Source Capital Group Annual Disclosures to Customers October 2013
Business Continuity-During times of local or national emergencies, the office may be closed and every attempt to return to normal business operations will be made. Our Business Continuity Plan addresses varying degrees of business disruption and is reviewed and tested annually. To access your account funds or positions, please dial (203) 341-3500 or check our website for alternative access information. Our Business Continuity Plan is subject to modification, a summary is posted on our website. If a customer would like to receive a copy of our plan please send a written request to Source Capital Group, Attention: Technology Department, 276 Post Road West, Westport, CT 06880.
Customer Identification Program-Important Information About Procedures for Opening a New Account: To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. What this means for you: When you open an account, we will ask for your name, address, date of birth and other information that will allow us to identify you. We will also ask to see your driver’s license or other identifying documents.
FINRA BrokerCheck-FINRA BrokerCheck, formally known as the FINRA’s Public Disclosure Program, allows investors to learn about the professional background, business practices, and conduct of FINRA member firms and their brokers. The telephone number of BrokerCheck is (800) 289-9999, the website address is www.FINRA.org. An investor brochure is also available upon request.
Complaints-Complaints regarding your account may be directed to Source Capital Group, Attention: Compliance Department, 276 Post Road West, Westport, CT 06880. The telephone number is (203) 341-3500.
Limit Orders-The firm will handle any customer limit orders, whether received from its own customers, or from another broker-dealer with all due care so as not to “trade ahead” of limit orders. Therefore, the firm will not trade on buy orders at prices equal to or less than that of the limit order, or conversely the firm will not trade on sell orders at prices equal to or greater than that of the customer limit order, without first executing the customer limit order.
Held or Not Held Orders-Absent specific instructions to the contrary, we understand that when you place an order with the firm, you are directing that we handle your order on a “not held” basis, which means you are giving the firm discretion to exercise our brokerage judgment to seek to obtain the best execution of your order. “Held” orders do not permit discretion in handling your order. Depending on whether your order is a market or limit, “held” orders obligate a firm to execute your market order immediately at the then prevailing market price or your limit order at your limit price or better, which may not necessarily be the best price that can ultimately be obtained. Further, under the current limit order rules, “held” limit orders may often require the firm to sell shares at the same price at which we bought them, and therefore may cause us to charge a fee or commission on “held” limit orders. “Not held” orders, on the other hand, give the firm the flexibility and discretion to act in your best interest by working your order to seek to obtain the best execution possible. We believe that by exercising appropriate judgment and discretion (i.e., on a not held basis) with respect to your order, it can achieve the best execution possible under the surrounding facts and circumstances. Therefore, unless you give specific instructions to treat such an order differently at the time you place the order, we will treat the order as “not held.” We will try to use the term “not held” in taking your orders, but our omission to do so will not alter our understanding as to your order handling instructions. Please be advised that under FINRA Rules, a “not held” order is not a priced order. Consequently, the firm is permitted to trade for its own account at prices equal to, or better than, those of “not held” orders (that is, there are no Manning obligations), and the firm is not required to match incoming market orders with unexecuted better priced limit orders. Nonetheless, any purchases or sales by the firm must be consistent with our efforts to provide best execution of such orders. Should you wish us to treat your orders other than as “not held,” please contact your registered representative.
Market Orders-The firm will make all reasonable efforts to obtain the best possible price available at the time the order is received. In the event that a customer market order is placed at the same time as a firm order, the customer order will be completed first. Market orders are subject to price improvement opportunities.
Confirmations-In the case of a transaction in a reported security, or an equity security quoted on NASDAQ or traded on a national exchange and that is subject to last sale reporting, the name of the party from or to whom the securities were purchased or sold to you, the time the transaction took place, the difference between the price to the customer and the dealer’s purchase price, and the source and amount of any other remuneration received or to be received by the firm in connection with the transaction will be furnished upon request.
Payment for Securities-In the event that you wish to pay for securities purchased through Source Capital Group please make checks payable to First Clearing Corporation LLC, our clearing firm, for securities transactions payments. Please note your account number and Source Capital Group in the memo section of the check.
Payment For Order Flow-The SEC’s payment for order flow rules, which became effective October 2, 1995, require disclosure of payment for order flow practices on confirmations, upon the opening of new accounts, and annually thereafter. The firm does not receive remuneration for directing orders in equity securities to particular broker-dealers or market centers for execution. Such remuneration is considered compensation to the firm, and the source and amount of any compensation received by the firm in connection with your transaction will be disclosed and furnished to you upon written request if and when such is received.
