Trade brokerage agreement
In connection with these loans, a firm might ask the customer to sign a margin agreement. Before you borrow money from your brokerage firm-for any reason-be sure you fully understand the terms, costs and consequences.
The new account application may come with other documents-such as a "Customer Agreement," "Terms and Conditions" or the like. Make sure to ask for copies if you do not receive them and download or print out copies of these for your records if you conduct business with your brokerage firm online. Be sure to take time to review carefully all the information in these documents, whether you are opening your account in person at your broker's office or filling out your forms at home or online.
And do not sign them unless you thoroughly understand and agree with the terms and conditions they impose on you. If you haven't already done so, make sure you check out the background of your broker and brokerage firm before you open an account with them. Although a history free from registration or licensing problems, disciplinary actions or bankruptcies is no guarantee of the same in the future, checking out your broker and firm in advance can help you avoid problems.
Also make sure that the phone numbers and addresses that your broker and brokerage firm give you as their contact information are consistent with those listed in Brokercheck. Fraudulent entities and individuals have been known to steal the identities of legitimate brokers and brokerage firms so that they can get at your personal information! Asking questions will help you to invest wisely and avoid problems. No matter what your level of investing experience, don't be shy or intimidated—it's your money.
Here's a list to get you started. The brokerage firm that you open an account with may not be the one that sends your account statements. You may open an account with an introducing firm , which makes recommendations, takes and executes your orders and has an arrangement with a clearing and carrying firm , which is the one to finalize "settle" or "clear" your trades and hold your funds or securities. There are also firms that take and execute orders and settle trades.
If you work with an introducing firm, you may receive statements from the clearing firm. Find out what type of firm you open an account with and who will send you the account statements. You will receive an account statement at least once every calendar quarter. Whether the securities are registered in your name or in the name of the brokerage firm can affect how soon you receive your dividends and interest, the ease with which you can sell your securities and the types of communications you receive directly from the issuer of the securities, among other things.
After you open your account, you should monitor its activity regularly. Make sure that you review all of your account statements and trade confirmations for any errors or any transactions that you did not authorize. If you see any evidence of unauthorized trading or errors, notify your broker, broker's supervisor or brokerage firm's compliance department immediately to further protect your rights.
Make sure to take notes of any conversations you have with your firm concerning such disputes, to send in your complaints in writing as well and to keep copies of these notes and all communications related to such disputes for your records. Ask yourself whether your investments are meeting your expectations and goals and whether your goals have changed. Do your investments still appear to be right for you, and what criteria will you use to decide when to sell?
Information You'll Be Asked to Provide When you decide to open an account, there will be paperwork to complete. In a new account application, along with other information, you'll likely be asked to provide your: Social Security or other tax identification number: Like banks, credit unions and other financial institutions, brokerage firms must report to the Internal Revenue Service the income you earn on your investments. Driver's license or passport information, or information from other government-issued identification: Employment status, financial information—such as your annual income and net worth—and investment objectives: Collecting this information helps your broker to fulfill regulatory obligations.
In addition, the information can help your broker determine suitable investment recommendations for you. Note that the terms used to describe investment objectives often vary across brokerage firms and new account applications.
You might hear terms such as "income," "growth," "conservative," "moderate," "aggressive" and "speculative. Make sure that you describe your financial goals, how much risk you are willing to take with your investments and when you expect to need access to the funds in your account as comprehensively as possible. Effective February 5, , new account forms may include a section asking you to provide information for a trusted contact person.
Your broker might ask for this information in a conversation or via email as well. You should expect to be asked to provide the name, address and telephone number s for a trusted contact person that your brokerage firm may contact about your account. While you are not required to provide this information to open an account, it may be a good idea to do so.
By choosing to provide this information, you are authorizing the firm to contact such person and disclose information about your account in certain circumstances, including to address possible financial exploitation, and to confirm the specifics of your current contact information, health status, or the identity of any legal guardian, executor, trustee or holder of a power of attorney. You also will receive a written disclosure from the firm that lays out these details. Decisions You'll Be Asked to Make The new account form will also ask you to make some important decisions about your account, including how you will pay for your transactions, how any uninvested cash will be managed and who will have control over and access to your account.
Do you want a cash account or margin loan account? Most brokerage firms offer at least two types of accounts—a cash account and a margin loan account customarily known as a "margin account". In a cash account, you must pay for your securities in full at the time of purchase.
