Active Trading

THE RISK OF LOSS IN ACTIVE TRADING CAN BE SUBSTANTIAL. YOU SHOULD, THEREFORE, CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES. IN CONSIDERING WHETHER TO TRADE, YOU SHOULD BE AWARE OF THE FOLLOWING POINTS:

(1) The securities markets are extremely efficient and competitive. Successful Active Trading typically requires skill and discipline as well as experience and knowledge of the capital markets. There is no guarantee that you will be successful in implementing your investment strategy. A substantial number of Active Traders may not be successful. Moreover, changes in market structure and competitive conditions also may affect your continued success. Only risk capital should be used for trading. Market structure and competitive changes in the markets may cause formerly successful traders to become less successful.

(2) Active Trading involves a high volume of trading activity. Each trade generates a commission and the total commission on a high volume of trading can be in excess of any earnings.

(3) Persons who are new to active trading should strictly limit their number of trades and the size of their trades to reduce the risk of large dollar losses during the learning process.

(4) Active Trading is designed to produce profits. However, the activity also may result in losses that can exceed more than 100% of your initial capital. You are solely responsible for any losses in your account.

(5) Placing contingent orders, such as "stop-loss" or "stop-limit" orders, will not necessarily limit your losses to the intended amounts, since market conditions on the NASDAQ or any Alternative Trading System on which the order is placed may make it impossible to execute such orders. Similarly, using "market orders" can be very risky, since large gaps can occur in price movements of active stocks. You are urged in most instances to use "limit orders."

(6) Under certain market conditions, you may find it difficult or impossible to liquidate a position quickly at a reasonable price. This can occur, for example, when the market for a stock suddenly drops, or if trading is halted due to recent news events or unusual trading activity. The more volatile a stock is, the greater the likelihood that problems may be encountered in executing a transaction.

(7) In addition to normal market risks, you may experience losses due to system failures. The firm and its clearing broker rely upon sophisticated computer software and hardware to execute transactions, which are subject to failure due to a variety of factors. In addition, NASDAQ and the Alternative Trading Systems have computer systems that often malfunction. Among other events, you may experience losses due to: system crashes during both peak and low volume periods; the loss of orders on both SOES and Select Net; and, delayed, conflicting and inaccurate confirmations on orders or cancellations that you initiate.

(8) The use of any margin or leverage in an account can work against you as well as for you. Leverage can lead to large losses as well as gains. You may sustain a total loss of the initial margin funds and any additional funds that you deposit with your broker to establish or maintain a position, and you may incur losses beyond your initial investment. If the market moves against your position, you may be called upon to deposit a substantial amount of additional margin funds, on short notice, in order to maintain your position. If you do not provide the required funds within the time required, your position may be liquidated at a loss, and you will be liable for any resulting deficit in your account.

(9) You should consult your broker concerning the nature of the protections available to safeguard funds or property deposited in your account.

ALL OF THE POINTS NOTED ABOVE APPLY TO ACTIVE TRADING OF EQUITY SECURITIES. IF YOU ARE CONTEMPLATING TRADING FUTURES OR OPTIONS CONTRACTS, YOU SHOULD BE AWARE THAT THESE INSTRUMENTS POSSESS ADDITIONAL RISKS.

THE RISK OF ACTIVE TRADING MAY BE SUBSTANTIAL. THIS BRIEF STATEMENT CANNOT, OF COURSE, DISCLOSE ALL THE RISKS AND OTHER ASPECTS OF ACTIVE TRADING. ONLY RISK CAPITAL SHOULD BE USED FOR

Margin

What are the risks of a margin account?

	Your potential losses are greater due to leverage if there is adverse market movement.
	If the market value of your securities declines, maintenance calls must be met on specified dates or TaibDirect will liquidate your securities to meet the call. The timing of such a sale could be unfavorable.
	The potential loss on short sales is without limit because there is no ceiling on the price of stock.

Are there any restrictions on who can open a margin account?
Yes. Margin substantially increases the risk of losses, therefore it is not appropriate for all type of accounts. Thus, TAIB may limit the clients who may or may not qualify for margin at its discretion.

What accounts can have margin?
Individual and joint accounts can with a signed margin agreement. Trust accounts can, but must be specifically allowed by the trust agreement. Your broker will require a signed margin agreement (by trustee) and a copy of the section of the trust that gives permission for margin to be used. Corporate or partnership accounts can, but you will be required to complete additional forms to open the account.

How does margin work?
Your broker will lend you money backed by the securities in your account. Like any loan, you will be charged interest on the amount borrowed.

