Market Volatility Disclaimer
Trading in Fast Changing Markets
As today's investors know, the U.S. securities
markets are experiencing a period of
extraordinary trading volumes and
price volatility. While these conditions affect most
segments of the market, currently
they are especially acute in certain securities, such as
Internet-related stocks and initial
public offerings ("IPOs").
In addition, investors in rapidly
increasing numbers are taking advantage of technological
developments that enable them to
obtain market information and personal account
information and to initiate
securities transactions through electronic channels such as the
Internet, telephone, personal
computer, and two-way paging devices.
In a public statement, former SEC
Chairman Arthur Levitt reminded investors of the importance ofknowing what they are buying, the
environment in which transactions take place, and the
level of associated risk involved.
Potential Delays in Order Execution
and Reporting
Your broker-dealer or its clearing
firm transmits your orders for execution to various
exchanges or market centers, based
on a number of factors. These factors include: size of
order, trading characteristics of
the security, favorable execution prices (including
opportunity for price improvement),
access to reliable market data, availability of efficient
automated transaction processing and
reduced execution costs through price concessions
from the market centers.
Market makers generally have their
own procedures for handling orders (consistent with industry rules). In periods
of heavy trading and price volatility, market makers may alter their procedures
on individual stocks or groups of stocks. For example, they may execute orders
manually rather than electronically, or reduce the order size for which they
guarantee execution.
Changes in trading procedures and
other circumstances may result in queues and backlogs of orders, both intra-day
and at the market opening and corresponding delays in executions in the OTC and
listed markets. In such cases, the execution price of a market order may be
significantly higher or lower than the market price quoted or displayed at the
time you entered your order.
During such heavy trading periods,
the quotes displayed on your computer screen, as "real time" may not reflect
the current trading price of the security. These conditions may also delay the
transmission of order execution
reports. To help you manage some of the risks of trading in
a volatile market, below is a
reminder of the types of orders you may place and how they
are handled in the market.
Types of Orders
Market Orders
Market Volatility Disclaimer
When you place a market order, your
broker-dealer and/or its clearing firm will transmit the
order to a market center for full
and prompt execution without regard to price. Therefore, in
a volatile market, a market order
may receive an execution price significantly different from
the price of that security quoted
when the order was entered. Additionally, if you place a
market order when the markets are
closed (e.g., nights or weekends), your order will be
executed at the prevailing price
when the market next opens.
There can be substantial changes
between the most recent closing price of a security and the next opening or available
price. If you have limited assets to allocate to a transaction, you should
consider placing a limit order, whether during the trading day or extended
hours. For example, your ability to make additional contributions to your
retirement account is subject to certain
requirements. Therefore,
transactions in retirement accounts are generally limited to the
assets available in the account. If
your transaction price exceeds your available account
balance and you cannot otherwise pay
for the transaction, your broker/dealer and/or its
clearing firm will be required to
liquidate all or a portion of the transaction or other account
assets to the extent necessary to
satisfy your financial obligation. Any losses or costs of
such liquidation will be your
responsibility.
Since market orders are executed as
promptly as possible, it is generally not feasible to
cancel a market order even if you
have not received an execution report. Your request to
attempt to cancel a market order
will be handled on a best-efforts basis. Although you may
receive an electronic notice or
verbal confirmation that we have received your request for
the attempted cancellation, do not
assume that it means that the trade was cancelled. Your
broker-dealer and/or its clearing
firm are not responsible in cases where a replacement
order is placed and executed prior
to your receiving confirmation of the cancellation of a
prior order. In addition, due to the
queuing of orders, if a market order is entered near the
close of trading it may not be
eligible to receive an execution.
Limit Orders *
A limit order will only be executed
at a specific price or better. With a limit order to buy, the
stock is eligible to be purchased at
or below your limit price, but never above it. Similarly,
with a limit order to sell, the stock
is eligible to be sold at or above your limit price, but
never below it. By placing a limit
order instead of a market order you protect yourself from
buying the stock at a price higher
or selling at a price lower than you had expected.
However, in volatile markets,
although your limit order receives price protection, due to
priority of other orders your order
may not be executed even if the security is trading at
your limit or better after your
order is entered. Similarly, the security price may move away
from your limit after your order is
entered in which case your order will not be executed.
Stop Orders *
Stop orders are available on certain
securities to buy or sell after a stock has reached a
certain specified price. A buy-stop
order is placed above the current market price and
automatically becomes a market order
to buy when the "stop" price is reached. A sell-stop
order is placed below the current
market price and automatically becomes a market order to
sell when the "stop" price
is reached. As with any market order in volatile markets, the
market order triggered at the stop
price may receive an execution price significantly
different from the quoted price of
that security when the order is triggered. Market makers'
procedures vary with respect to the
handling of stop orders that have already hit the stop
price. In addition, some market
makers may not be willing to accept stop orders under
certain market conditions and this
practice varies among market makers. When this occurs,
your broker-dealer and/or its
clearing firm may not accept certain stop orders.
IPO Securities Trading in the
Secondary Market
Due to the extreme volatility that
is sometimes associated with trading an IPO in the
secondary market (particularly one
that is trading at a price much higher than the initial
offering price), a customer who
places a market order for such a security is at risk of
receiving an execution price that is
substantially different from the market price at the time
the order was placed. As discussed
above, this risk can be reduced by appropriate use of
limit orders. The placement of a
limit order in such situations would address the risk of
receiving an execution that is
substantially away from the market price that was quoted at
the time the order was placed. However,
as with any limit order in a volatile market, due to
order imbalances and fast markets, a
limit order may not receive an execution even if the
security is trading at your limit or
better after your order was entered.
Margin
Please note that margin requirements
may be raised during periods of market volatility.Factors considered in raising the
margin requirement for a particular stock include: price
fluctuations, market capitalization
and volatility. The increase of the amount of equity that
must be maintained in margin
accounts protects you, your broker/dealer and its clearing
firm in the event of a large change
in the value of the stock by decreasing the chance that
account positions will be liquidated
to meet a margin call. Some volatile securities may also
be designated "not
marginable" (100% initial margin with payment within three days of
settlement) or "cash on
hand" (100% of the purchase price must be in the account prior to
execution of the trade).
Customer Access
Your broker-dealer and/or its
clearing firm have an ongoing commitment to provide the
highest level of service and
technology to enable you to access your account, obtain market
information and to enter your orders
quickly, easily, and efficiently. However, during periods
of extraordinary volatility and
volume, customers using online or automated trading services
may experience delays in accessing
their account due to high Internet traffic or systems
capacity limitations. Similarly,
customers may experience delays in reaching telephone
representatives. Please be aware
that market conditions, including stock and bond prices,
may change during these periods.
Multiple channels are available through which you may
place orders or access information,
including telephone representatives, so you have alternative ways to do
business. For more information on trading in fast changing markets, contact
your Investment Professional.
* There may be additional fees for
limit and stop orders.
National Financial Services LLC,
Member NYSE, SIPC