Order Routing Disclosure Statement-Source Capital Group has contracted with Thomson Reuters to capture and report its order routing practices for directed and non-directed orders routed to a particular venue for executions as per SEC Rule 606. The firm is exempt from the reporting requirements in SEC Rule 605 at this time. These reports are publicly available at http://www.sourcegrp.com. We will furnish a written copy of the quarterly report on request. In addition we will provide more detailed information upon request relating to the routing of any order in the six months prior to the request, including the time of any transactions that resulted from that order.
FINRA Rule 2266-You may obtain more information about the Securities Investor Protection Corporation (SIPC) coverage on your brokerage account by contacting the firm or requesting a SIPC brochure. SIPC’s website is www.sipc.org and the telephone number is (202) 371-8300.
FINRA Rule 2261-The Statement of Financial Condition is available to Source Capital Group customers. If you would like to request a copy please do so in writing. Contact Source Capital Group, Attention: Compliance Department, 276 Post Road West, Westport, CT 06880, and a copy will be provided to you. The telephone number is (203) 341-3500.
Options-For those customers who trade options, further information with respect to commissions and other charges related to the execution of listed option transactions is available upon request.
Special Statement for Uncovered Options Writers
There are special risks associated with uncovered option writing which expose the investor to potentially significant loss. Therefore, this type of strategy may not be suitable for all customers approved for options transactions.
The potential loss of uncovered call writing is unlimited. The writer of an uncovered call is in an extremely risky position, and may incur large losses if the value of the underlying instrument increases above the exercise price.
As with writing uncovered calls, the risk of writing uncovered put options is substantial. The writer of an uncovered put option bears a risk of loss if the value of the underlying instrument declines below the exercise price. Such loss could be substantial if there is a significant decline in the value of the underlying instrument.
Uncovered option writing is thus suitable only for the knowledgeable investor who understands the risks, has the financial capacity and willingness to incur potentially substantial losses, and has sufficient liquid assets to meet applicable margin requirements. In this regard, if the value of the underlying instrument moves against an uncovered writer’s options position, the investor’s broker may request significant additional margin payments. If an investor does not make such margin payments, the broker may liquidate stock or options positions in the investor’s account, with little or no prior notice in accordance with the investor’s margin agreement.
For combination writing, where the investor writes both a put and a call on the same underlying instrument, the potential for risk is unlimited.
If a secondary market in options were to become unavailable, investors could not engage in closing transactions, and an option writer would remain obligated until expiration or assignment.
The writer of an American-style option is subject to being assigned an exercise at any time after he has written the option until the option expires. By contrast, the writer of a European- style option is subject to exercise assignment only during the exercise period.
NOTE: It is expected that you will read the booklet entitled Characteristics and Risks of Standardized Options available from your broker. In particular, your attention is directed to the chapter entitled “Risks of Buying and Writing Options”. This statement is not intended to enumerate all of the risks entailed in writing uncovered options.
Margin Disclosure Statement-Your brokerage firm 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 your firm. Consult your 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 your brokerage firm. If you choose to borrow funds from your firm, you will open a margin account with the firm. The securities purchased 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 held with the member, 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 the firm that has made the loan to avoid the forced sale of those securities or other securities or assets in your account(s). The firm can force the sale of securities or other assets in your account(s). If the equity in your account falls below the maintenance margin requirements, or the firm’s higher “house” requirements, the firm can sell the securities or other assets in any of your account held at the firm to cover the margin deficiency. You also will be responsible for any short fall in the account after such a sale. The firm can sell your securities or other assets 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 or other assets in their accounts to meet the call unless the firm has contacted them first. This is not the case. Most firms will attempt to notify their customers of margin calls, but they are not required to do so. However, even if a firm has contacted a customer and provided a specific date by which the customer can meet a margin call, the firm can still take necessary steps to protect its financial interests, including immediately selling the securities without notice to the customer. You are not entitled to choose which securities or other assets in your account(s) are liquidated or sold to meet a margin call. Because the securities are collateral for the margin loan, the firm has the right to decide which security to sell in order to protect its interests. The firm can increase its “house” maintenance margin requirements at any time and is not required to provide you advance written notice. These changes in firm 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(s). 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 customers under certain conditions, a customer does not have a right to the extension. (b) Member firms shall, with a frequency of not less than once a calendar year, deliver individually, in writing or electronically, the disclosure statement described in paragraph (a) or the following bolded disclosures to all non-institutional customers with margin accounts: 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 held with the member, 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. The annual disclosure statement required pursuant to this paragraph (b) may be delivered within or as part of other account documentation, and is not required to be provided in a separate document. (c) In lieu of providing the disclosures specified in paragraphs (a) and (b), a member may provide to the customer and, to the extent required under paragraph (a) post on its Web site, an alternative disclosure statement, provided that the alternative disclosures shall be substantially similar to the disclosures specified in paragraphs (a) and (b). (d) For purposes of this Rule, the term “non-institutional customer” means a customer that does not qualify as an “institutional account” under Rule 3110(c)(4).