In a margin loan account, although you must eventually pay for your securities in full, your broker can lend you funds at the time of purchase, with the securities in your portfolio serving as collateral for the loan.
This is called buying securities "on margin. There are risks that arise from purchasing securities on margin that do not come with most other types of loans.
For example if the value of your securities declines significantly, you may be subject to a "margin call. The brokerage firm decides which of your securities to sell. Even if the firm gives you notice that you have a certain number of days to cover the shortfall, the firm still may sell your securities before that timeframe expires.
The record of a trading order shall include the principal's name or account number, time of the order, type of securities, number or par value of shares, limit price, expiration time, name or code of the associated person handling the trade, and manner in which the order is placed. When the principal places a trading order over the Internet, the record of the trading order shall also include the principal's Internet Protocol IP address and digital signature.
When a trading order is placed by phone, the broker shall make use of the telecommunications provider's caller ID service to record the caller's telephone number.
When a securities broker receives a trading order in non-electronic form and fills out the order ticket in electronic form, or when it receives a trading order in electronic form, it shall print out records of such trading orders in chronological sequence, which shall be signed or sealed after market close by the securities broker personnel handling the trades, provided that when procedures for the storage of trading order records satisfy the following provisions, such records need not be printed out or signed or sealed: Electronic storage media are used, and preparation of the records is completed on the day of the trade's execution.
The records are fully indexed, and management procedures are in place. A specific person s is responsible for records management, and it is possible at any time to convert the electronically stored data to hardcopy format. When a principal places an order using a non-electronic trading method, the securities broker may provide the execution report by electronic mail, telephone, facsimile, text message, voice message, or the Internet. With the exception of orders placed by telephone voice menu system, electronic signatures issued by a certification authority shall be used to identify and confirm order tickets, order confirmations, execution reports, and other such electronic documents transmitted between securities brokers and principals that place orders by an electronic trading method.
This restriction shall not apply, however, under the following circumstances: When an order confirmation or transaction confirmation is delivered by telephone, facsimile, text messaging, or webpage program. If, after an order from a principal to trade within 30 minutes prior to the commencement of market trading hours or within a certain period of time prior to the close of market trading hours as accepted by a securities broker is reported to the TWSE, there occurs a massive revocation or amendment to the report, the TWSE may request the securities broker to collect in advance from its principal, upon accepting the trading order, the funds or securities, margin for margin purchases, or margin for short sales.
The period of validity of a brokerage contract shall be determined by the parties to the contract. Execution of brokerage contracts and handling of trading orders by securities brokers shall be undertaken by registered and qualified responsible persons, managerial officers, and associated persons those acting as account executives.
When securities brokers accept trading orders, they shall undertake the trades in accordance with the particulars of the order tickets and in the order of their serial numbers. A principal or principal's agent may give written notice to the securities broker to cancel the trading order or reduce the volume of the trade, except where the trade has already been confirmed. A principal or principal's agent shall indicate a price limit when placing a trading order, provided that it is acceptable for a juristic person or other institution to authorize a securities firm to decide on the price within the price fluctuation range designated by the juristic person or institution and time of order submission, and the securities firm is required to retain a record of the customer's authorization and trading order.
When a principal or principal's agent does not state the period of validity when placing a trading order, the order shall be deemed a day order. For trade orders accepted by securities brokers through the Internet or other electronic means of transaction, the period of validity shall be specified; for orders made over the Internet, the period of validity shall be displayed on the electronic interface where trading order information is entered.
Securities brokers shall not accept a trading order under any of the following conditions: Where the broker is given full authorization to select the type of security traded. Where the broker is given full authorization to decide the volume of securities traded. Where the broker is given full authorization to decide the price at which the brokerage trade takes place.
Where the broker is given full authorization to decide whether to buy or sell securities. Where the trade involves securities not approved for listing or for which trading has been temporarily suspended. Where the trade involves securities no longer listed. Where the securities trade involves installment payments. Where the principal is given a guarantee of profit or profit sharing is involved in securities trading.
Where a securities dealer's trading order has not been approved by the competent authority. At the end of each month, securities brokers shall produce reconciliation statements to be delivered to respective principals before the 10th day of the following month. Securities brokers are obliged to keep all the particulars of a principal's trading order in strict confidence, provided that this restriction shall not apply when responding to inquiries from the competent authority or the stock exchange.
Except for securities which, by regulation, are sold by bidding at counters, securities brokers receiving trading orders shall enter each item of the trading order form in order into the stock exchange computer system from their computer terminals, and print the order confirmation after acceptance.
