Important Information on
Penny Stocks
The U.S. Securities and Exchange Commission (SEC) requires your
broker to give this statement to you, and to obtain your signature to
show that you have received it, before your first trade in a penny
stock. This statement contains important information — and you should
read it carefully before you sign it, and before you decide to purchase
or sell a penny stock.
In addition to obtaining your signature, the SEC requires your broker
to wait at least two business days after sending you this statement
before executing your first trade to give you time to carefully consider
your trade.
Penny stocks can be very
risky.
Penny stocks are low-priced shares of small companies. Penny stocks
may trade infrequently – which means that it may be difficult to sell
penny stock shares once you have them. Because it may also be difficult
to find quotations for penny stocks, they may be impossible to
accurately price. Investors in penny stock should be prepared for the
possibility that they may lose their whole investment.
While penny stocks generally trade over-the-counter, they may also
trade on U.S. securities exchanges, facilities of U.S. exchanges, or
foreign exchanges. You should learn about the market in which the penny
stock trades to determine how much demand there is for this stock and
how difficult it will be to sell. Be especially careful if your broker
is offering to sell you newly issued penny stock that has no established
trading market.
The securities you are considering have not been approved or
disapproved by the SEC. Moreover, the SEC has not passed upon the
fairness or the merits of this transaction nor upon the accuracy or
adequacy of the information contained in any prospectus or any other
information provided by an issuer or a broker or dealer.
Information you should get.
In addition to this statement, your broker is required to give you a
statement of your financial situation and investment goals explaining
why his or her firm has determined that penny stocks are a suitable
investment for you. In addition, your broker is required to obtain your
agreement to the proposed penny stock transaction.
Before you buy penny stock, federal law requires your
salesperson to tell you the "offer” and the "bid”
on the stock, and the "compensation” the salesperson and
the firm receive for the trade. The firm also must send a confirmation
of these prices to you after the trade. You will need this price
information to determine what profit or loss, if any, you will have when
you sell your stock.
The offer price is the wholesale price at which the dealer is willing
to sell stock to other dealers. The bid price is the wholesale price at
which the dealer is willing to buy the stock from other dealers. In its
trade with you, the dealer may add a retail charge to these wholesale
prices as compensation (called a "markup” or "markdown”).
The difference between the bid and the offer price is the dealer’s "spread.”
A spread that is large compared with the purchase price can make a
resale of a stock very costly. To be profitable when you sell, the bid
price of your stock must rise above the amount of this spread and
the compensation charged by both your selling and purchasing dealers. Remember
that if the dealer has no bid price, you may not be able to sell the
stock after you buy it, and may lose your whole investment.
After you buy penny stock, your brokerage firm must
send you a monthly account statement that gives an estimate of the value
of each penny stock in your account, if there is enough information to
make an estimate. If the firm has not bought or sold any penny stocks
for your account for six months, it can provide these statements every
three months.
Additional information about low-priced securities – including penny
stocks – is available on the SEC’s Web site at http://www.sec.gov/investor/pubs/microcapstock.htm.
In addition, your broker will send you a copy of this information upon
request. The SEC encourages you to learn all you can before making this
investment.
