Guidance on Margin

 

Continental Investors Services is furnishing this document to you to provide some basic facts about purchasing securities on margin, and to alert you to the risks involved with trading securities in a margin account.  Before trading stocks in a margin account, you should carefully review the margin agreement provided by our firm.  Consult our firm regarding any questions or concerns you may have with your margin accounts. 

 

When you purchase securities, you may pay for the securities in full or you may borrow part of the purchase price from Continental Investors Services, Inc.  If you choose to borrow funds from us, you will open a margin account with our firm.  The securities purchased are the firm’s collateral for the loan, and as a result, our firm can take action, such as issue a margin call and/or sell securities in your account, in order to maintain the required equity in the account.

 

It is important that you fully understand the risks involved in trading securities on margin.  These risks include the following:

 

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 Continental Investors Services, Inc. to avoid the forced sale of those securities or other securities in your account.

 

We 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 our firm’s higher “house” requirement, Continental Investors Services, Inc. can sell the securities in your account to cover the margin deficiency.  You also will be responsible for any shortfall in the account after such a sale. 

 

We can sell your securities without contacting you.  Some investors mistakenly believe we must contact you for a margin call to be valid, and that we cannot liquidate securities in your accounts to meet the call unless we have contacted you first.  This is not the case.  We will attempt to notify our customers of margin calls, but we are not required to do so.  However, even if our firm has contacted you and provided a specific date by which you can meet a margin call, Continental Investors Services, Inc. can still take necessary steps to protect its financial interests, including immediately selling the securities without notice to you. 

 

You are not entitled to choose which security in your margin account is liquidated or sold to meet a margin call.   Because the securities are collateral for a margin loan, Continental Investors Services, Inc. has the right to decide which security to sell in order to protect its interests.

 

Continental Investors Services, Inc. can increase its “house” maintenance requirements at any time and is not required to provide you with advance written notice.  These changes in our firm’s policy often take effect immediately and may result in the issuance of a maintenance margin call.  Your failure to satisfy the call may cause the member to liquidate or sell securities in your account. 

 

You are not entitled to an extension of time on a margin call.  While an extension of time to meet margin requirements may be available to you under certain conditions, you do not have the right to the extension. 

 

If you have any questions, please contact Continental Investors Services, Inc. at 1-800-525-0181.