How much interest will be charged?
Brokers will charge a percentage above the Broker Call rate, which is the rate that banks charge brokers on the loans. (In actuality, many brokers are able to receive a lower rate than the Broker Call rate.) The Broker Call rate is variable and moves in tandem with other market rates. You can find this rate in The Wall Street Journal, along with other primary rates.

What am I agreeing to when I sign the Margin Agreement?
The margin agreement will include all of the rules you must follow. It also gives the broker the right to hypothecate (use your securities as collateral) at the bank to guarantee the loan. If you fail to meet a margin call, (a request for additional equity in a margin account to bring the account above the minimum equity requirement.) the broker can sell your securities to satisfy the call.

TAIB Securities W.L.L. reserves the right to liquidate your position, at its own discretion, if a margin call is generated. TAIB Securities W.L.L. is not required to contact you before liquidating assets in your account to satisfy the margin requirement, and may not do so. It is the sole responsibility of the client to make sure that a margin call is avoided and all margin requirements are met at all times.

How are margin accounts regulated?
The Securities and Exchange Act of 1934 made the Federal Reserve Board responsible for the regulation of extension of credit by brokers for the purchase of securities. The Federal Reserve's Regulation T sets the guidelines by which brokers are allowed to lend money.

How does Reg-T affect me?
It sets the initial margin requirement on a loan. The current requirement is 50%. This means that every time you purchase a stock you must deposit 50% of the purchase price. Although the Federal Reserve can adjust this rate, it is done very rarely.

The Federal Reserve also generates a list of marginable securities. Pink Sheet and Bulletin Board traded securities can not be purchased on margin. Low priced stocks on the listed exchanges (NYSE, AMEX) are also not eligible to be margin. This means that these securities have to be paid for in full. To be sure, ask your broker prior to purchasing a stock if it is eligible to be purchased on margin.

What is a maintenance requirement?
Reg-T only deals with the initial margin requirement. That is, how much money you have to deposit at the time of purchase. The maintenance requirement dictates the minimum equity requirement. In other words, what portion of the account must be yours at all times. This rate is set by your broker and can vary. Most firms require a 35% minimum equity requirement. Assume that you have an account whose total value is $10,000. If the maintenance requirement is 35%, your equity in the account can not drop below $3,500. Which would place the borrowed amount at $6,500.

Are there any other requirements?
Yes. You must have a minimum of $2,000 in equity to maintain a margin account. Brokers can, at their discretion, increase margin requirements. If you concentrate your account (you have only a few positions), the broker may require that you maintain the account at a higher level (usually 50% minimum equity).

Additionally, if a stock is particularly volatile the broker may make the maintenance requirement as high as 100%. Meaning that you must pay for the stock in full. Lately, many brokers are requiring many internet related stocks be paid for in full because of the risk involved in trading these stocks. If you have any doubts, ask your broker prior to buying a stock on margin. It is your responsibility to find out.

Can other securities other than stocks be purchased on margin?
Yes. Corporate bonds, Government bonds, and treasury issues. Options are not marginable. Mutual Funds must be paid for in full but after 30 days can be borrowed against.

1. Reg-T call.

A Reg-T call is generated at the time of purchase. The amount of the call is equal to the amount required to pay for 50% of the purchase. Assume the only position you have in your account is $3,000 in cash. You purchase several stocks, which total to $15,000. The Reg-T requirement is $7,500 (50%). The Reg-T call is $4,500 ($7,500 - $3,000).

2. House Call.

This call is generated when the equity in your account drops below the broker's minimum equity requirement. Assume the minimum equity requirement is 35%, the total value of the account is $10,000, the amount borrowed (debit) is $7,500. This account would generate a house call of $1,000. The equity is currently $2,500, which is 25% of the total value of the account (2,500/10,000).

2. Sell securities in the account to cover the call. The amount that must be sold can be confusing. It will be based on what type of call it is and what percentage of equity you own in the account. Always ask your broker how much you have to sell to be sure. Basically, the amount that must be sold can be calculated by how much of a release the sale of stock will bring.

NASD Regulation, Inc., is issuing this investor guidance to provide some basic facts to investors about the practice of purchasing securities on margin, and to alert investors to the risks involved with trading securities in a margin account.

Use of Margin Accounts
A customer who purchases securities may pay for the securities in full or may borrow part of the purchase price from his or her securities firm. If the customer chooses to borrow funds from a firm, the customer will open a margin account with the firm. The portion of the purchase price that the customer must deposit is called margin and is the customer's initial equity in the account. The loan from the firm is secured by the securities that are purchased by the customer. A customer may also enter into a short sale through a margin account, which involves the customer borrowing stock from a firm in order to sell it, hoping that the price will decline. Customers generally use margin to leverage their investments and increase their purchasing power. At the same time, customers who trade securities on margin incur the potential for higher losses.

