finra

FINRA

For Release:
Contact:
July 27, 2000
Nancy A. Condon
(202) 728-8379
Amy E. Hyland
(202) 728-8304

NASD Board of Governors Approves Disclosure Statement for Margin Accounts

Washington, D.C.—The National Association of Securities Dealers, Inc. (NASD®) Board of Governors today approved a proposed amendment to the NASD rules that would require member firms to provide to retail customers a written statement that fully describes the risks associated with trading securities in a margin account. The margin disclosure statement must be provided to customers prior to or at the opening of an account, and annually thereafter, and can be delivered electronically or on paper. The proposed rule complements NASD Regulation’s efforts to enhance investor education about the mechanics of margin accounts.

 

"In light of the growth in margin debt and the number of inquiries and complaints concerning margin accounts, we have looked closely at how NASD Regulation can help investors obtain meaningful information that is critical to understanding margin trading. While some customers currently receive separate disclosure statements from their firms, this new rule will ensure that all investors have access to uniform information that explains the potential risks associated with margin accounts," said Mary L. Schapiro, President of NASD Regulation.

 

The NASD will offer a model disclosure statement to members, but firms will be permitted to create their own disclosure statement so long as it contains the following specific information:

  • A customer can lose more funds than he/she deposits in the account if the value declines;
  • A firm has the right to force the sale of securities in an account;
  • A firm may notify the customer of a margin call and allow the customer a few days to meet the call, but the firm also can sell a customer’s securities without contacting him/her;
  • A customer cannot decide which securities should be sold from his/her account;
  • A firm can increase maintenance margin requirements at any time;
  • A firm does not have to grant a customer an extension on a margin call.

In the past year, NASD Regulation has created a new area devoted to margin resource materials on its Web site. Easily accessible through a button on the nasdr.com Home Page, the new area offers information pertaining to the opening of a margin account, including information on how margin accounts work in volatile markets, margin calls, sell-outs, and customer credit-worthiness. The Web Page offers statistics on outstanding margin and provides a special "statement stuffer" for member firms to use in customer mailings.

 

Prior to becoming effective, the proposed rule changes must be filed and approved by the Securities and Exchange Commission, generally after publication in the Federal Register and a public comment period.

 

Investors can obtain more information about NASD Regulation as well as information about any NASD-registered broker or brokerage firm by calling (800) 289-9999, or by sending an e-mail through NASD Regulation’s Web site.

 

NASD Regulation oversees all U.S. stockbrokers and brokerage firms. NASD Regulation, NASD Dispute Resolution, The Nasdaq Stock Market, Inc., and the American Stock Exchange® are subsidiaries of the National Association of Securities Dealers, Inc., the largest securities industry self-regulatory organization in the United States.