Guidance on Low-Priced Equity Securities in Customer Margin and Firm Proprietary Accounts

FINRA Regulatory Notice 11-15

April 4, 2011

FINRA published a regulatory notice providing guidance on considerations when dealing with low-priced equity securities in customer margin and firm proprietary accounts. FINRA is reminding firms in this notice to "consider the risks associated with low-priced equity securities" when extending credit on such securities. In particular, FINRA urges firms to look at (i) volatility, (ii) concentrated positions in a single customer account, (iii) concentrated positions across all customer accounts, and (iv) daily volume and market capitalization for each security when imposing "house" margin requirements.

FINRA states that the "best practice" for firms is to subject low-priced and concentrated positions to "heightened review and daily monitoring," and to include such positions in exception reports to management. In addition, the notice alerts firms as to capital considerations for securities where a "market can absorb only a limited number of shares."

Please contact any of the following Cadwalader attorneys if you have any questions about this item:

Steven Lofchie; [email protected]

Jeffrey Robins; [email protected]

Maurine Bartlett; [email protected]

Cross References

FINRA Rule 4210

Exchange Act Rule 15c3-1