Margin Requirements
The terms on which firms can extend credit for securities transactions are governed by federal regulation and by the rules of the NASD and the securities exchanges. This investor guidance focuses on the requirements for marginable equity securities, which includes most stocks. Some securities cannot be purchased on margin, which means they must be purchased in a cash account, and the customer must deposit 100% of the purchase price. In general, under Federal Reserve Board Regulation T, firms can lend a customer up to 50% of the total purchase price of a stock for new, or initial, purchases. Assuming the customer does not already have cash or other equity in the account to cover its share of the purchase price, the customer will receive a margin call from the firm. As a result of the margin call, the customer will be required to deposit the other 50% of the purchase price.

The rules of the NASD and the exchanges supplement the requirements of Regulation T by placing "maintenance" margin requirements on customer accounts. Under the rules of the NASD and the exchanges, as a general matter, the customer's equity in the account must not fall below 25% of the current market value of the securities in the account. Otherwise, the customer may be required to deposit more funds or securities in order to maintain the equity at the 25% level. The failure to do so may cause the firm to force the sale of-or liquidate-the securities in the customer's account in order to bring the account's equity back up to the required level.

Margin Transaction-Example
For example, if a customer buys $100,000 of securities on Day 1, Regulation T would require the customer to deposit margin of 50% or $50,000 in payment for the securities. As a result, the customer's equity in the margin account is $50,000, and the customer has received a margin loan of $50,000 from the firm. Assume that on Day 2 the market value of the securities falls to $60,000. Under this scenario, the customer's margin loan from the firm would remain at $50,000, and the customer's account equity would fall to $10,000 ($60,000 market value less $50,000 loan amount). However, the minimum maintenance margin requirement for the account is 25%, meaning that the customer's equity must not fall below $15,000 ($60,000 market value multiplied by 25%). Since the required equity is $15,000, the customer would receive a maintenance margin call for $5,000 ($15,000 less existing equity of $10,000). Because of the way the margin rules operate, if the firm liquidated securities in the account to meet the maintenance margin call, it would need to liquidate $20,000 of securities.

Firm Practices
Firms have the right to set their own margin requirements-often called "house" requirements-as long as they are higher than the margin requirements under Regulation T or the rules of the NASD and the exchanges. In today's market, some firms have raised their maintenance margin requirements for certain volatile stocks (such as stocks of companies that sell products or services via the Internet) to help ensure that there are sufficient funds in their customer accounts to cover the large swings in the price of these stocks. These changes in firm policy often take effect immediately and may result in the issuance of a maintenance margin call. Again, a customer's failure to satisfy the call may cause the firm to liquidate a portion of the customer's account.

Margin Agreements and Disclosures
If a customer trades stocks in a margin account, the customer needs to carefully review the margin agreement provided by his or her firm. A firm charges interest for the money it lends its customers to purchase securities on margin, and a customer needs to understand the additional charges that he or she may incur by opening a margin account. Under the federal securities laws, a firm that loans money to a customer to finance securities transactions is required to provide the customer with written disclosure of the terms of the loan, such as the rate of interest and the method for computing interest. The firm must also provide the customer with periodic disclosures informing the customer of transactions in the account and the interest charges to the customer.

Loans From Other Sources
In some cases, firms may arrange loans for customers from other sources, and there have been instances of customers making loans to other customers to finance securities trades. A customer that lends money to another customer should be careful to understand the significant additional risks that he or she faces as a result of the loan, and needs to carefully read any loan authorization forms. A lending customer should be aware that such a loan may be unsecured and may not be eligible for protection by the Securities Investor Protection Corporation (SIPC). The firm may not, without direction from the borrowing customer, transfer money from the borrowing customer's account to the lending customer's account to repay the loan.

	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 in your account.
	The firm can force the sale of securities in your account. If the equity in your account falls below the maintenance margin requirements under the law-or the firm's higher "house" requirements-the firm can sell the securities in your account to cover the margin deficiency. You will also be responsible for any short fall in the account after such a sale.
	The firm can sell your securities 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 in their accounts to meet the call unless the firm has contacted them first. This is not the case. As a matter of good customer relations, most firms will attempt to notify their customers of margin calls, but they are not required to do so.
	You are not entitled to an extension of time on a margin call. While an extension of time to meet initial margin requirements may be available to customers under certain conditions, a customer does not have a right to the extension. In addition, a customer does not have a right to an extension of time to meet a maintenance margin call.

It is important that investors take time to learn about the risks involved in trading securities on margin, and investors should consult their brokers regarding any concerns they may have with their margin accounts.

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