Anti-Money Laundering and Customer Identification Program
Extended Hours Trading Risk Disclosure – FINRA Rule 2265
KBFG may execute a customer order outside of regular trading hours should the customer specifically request such facilitation. Clients should consider the following points before placing orders for execution during extended hours trading. “Extended hours trading” means trading outside of “regular trading hours.” “Regular trading hours” generally means the time between 9:30 a.m. and 4:00 p.m. Eastern Standard Time.
• Risk of Lower Liquidity. Liquidity refers to the ability of market participants to buy and sell securities. Generally, the more orders that are available in a market, the greater the liquidity. Liquidity is important because with greater liquidity it is easier for customers to buy and sell securities, and as a result, customers are more likely to pay or receive a competitive price for securities purchased or sold. There may be lower liquidity in extended hours trading as compared to regular market hours. As a result, your order may only be partially executed, or not at all.
• Risk of Higher Volatility. Volatility refers to the changes in price that securities undergo when trading. Generally, the higher the volatility of a security, the greater its price swings. There may be greater volatility in extended hours trading than in regular market hours. As a result, your order may only be partially executed, or not at all, or you may receive an inferior price in extended hours trading than you would during regular market hours.
• Risk of Changing Prices. The prices of securities traded in extended hours trading may not reflect the prices either at the end of the regular market hours, or upon the opening the next morning. As a result, you may receive an inferior price in extended hours trading than you would during market hours.
• Risk of Unlinked Markets. Depending on the extended hours trading system or the time of day, the prices displayed on a particular extended hours system may not reflect the prices in other concurrently operating extended hours trading systems dealing in the same securities. Accordingly, you may receive an inferior price in one extended hours trading system than you would in another extended hours trading system.
• Risk of News Announcements. Normally, issuers make news announcements that may affect the price of their securities after regular market hours. Similarly, important financial information is frequently announced outside of regular market hours. In extended hours trading, these announcements may occur during trading, and if combined with lower liquidity and higher volatility, may cause an exaggerated and unsustainable effect on the price of a security.
• Risk of Larger Spreads. The spread refers to the difference in price between what you can buy a security for and what you can sell it for. Lower liquidity and higher volatility in extended hours trading may result in wider than normal spreads for a particular security.
• Risk of Lack of Calculation or Dissemination of Underlying Index Value or Intraday Indicative Value (“IIV”). For certain Derivative Securities Products, an updated underlying index value or IIV may not be calculated or publicly disseminated in extended trading hours. Since the underlying index value and IIV are not calculated or widely disseminated during the pre-market and post-market sessions an investor who is unable to calculate implied values for certain Derivative Securities Products in those sessions may be at a disadvantage to market professionals.
Held and Not Held Orders
Absent specific instructions to the contrary, KBFG understands that when an institutional customer places an order with us, it is directing that we handle the order on a “not held” basis. This means the client is giving us discretion to use our judgment on the time, price, and manner in which the order is executed, so that we may seek to obtain best execution that are reasonably available within market conditions. Institutional client orders transmitted via FIX or other protocol and not designated as “held” or “not held” will be handled as “not held.”
If the order is to be executed on a “held” basis, the client must identify it as such at the time of entry. We will immediately execute any market order at the then prevailing market price and any limit order at or better than your limit price if possible.
Investor Education and Protection Disclosure – FINRA Rule 2267
The Financial Industry Regulatory Authority runs a public disclosure program known as BrokerCheck that provides information about brokerage firms and their registered persons. To obtain an investor brochure that includes information about BrokerCheck or to obtain additional information, contact the FINRA public disclosure hotline at (800) 289-9999 or visit the BrokerCheck website at http://brokercheck.finra.org/. FINRA’s general website is located at www.finra.org/.
Disclosure of Order Routing Information – Securities Exchange Act Rule 606
KBFG makes publicly available on its website a quarterly report on order routing statistics pursuant to and as described in SEA Rule 606(a)(1). It can be also viewed by visiting following URL:
https://www.apexclearing.com/disclosures/ KBFG will furnish, upon customer request, a written copy of the quarterly report. KBFG will also furnish, upon customer request and pursuant to SEA Rule 606(b)(2), a report on the order routing information described in SEA Rule 606(b)(1).
Statement of Policy Regarding Payment for Order Flow – Securities Exchange Act Rule 607
KBFG is required by the SEC to disclose to new customers, and annually to all customers, its policies regarding the practice of receiving “payment for order flow,” the nature of order routing policies for orders subject to payment for order flow and the degree to which these orders can receive price improvement. The SEC generally defines “payment for order flow” to include any cash or non-cash compensation received by a broker or dealer from another broker or dealer, national securities exchange, registered securities association or exchange member in return for sending customer orders to such entities for execution.