After the transaction, the broker shall print an execution report, and immediately produce a trade report as stipulated under Article 86 of the Securities and Exchange Act for notification of the principal on the date of the transaction. A securities broker shall exercise the diligence and care of a good custodian in managing the online brokerage operations referred to in the preceding paragraph.
Should the occurrence of war, natural disaster, or other force majeure events not attributable to the securities broker hinder the normal operation of online computer connections, the securities broker shall not bear liability for compensation. A securities broker accepting a trading order under normal settlement terms shall collect the securities sold or the purchase price of the securities from the principal when the order is transacted or prior to 10 a. A securities broker accepting an order for margin trading shall collect the legally required margin for margin purchases or deposits for short sales from the principal before10 a.
A securities broker conducting the business of accepting instructions from customers to keep custody of and invest customer funds, or operating the business of acting as an agent, as instructed by customers, to invest balances of funds from the trading of securities on behalf of customers, shall comply with the regulations governing these respective kinds of business when handling operations in connection with the receipt and payment of funds for brokerage trading under the preceding paragraph.
After a securities broker transacts a brokered trade, it shall collect the commission from the principal in accordance with Article 85, paragraph 1 of the Securities and Exchange Act. The stock exchange shall report the rate of such commissions to the competent authority for approval. A securities broker may not arbitrarily raise or lower its commissions, nor offer part or all of the commission as compensation to the referring person connected with the principal's trade, provided that this restriction shall not apply to any of the following circumstances: The commissions is paid under contract to a foreign financial institution registered and approved for operation of securities business by the competent authority of the country where the institution is located.
The commission is paid to a subsidiary of a financial holding company in accordance with a contract entered into for purposes of cross-selling business. The countries of location of such foreign financial institutions as referred to in subparagraph 1 of the preceding paragraph shall be separately prescribed by the TWSE.
A securities broker shall collect commissions from the principal according to a published fee schedule, and may not offer part or all of any commission as compensation to the referring person connected with the principal's trade. After confirmation and settlement of a trading order, a securities broker shall immediately deliver the securities purchased to the principal, or transfer the prices of the securities sold to the depository account in the designated financial institution in accordance with Article For trades that are not confirmed, securities already received shall be immediately returned to the principal.
A securities firm receiving or delivering the principal's securities or funds shall keep precise records and retain vouchers of receipt or delivery. A securities firm which violates the TWSE Operating Rules, or any related announced regulations in accepting trading orders shall be deemed in violation of the brokerage contract.
Accounting treatment for the collected default penalty shall be handled pursuant to the Regulations Governing the Preparation of Financial Reports by Securities Firms. When the principal is an overseas Chinese, foreign national, or mainland area investor outside ROC territory and delay of settlement results in borrowing of securities, payments made on their behalf, or other related expenses, the principal shall return those amounts to the securities firm when completing settlement.
When a principal is in default, the securities broker that accepted the order may postpone the termination of the principal's securities trading brokerage contract and the cancellation of its brokerage account, and during the 3 business days beginning from the business day after it reports the default, accept transfers from the principal, for purposes of sale, of securities held by the principal, into the securities broker's special account for handling default events, in order to satisfy the principal's debts and fees incurred by the default.
After the principal has satisfied its debts and fees during the aforesaid postponement period, and the securities broker has reported the default case closed, the principal may continue to use its original account for transactions. If the principal fails to settle its default debts and fees within the period, the securities broker that accepted the order shall immediately terminate its securities trading brokerage contract and cancel its brokerage trading account. On the day the principal is determined to be in default, a securities broker shall request other securities brokers to handle the securities or funds it received through settling the transaction referred to in paragraph 1 on the centralized trading market of the securities exchange.
Surplus remaining from the proceeds from such handling, after offsetting debt and fees resulting from the principal's default, may be returned to the principal. If there is a shortfall, compensation may be deducted from financial assets already received from or payable to the principal pursuant to other brokerage trades; if a shortfall remains, compensation may be sought from the principal.
When any default occurs out of unauthorized trading through a trading account or discretionary trading account conforming to Article of the TWSE Operating Rules, if there is failure to close the default case within the time limit specified in paragraph 3, the securities broker that accepted the order shall terminate the brokerage contract and cancel the brokerage trading account for that account together with those for any other account opened by that principal at the same business premises.
However, prior to such failure to close a default case within the time limit in paragraph 3, a non-defaulting account at the same business premises shall be handled in accordance with Article 2, paragraph 2.