Archive-name: investment-faq/general/part7
Version: $Id: faq-p7,v 1.35 1996/09/18 12:47:54 lott Exp lott $
Compiler: Christopher Lott, cml@cs.umd.edu

This is the general FAQ for misc.invest, part 7 of 7.

Compilation copyright (c) 1996 by Christopher Lott.  Use and copying
of this information, distribution of the information on electronic
media, and preparation of derivative works based upon this information
are permitted, so long as the following conditions are met:
    + No fees or compensation are charged for this information,
      excluding charges for the media used to distribute it.
    + Proper attribution is given to the authors of individual articles.
    + This copyright notice is included intact.

Disclaimer: This information is made available AS IS, and no
warranty is made about its quality or correctness.

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Subject: Trading - Direct Investing and DRIPS
Last-Revised: 24 Nov 1994
From: BKOTTMANN@falcon.aamrl.wpafb.af.mil, das@impulse.ece.ucsb.edu,
	jsb@meaddata.com, murphy@rock.enet.dec.com, johnl@iecc.com,
	GEH01016@niftyserve.or.jp

DRIPS offer an easy, low-cost way for buying stocks.  Various companies
(lists are available through NAIC and some brokerages) allow you to
purchase shares directly from the company and thereby avoid brokerage
commissions.  However, you must purchase the first share through a
broker, NAIC, or other conventional means. In all cases, that first
share must be registered in your name, not in street name.  (A practical
restriction here is that for some common kinds of accounts like IRAs
and Keoghs, you can't participate in a DRIP since the stock has to be
held by the custodian.)  Once you have that first share, additional
shares can be purchased through the DRIP either through dividend
reinvestments or directly by sending in a check. Thus the two names
for DRIP: Dividend/Direct Re-Investment Plan.  The periodic purchase
also allows you to automatically dollar-cost-average the purchase of
the stock.

A handful of companies sell their stock directly to the public without
going through an exchange or broker even for the first share.  These
companies are all exchange listed as well, and tend to be utilities.

First Share is a buying club for the first share in DRIPS.  Membership
costs about $24/year and you have to be willing to sell single shares
to other members upon request.  Contact them at 1-800-264-6278.

Money Magazine from Nov (or Dec) 92 reports that the brokerage house
A.G. Edwards has a special commission rate for purchases of single
shares.  They charge a flat 16% of the share price.  However,
contributors to this FAQ report that some (all?) of the AGE offices
provide this service only for current account holders.

Published material on DRIPS:
 + _Guide to Dividend Reinvestment Plans_
   Lists over a one hundred companies that offer DRIP's.  The number
   given for the company is 800-443-6900; the cost is $9.00 (charge to CC)
   and they will send you the DRIPs booklet and a copy of a newsletter
   called the Money Paper.  

 + _Low cost/No cost investing_ (author forgotten) 
   Lists about 300-400 companies that offer DRIPs.

 + _Buying Stocks Without a Broker_ by Charles B. Carlson.
   Lists 900 companies/closed end funds that offer DRIPS.  Included is a
   profile of the company and some plan specifics.  These are: if partial
   reinvestment of dividends are allowed, discounts on stock purchased
   with dividends, optional cash payment amount and frequency, fees,
   approximate number of shareholders in the plan.

 [ Compiler's note:  It seems to me that a listing of the hundreds or
   more companies that offer DRIPS belongs in its own FAQ, and I will not
   reprint other people's copyrighted lists.  Please don't send me lists
   of companies that offer DRIPS. ]


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Subject: Trading - Electronically
Last-Revised: 12 Aug 1996
From: cml@cs.umd.edu, sac@hpuerca.atl.hp.com, MARKU@delphi.com,
	sorbrrse@wildcat.cig.mot.com, ac733@lafn.org, DrWealth@ix.netcom.com,
	travis@lombard.com

Here's how to avoid ever speaking to a broker ever again!  The following
companies offer an electronic communications path for requesting trades
on the equities and options markets.  The primary motivation for using
one of these services is lowering commissions; a second is that the
services are usually accessible 24 hours a day.  A computer, modem, and
appropriate software are required.  While some services support access
with a conventional telecommunications package, others require you to
obtain special software from them for the task.  Some of the services have
toll-free numbers or local access numbers to save on telephone charges.
Primary source: Baie Netzer, ``Information highway: brokers rev up'',
International Herald Tribune, 14 May 1994.

