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Dear Robert:
I am not a broker and I may not understand everything. But reading your
message I asked myself, what would happened if your client (an excellent
person) buys a large block of "volatile" stock and the very next tick is a
hold in trading and when the trading resumes the stock is 1/16? No question
that your client is a honorable person, but what if he is not rich enough
to cover losses? Then you are next in line. But what if you are not rich
enough too? (Nothing personal is intended).
Charles Schwab lost a few hundred millions dollars in 1987 because one well
known client refuse to honor his stock purchases. Schwab paid every penny
out of firm pocket (meaning out of my pocket if I am Schwab shareholder). I
am sure there were good intentions of every party. But there are
circumstances we can not control and that why there are time proven rules
and procedures. Because in the final count it is I (shareholder) that pay
the price.
Yours, Alex.
P.S. I do not have or ever had shares in Charles Schwab (I wish I had).
At 10:19 PM 7/17/99 -0500, Robert W Cummings wrote:
>
>Because I'm a broker and know my clients goals and there risk tolerance to
>achieve those goals. This is a personal relationship that is formed over a
>period of time. I have clients that take responsibility for their own
>actions and I have total trust in them. If for example they were to call me
>up and make a large purchase of a volatile stock and had no money in their
>account I would buy the stock knowing they would deposit the funds later.
>Keep in mind if they didn't I would have to sell out the position and
>absorb the loss if any personally. If it turned out to be a profit I
>couldn't keep it. Knowing this I wouldn't do the same for other clients I
>have although they may have a larger net worth and maybe more experience.
>This type relationship (know your customer rule)couldn't exist if I had a
>high number of continuing new accounts being opened minus personal contact.
>Your a lawyer you guys write these new account documents requirements for
>firms these customers sign to open and trade their accounts. If by chance a
>customer falls short on net worth or experience then additional forms are
>needed to open the account. All a firm has is that information given them
>and a history of that individual previous stock accounts but only if it's
>bad history. A firm doesn't care if your telling the truth about yourself
>only that you said it about yourself and it's in writing. Like I said your
>a lawyer and lawyers write these new account opening documents to protect
>the firm from liability. New account forms are not written to protect the
>customer. If your a level 1 option guy and desire to be a level 2 guy
>before you place your first trade no problem. Just sign an additional form
>saying you lack experience but still want to do this, its done. The firm
>has your money prior to the trade controls the margin requirements and has
>all the needed documentation so their butts are covered.
>
>Robert
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