date, or the date of imposition of higher maintenance margin
requirements, whichever is later, should such higher maintenance margin
requirements be imposed following the purchase of a security.
6) As with fees and commissions, margin interest charges and certain
other business terms, increased maintenance margin requirements should
be negotiable between a member firm and its customer, regardless of
account size, but subject to NASD Rule 2250. The negotiability of
maintenance margin requirements (along with other arrangements) should
be disclosed. In this way, customers will be able to distinguish
between what is federal securities regulation and what is merely a
firm's policy or nominal business practice.
7) Increased maintenance margin requirements for each stock so affected
must be conspicuously printed on trade confirmation tickets or the
electronic equivalent thereof.
8) The dollar amount of increased maintenance margin applied to each
security position so affected should be documented on each monthly
statement and totaled. In this way, an investor can readily ascertain
his/her increased requirements for securities so affected, individually
and in the aggregate.
It is my experience that NASD member firms are arbitrary and
inconsistent in their a) selection of stocks for increased maintenance
margin requirements, b) application of procedures, formulas or
algorithms to determine and implement such requirements, and c) methods
of disclosure, if any, regarding these practices.
As a result of the ad hoc nature of current practice, it is trivially
possible to purchase a security in good faith at 3:59 pm and, due to the
overnight imposition of new maintenance margin requirements, confront a
"house call" at 9:30 am the following morning, an absurd, capricious and
costly--yet avoidable--outcome.
In summary, it is urgent that NASD a) require of its member firms
minimum disclosure standards regarding the imposition of selective
higher maintenance margin requirements, b) strongly recommend
competitive, fair and defensible business practices with respect to
their implementation, and c) remind member firms that their failure to
provide reasonable disclosure or allow capricious implementation
protects nobody and represents a violation of the spirit, if not the
letter, of securities law.
I would be pleased to provide additional comments and perspectives drawn
from my personal investing experience, should they be deemed
appropriate.
Thank you for your consideration.
Sincerely,
Bruce A. Marlow
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