Many venues offer cash credits or rebates for orders that provide liquidity to their books and charge explicit fees for orders that extract liquidity from their books, and some other “inverted venues” offer cash credits or rebates for orders that extract liquidity from their books and charge explicit fees for orders that provide liquidity to their books. Liquidity rebates are considered payments for order flow. Although KBFG does not receive outright payment for order flow, KBFG may from time to time receive rebates for providing liquidity or extracting liquidity pursuant to agreements we have with certain executing brokers. KBFG’s routing decisions are based on a number of factors, including but not limited to, price, liquidity, venue reliability, cost of execution, likelihood of execution and potential for price improvement.
Prohibition Against Trading Ahead of Customer Orders – FINRA Rule 5320
In the section above entitled Held and Not Held Orders, we note that KBFG presumes orders from our institutional customers are not held unless you specify otherwise. Please note that such not held orders are not subject to the protections of FINRA Rule 5320.
Rule 5320 generally prohibits KBFG from trading for its own account in an NMS stock or OTC equity security at a price that is equal to or better than an unexecuted held customer order, unless KBFG immediately thereafter executes the customer order up to the size and the price (or better) at which we executed our own order.
The Rule provides an exception for large-sized orders (orders of 10,000 shares or more with a total value of $100,000 or more) and/or orders for “institutional accounts.” For such orders, the Firm may trade a security on the same side of the market for its own account at a price that would satisfy the customer’s held order.
You may opt in to the protections of FINRA Rule 5320 with respect to all or any portion of your orders by notifying us of your objection to KBFG trading along with your orders by mail to KBFG Securities America Inc., 1370 Avenue of the Americas, New York, NY 10019 Attn: Chief Compliance Officer.
You may also notify us on a trade-by-trade basis that you object to our trading along with your order. If we do not receive any objection, we will presume that you consent to our trading activity.
Front Running of Block Transactions – FINRA Rule 5270
Rule 5270 prohibits a broker-dealer from trading for its own account while having material, non-public market information concerning an imminent block transaction in a security, a related financial instrument, or a security underlying the related financial instrument prior to the time information concerning the block transaction has been made publicly available or has otherwise become stale or obsolete. The Rule provides exceptions for certain transactions. For example, the Rule does not preclude a broker-dealer from trading for its own account for purpose of fulfilling or facilitating the execution of a client’s block transaction. A broker-dealer is also permitted to engage in hedging or pre-hedging when the purpose of the trading is to fulfill the client order and the broker-dealer has disclosed such trading activity to the client. This hedging or pre-hedging activity may materially impact the market prices of the securities or financial instruments a client is buying or selling. Of course, KBFG conducts this trading in a manner designed to limit market impact and consistent with our best execution obligations to our clients.
Fractional Share Trading Disclosure
Fractional share trading is generally available for exchange-listed National Market System (“NMS”) securities. Fractional share trading functionality allows you to buy and sell fractional share quantities and dollar amounts of certain securities (“Fractional Trading”). Fractional Trading presents unique risks and has certain limitations that you should understand before placing your first trade.
KBFG may facilitate the holding or trading of a fraction of a share of a security (“Fractional Shares”) in your Account. You acknowledge and understand that KBFG rounds all trading of Fractional Shares to the sixth decimal place, the value of Fractional Shares to the nearest cent, and any dividends paid on Fractional Shares to the nearest cent. You understand that KBFG will not accept U.S. dollar-based purchases or sales of less than $0.01 and that you will receive proceeds from the sale of any whole or Fractional Shares rounded to the nearest cent.
All orders with a fractional share component will be marked “Not Held,” which gives KBFG the time and price discretion to execute the order without being held to the security’s current quote. In connection therewith, each time you submit an order to buy or sell a fractional share quantity or dollar amount of a particular security, you authorize KBFG to “work the order.” If you do not wish your order to be handled on a Not Held basis, you should not engage in Fractional Trading. You understand that when KBFG executes Fractional Orders utilizing inventory held in its principal account, the portions of such Fractional Orders that execute against inventory are executed in a principal capacity. To the extent that KBFG must purchase or sell whole shares in the market to fill any portion of your Fractional Order, that portion of the order may be executed under agency or principal capacity. To the extent that KBFG fills any portion of your Fractional Order out of inventory rather than by purchasing or selling shares in the market (“Inventory Fulfillment”), KBFG will attempt to price that portion of your Fractional Order at a price of the National Best Bid and the National Best Offer (“NBBO”) at the time of execution for orders executed. Due to rounding and price movements, the actual share amount received may differ from the estimated order quantity.