Company:	Brown and Company
Service name:	PC Line
Software: 	any telecomm package
Platforms:	any
Service fees:	5 min/day free, then $0.40/minute; free minutes based on trades
Commission:	$29 minimum up to 5,000 shares, then $0.01 each.
Features:	Information about price, number of issues traded
Contact:	800-225-6707; 20 Winthrop Square, Boston, MA 02110-1236

Company:	E-Trade**
Service name:	E-Trade
Software: 	any telecomm package
Platforms:	any
Service fees:	$0.27/minute, 12 minutes credit with each trade.
Comm'n disc't:	None, this is the only way to trade with them.
Features:	Trades, options, etc.
Contact:	800 STOCKS 5 (800 786 2575), +1 (415) 326 2700

Company:	Fidelity
Service name:	Fidelity On-line Xpress (FOX)
Software: 	$50 (available from Fidelity or Egghead Software)
Platforms:	IBM + compatible with Hayes-compatible modem
Service fees:	none
Comm'n disc't:	10%
Features:	Trade stocks and mutual funds, obtain quotes.
Contact:	any Fidelity office or 800 544 7272

Company:	Lombard Institutional
Service name:	Lombard Internet Trading and Information Service
Software:	web browser
Platforms:	any
Service fees:	none for information; $34 commission per trade
Comm'n disc't:	none
Features:	View data, buy/sell/short stocks and options.
Contact:	http://www.lombard.com/, or call 800-688-6896

Company:	Pacific Brokerage Services (PBS)
Service name:	PBS-Online
Software: 	any telecomm package
Platforms:	any
Service fees:	$50 startup, $0.25/minute
Comm'n disc't:	?
Features:	trades, ?
Contact:	800 421 8395, +1 (213) 939 1100

Company:	Quick & Reilly
Service name:	Quick Way
Software: 	any telecomm package
Platforms:	any
Service fees:	none
Comm'n disc't:	none
Features:	trades, ?
Contact:	any Q&R office or 800 456 4049

Company:	Schwab (Charles Schwab)
Service name:	Two nearly identical services: StreetSmart, E.Schwab
Software: 	StreetSmart is $39; E.Schwab is free
Platforms:	StreetSmart: IBM, Mac; e.Schwab: IBM
Service fees:	Street Smart is free; E.Schwab is $7.50/qtr, often waived
Comm'n disc't:	StreetSmart: Regular Schwab Commissions Less 10%
		E.Schwab: $39 for trades to 1000 shrs., $0.03/shr. thereafter
Features:	Trades, account information, quotes, etc.
		StreetSmart offers a link to DJ News Service, E.Schwab does not
Contact:	any Schwab office or 800 635 7020

** Disclaimer: This company is regularly discussed in the misc.invest.*
   newsgroups, and it seems only fair to warn readers at this point that
   while a few people praise the company, many criticize it unmercifully.
   Some tell horror stories of poor service and money lost.  The compiler
   of this FAQ cannot verify those stories, good or bad, has absolutely no
   experience with the company, and wishes to state clearly that your
   mileage will definitely vary.

[ Any others? ]


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Subject: Trading - via the Internet
Last-Revised: 27 Mar 1994
From: cml@cs.umd.edu

In September 1994 I wrote an article that severely criticized making
trades via the Internet.  In that article, I discussed problems of
sending information *in the clear* via various routes:

  + With an asynchronous communication setup (e.g., e-mail), timeliness
    is impossible to guarantee; a message may be delayed for many hours.

  + With either a synchronous communication setup (e.g., telnet) or
    asynch. comm. (e-mail), security is impossible to guarantee because 
    of packet sniffers.