Extended Trading Hours Trading Risk Disclosure
Source offers its customers the opportunity to trade securities when the major U.S. securities markets are not open. The hours for trading outside of customary market hours are 8AM-9:30AM and 4PM-6:30PM EST. There are risks to trading securities when the major trading markets are closed. To make sure you are aware of these risks, the FINRA has developed the following model disclosure or risks of extended hours trading.
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 investors to buy or sell securities, and as a result, investors 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 regular market hours, or upon the opening the next morning. As result, you may receive an inferior price in extended hours trading than you would during regular 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 trading 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 Wider 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.
Source Capital Group Business Continuity Plan
Source Capital Group, Inc. has developed a Business Continuity Plan on how we will respond to events that significantly disrupt our business. Since the timing and impact of disasters and disruptions is unpredictable, we will have to be flexible in responding to actual events as they occur. With that in mind, we are providing you with this information on our business continuity plan.
Contacting Us – If after a significant business disruption you cannot contact us as you usually do at (203) 341-3500 or (800) 882-2889, please go to our web site at www.sourcegrp.com. If you cannot access Source Capital Group through either of those means, you should contact our clearing firm, First Clearing at their Correspondent Customer Business Continuity Plan Support Line at (877) 496-3223 or at www.firstclearingllc.com for instructions on how to gain access to funds and securities. This phone number is for sell/liquidation orders and check requests only.
Our Business Continuity Plan – We plan to quickly recover and resume business operations after a significant business disruption and respond by safeguarding our employees and property, making a financial and operational assessment, protecting Source Capital Group’s books and records, and allowing our customers to transact business. In short, our Business Continuity Plan is designed to permit our firm to resume operations as quickly as possible, given the scope and severity of the significant business disruption.
Our Business Continuity Plan addresses: data backup and recovery; all mission critical systems; financial and operational assessments; alternative communications with customers, employees, and regulators; alternate physical location of employees; critical supplier, contractor, bank and counter-party impact; regulatory reporting; and assuring our customers prompt access to their funds and securities if we are unable to continue our business.
Our clearing firm, First Clearing, LLC backs up our important records in a geographically separate area. While every emergency situation poses unique problems based on external factors, such as time of day and severity of the disruption, our clearing firm has advised us that its objective is to restore its own operations and be able to complete existing transactions and accept new transactions and payments as soon as possible. Your orders and requests for funds and securities could be delayed during this period.
Varying Disruptions – Significant business disruptions can vary in their scope, such as only our firm, a single building housing our firm, the business district where our firm is located, the city where we are located, or the whole region. Within each of these areas, the severity of the disruption can also vary from minimal to severe. In a disruption to only our firm or a building housing our firm, we will transfer our operations to a local site when needed and expect to recover and resume business as soon as our personnel reach the site. In a disruption affecting our business district, city, or region, we will transfer our operations to a site outside of the affected area, as soon as possible. In either situation, we plan to continue in business, transferring operations to our clearing firm if necessary, and notify you through our web site www.sourcegrp.com. or our emergency number, (800) 882-2889 how to contact us.
For more information – If you have any questions about the Source Capital Group Business Continuity Plan, please do not hesitate to call (203) 341-3500 or (800) 882-2889.
Congress has passed major changes to modernize the laws that govern the financial services industry, including those designed to safeguard individual privacy. At Source Capital protecting our clients’ privacy is paramount. We recognize that an individual’s financial matters are extremely private and sensitive in nature. These new laws and regulations, combined with our long-standing firm polices, enable us to protect your privacy and, at the same time, provide you with a broad range of high quality accounts and services.
We collect only the information that is required to provide you with the highest quality professional services as well as what we are required to know by law and regulation. We maintain strict security procedures to protect the information that we are privy to; however, during the normal course of business, we collect non public, personal information about you form the following sources: information we receive from you on applications or other forms; information about your transactions with us or affiliates, or others; and information we receive from consumer reporting agencies as needed.
Employee access to customer information is restricted to those who have a legitimate need to know in order to provide you with our professional services, or as required by law and regulation. We maintain both physical and electronic safeguards in accordance with federal law and regulatory standards. Any employee who has access to individual information is trained and required to follow company procedures designed specifically to keep that information confidential. These procedures are also deigned to ensure that financial information is accurate, current and complete. Please notify us if it ever appears that our records contain incomplete or inaccurate information about you. We will promptly investigate your concerns and make necessary corrections.
Protecting your privacy is an ongoing process. As technology continues to advance, Source Capital will continue to evaluate its security standards and procedures in order to protect your information with the best available means. Nothing is more important to us than our clients’ trust and confidence and we will do whatever it takes to maintain the security of our professional relationships.