For a variety of reasons, the actual amount of an executed dollar-value trade may be different from the requested amount. The actual amount of an executed order to buy or sell a dollar value of a security may also be lower than the amount requested due to the deduction of certain fees (e.g., the Additional Assessment) or taxes. Orders received in good form by KBFG will be accepted and transmitted for execution. You may attempt to cancel an order, but there is no ability to request that an order be “cancelled and replaced” (i.e., you cannot modify an order once it has been submitted). Instead, you will need to cancel your order and then submit a new one.
Your ability to buy or sell a security using Fractional Trading may be more restricted than if you were to buy or sell traditional whole share quantities of the same security. Certain securities are not eligible for fractional trading. KBFG supports market and limit orders only for fractional share trading of a security that are good for that day’s trading session, or in the case of an order entered outside of market hours, that are good until the close of the next trading session.
You acknowledge that, subject to applicable requirements, KBFG may report transactions in your Account in terms of either U.S. Dollars, shares, or both.
Trading on a particular security, or in the market as a whole can be halted for a variety of reasons. In the event of a trading halt of a security, or if the market overall is experiencing a trading halt, Fractional Trading of that security will also be halted, and your order will be held until trading resumes. You will have the option to cancel pending fractional orders, but the cancel requests won’t be processed until the halt is lifted. Your order is good only for that day’s trading session, or in the case of an order entered outside of market hours, good until the close of the next trading session. If trading does not resume or your order is not executed by the close of that day’s Fractional Trading window, it will be cancelled.
Fractional Trading presents unique risks and has certain limitations that you should understand before placing your first trade. You should review and understand these risks and limitations before engaging in Fractional Trading. More information about order types is available at: https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_ordertypes.
Suitability and Appropriateness
Certain securities or financial instruments may not be suitable or appropriate for all investors or in all geographical areas. Depending on the needs, investment objectives and financial situation of your institution, your institution must make its own independent decisions regarding any securities or financial instruments purchased and sold. Moreover, the institutional customer exception to the suitability requirements focuses on two factors: (1) whether a broker “has a reasonable basis to believe the institutional customer is capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies involving a security or securities”, and (2) whether “the institutional customer affirmatively indicates that it is exercising independent judgment”.
The fact that KBFG has made available to you investment opinions and other information constitutes neither a recommendation that you enter into a particular transaction nor a representation that any financial instrument is suitable or appropriate for you. You should consider whether an investment strategy or the purchase or sale of any product is appropriate for your institution in the light of its particular investment needs, objectives and financial circumstances. You hereby acknowledge (i) that KBFG has a reasonable basis to believe that your entity is capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies involving a security or securities, and (ii) that your institution is exercising independent judgement about the instruments it transacts in and that your institution is a sophisticated investor that has sufficient knowledge and experience in financial and business matters and is capable of evaluating the merits and risks of any prospective investment or transaction.
KBFG may trade or make markets for its own account on a principal basis in any securities referenced herein. We may also engage in securities transactions that are inconsistent with this communication and may have long or short positions in such securities.
Margin Disclosure Statement – FINRA Rule 2264
Securities purchased on margin are the Firm’s collateral for the loan to you. If the securities in your account decline in value, so does the value of the collateral supporting your loan, and, as a result, the Firm can take action, such as issue a margin call and/or sell securities or other assets in any of your accounts, 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.
• The Firm can force the sale of securities or other assets in your account(s).
• The Firm can sell your securities or other assets without contacting you.
• You are not entitled to choose which securities or other assets in your account(s) are liquidated or sold to meet a margin call.
• The Firm can increase its “house” maintenance margin requirements at any time and is not required to provide you advance written notice.
• You are not entitled to an extension of time on a margin call.
In accordance with applicable laws and regulations, KBFG records certain telephone conversations with outside parties. By communicating with KBFG you consent to the voice recording of conversations with personnel of KBFG.
U.S. Treasury Circular 230 Tax Notice
KBFG does not render advice on tax and tax accounting matters to clients. This communication and any other communications between KBFG and you are not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer under U.S. federal income tax laws. Investors should consult their own legal, tax investment or other advisors, at both the onset of any transaction and on an ongoing basis to determine the laws and analyze applicable to their specific circumstances.
KBFG, as a member of SIPC and pursuant to FINRA Rule 2266, discloses to new customers, and annually to all customers, that they may obtain information about SIPC, including the SIPC brochure, by contacting SIPC at the following address or visiting their web site at WWW.SIPC.ORG.
Securities Investor Protection Corporation
805 Fifteenth Street NW, Suite 800
Washington, DC 20005-2215
Tel. (202) 371-8300