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Your brokerage firm is 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 firm. Consult your firm 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 or other assets in
any of your accounts held with the member, 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 or assets in your
account(s).
- The firm can force the sale of securities or other assets in your account(s). If the equity in your
account falls below the maintenance margin requirements or the firm's higher "house" requirements,
the firm can sell the securities or other assets in any of your accounts held at the firm to cover the
margin deficiency. You also will be responsible for any short fall in the account after such a sale.
- The firm can sell your securities or other assets 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 or other assets 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 interests, including immediately selling the securities without
notice to the customer.
- You are not entitled to choose which securities or other assets in your account(s) are
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 requirements 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(s).
- 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.
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