With regard to all fees, etc. charged to customers, it is the policy of BCG to fully comply with the rules and guidelines set forth by FINRA and NASD Rules with regard to fair prices and commissions and just and equitable principles of trade. Specifically, when doing securities transactions with customers (excluding other broker-dealers) in the OTC market or on any exchange, the Company must adhere to the guidelines under Rule 2440, IM-2440-1 and IM-2440-2. These guidelines do not apply to transactions in municipal securities or exempt securities; however, all
Company representatives must comply with Consolidated FINRA Rule 2010 on just and equitable principles of trade.
The Company acts as agent and/or riskless principal in its transactions with customers. At or before completion of a securities transaction, customers must be advised as to the Company's role in the transaction (i.e. agent or principal). In addition, the Company’s transaction documentation must disclose if it acted as agent for the parties on both sides of a transaction (due to the potential conflict of interest).
As a "broker/agent" (executing orders on an “agency" basis for customers on an exchange or in the OTC market), the Company is compensated via commissions on customer trades. As a matter of Company policy, the Company adheres to the agency commission schedule as published from time to time by its clearing firm. Commissions charged in excess of these guidelines will not be permitted. For agency transactions, the commission is required to be indicated on the client confirmation and the Company may not include its profit as part of a "net" price. When acting as “riskless principal,” the Company purchases a security from another firm or customer AFTER it has received an order for such security from its customer. It then sells the security to the customer. A riskless principal transaction is similar to an "agency" trade due to the fact that the Company acts as an intermediary only and assumes no market risk. For the Company’s limited role in the transaction, it is compensated by a "mark-up" or "markdown" from its cost, based on the price paid to acquire the shares. For riskless principal transactions, the mark-up or markdown must be indicated on internal records and is generally disclosed to customers on confirms.
As noted above, the Company must adhere to the guidelines under Rule 2440, IM- 2440-1 and IM-2440-2 when pricing securities. Mark-ups/downs in riskless principal transactions in excess of 5% will generally be presumed to be unfair and unreasonable, however a mark-up above 5% may be justified upon a consideration of other permitted factors as described below. It is important to note that a pattern of 5% mark-ups (or downs), or even a pattern of mark-ups/downs less than 5%, may be considered unreasonable based on the circumstances. The designated Principal is responsible for taking note of such patterns and investigating to determine reasonableness.
Whether the Company acts as agent or riskless principal in its transactions with customers, the designated Principal is responsible for reviewing the reasonableness of all commissions and mark-ups or markdowns. In determining fair and equitable commissions and mark-ups/downs, relevant factors to consider include:
• The best judgment of the Company as to the fair market value of the security at the time of the transaction and of any securities exchanged or traded in connection with the transaction,
• Type of security involved (some securities customarily carry a higher mark-up or commission than other types of securities),
• Availability of the security in the market (in the case of an inactive security the effort and cost of buying or selling the security may be greater than in the case of an active one),
• Price or yield of the security, including comparison to yield on other securities of comparable quality, maturity, coupon rate and block size then available on market (lower priced securities may require more handling and expense), • Maturity of the security,
• The expense involved in effecting the transaction and the total dollar amount of the transaction (small transactions costs as much or more than transactions involving large sums of money)--however, expenses considered may not be excessive,
• Profit resulting from transaction, and
• The types of services and facilities that the member makes available to its customers (provided the costs of these services and facilities are not excessive).
10.2 Disclosures
Name of Supervisor (“designated Principal”):
Chief Compliance Officer
Designated Branch Office Managers and Producing Managers’ Supervisors (see Section 3.5 and Addendum)
Frequency of Review: During normal transaction review or periodic activity reviews as described herein.
How Conducted: Review standard forms, correspondence, scheduled mailings
How Documented: Notes to files when deficiencies are perceived; evidence of remedial action 3010 Checklist: Consolidated FINRA Rules 2210, 2262, 2263, 2264, 2265, 2266, 2267,
2269, 2360, 2370, 4210, 5121, 5122, 5150, 5350; Rules 2320, 2340, 2711, SEC 15g-2 through 15g-6, 15c1-5, 15c1-6, 15c2-12, 15c3-3, Rule 482, Reg.’s AC and FD, MSRB G-17 & G21
In the course of doing transactions with customers, the Company is obligated to provide certain disclosures, depending on the nature of the transactions and the circumstances. Various SEC and FINRA Rules apply and are generally described below and in respective sections in this Manual—concerning, for example: disclosures relating to arbitration, margin accounts, extending hours trading, penny stocks, options and futures products, estimated values of DPP’s/REIT’s, public offerings with conflicts of interest, loads and other fees, breakpoints, MF and V/A switches, various NCI’s, material events (muni securities), SIPC, FINRA Broker-Check, control relationships & participation in primary or secondary distributions, research reports, day trading, investment analysis tools, performance reporting, indications of interest, VWAP’s, crossed trades, extreme volatility, stop orders, fairness opinions, customer complaint reporting, Reg. S-P (privacy), business continuity, and verification of identity, among others. These requirements are included elsewhere herein or in procedures under separate cover. In addition, registered persons are expected to disclose the nature, characteristics and risk factors of securities to their customers as part of their sales practice obligations; respective sections of this Manual provide reminders about such investor education efforts.
Participation or Interest in Primary or Secondary Distributions (Consolidated FINRA 2269): If the Company is participating or has a financial interest in a primary or secondary
distribution of securities, and it acts as a broker for a customer or as a dealer receiving a fee from a customer for advising on securities, it must notify the customer about its participation or interest when accommodating a transaction for the customer in the subject securities. The supervisor in any such transactions will ensure written notification takes place before completion of the transaction.
Company personnel are required to follow all applicable disclosure requirements and the respective supervisory personnel are required to review, during transaction and periodic activity reviews, the proper implementation of disclosure procedures.
10.3 Churning
Name of Supervisor (“designated Principal”):
Designated Principal: CCO
And assigned supervisors/designated Branch Office Managers if applicable (see Section 3.5)
Frequency of Review: Continuous; in the daily course of business Weekly and Monthly reviews of commission runs
How Conducted: Trade Reviews; Commission Run Reviews; Interviews of RR’s How Documented: Maintain trade records and commission runs
Records of unusual activity and steps taken to remedy problems. 3010 Checklist: Consolidated FINRA Rule 2010, Rule 2510, Notice 08-57 Comments:
“Churning,” which refers to executing trades in a client’s account for the primary purpose of generating commissions, is forbidden by BCG. Rule 2510 states that where the Company has any discretionary power over an account there should be no transactions that are “excessive in size or frequency in view of the financial resources and character of such account.”
The designated Principal, in his daily review of trades and periodic reviews of commission runs, shall attempt to identify any churning in customer accounts. Unusual trading activity will be investigated further to discover if churning is taking place and interviews of Registered Representatives will be conducted for clarification and/or to remedy the situation.
10.4 Directed Brokerage – Not Applicable