Well, I'd like to recant. :-)  Recent developments on the net have
addressed these two problems.  The fundamental development is the use
of *encryption* technology.  While schemes such as PGP have been out
there for a while, only the recent incorporation of encryption
technology into the WWW browser _Netscape_ makes this fairly secure
mode of communication easily accessible.  This scheme is called
``secure http'' aka HTTPS.  My understanding of HTTPS (warning: I am
a cryptographic novice) is that your Netscape client negotiates with
the remote WWW server to figure out a way to encrypt all communications,
and you (the user) are not required to type any secret key or otherwise
take any steps.  Thereafter, the user can be reasonably sure that even
if someone is sniffing packets, the sniffer will have to work Extremely
Hard at deciphering them, in fact sufficiently hard that the attack on
the sniffee is not worth their time.  But remember that cryptography
is often quite subtle, and I am NOT QUALIFIED to judge whether the
Netscape scheme is sufficiently difficult to break such that it is
suitable for the average investor.

I know of one service that accepts trades via the HTTPS scheme: PAWWS.
PAWWS, aka ``Wall Street on the Internet,'' is a division of Chicago-based
Security APL.  To learn about making trades on the Internet, use the
URL <http://pawws.secapl.com/>.  Obviously you will require a browser
that supports HTTPS.  PAWWS offers access to these services:
    
    + The Net Investor, from Howe Barnes Investments of Chicago
      <http://pawws.secapl.com/C_html/hbi/top.html>

    + NDB Online, from National Discount Brokers.
      <http://pawws.secapl.com/Ndb_phtml/home.html>

In the end, I'm still not sure I'm personally comfortable with having
my account accessible on the internet.  I want to emphasize also that
I'm not some kind of Luddite, just somewhat mistrustful of combining
WWW servers and my portfolio.  My recommendation for those who want to
trade via some computer interface still stands: get an account with a
provider such as Prodigy (which offers access to some trading system)
or with any of the discount brokers who offer an electronic trading
interface (see the article on discount brokers, elsewhere in this
FAQ).  You can call them from anywhere in the world.  At least your
communications will only be subject to the limitations and security
problems associated with the world's circuit-switched telephone
network, not with the packet-switched internet links. 


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Subject: Trading - Cash and Margin Accounts
Last-Revised: 11 Jul 1995
From: rlcarr@animato.pn.com

* What is a cash account?

A cash account is the traditional brokerage account.  You have to pay
in full for all purchases by settlement date (some brokers are
stricter and require good funds in the account before they will take 
an order to buy).

* What is a margin account?

A margin account is a type of brokerage account that allows you to
take out loans against securities you own. Also, all short sales have
to occur in a margin account.  When you ask for a margin account, your
broker will (if he hasn't already) run a credit check on you.  You
will also have to sign a separate margin account agreement.  The key
feature of the agreement will be a "hypothecation and
re-hypothecation" clause.  This clause allows the broker to lend out
or use for collateral any securities held in the margin account
whenever you have a debit balance (i.e. you owe the broker money).  
If you have a cash account with the same broker, securities held in
the cash account cannot be hypothecated even when you have a debit
balance.  Conversely, securities in the cash account do not count
towards margin requirements.

* What can I use the loan for?

Anything you want.  The primary uses are to buy securities (called
"buying on margin") or to extract cash from an equity position without
having to sell it (thus avoiding the tax bite or the chance of missing
a run-up).  Some brokers will even give you debit cards whose debit
limit is equal to your maximum margin borrowing limit (which is
determined daily).

* How do I borrow the money?  What interest rate do I pay?  
  What's the payment schedule?

Subject to various rules on the amount you can borrow (discussed
later), you just buy some securities and a loan will be automatically
be extended to you.  Or if you need cash, you just tell your broker 
to send you a check or you can use your margin account debit card.

The interest rate charged is rather low.  It is usually 0-2% above the
"broker call rate" (which is usually at or below prime) quoted in the
WSJ and other papers.  It can change monthly, and possibly more often,
depending on the details of your margin account agreement.  It is
probably lower than the rate on any credit card you'll be able to
find.

There is no set payment schedule.  Often, you don't even have to pay
the interest.  However, your margin account agreement will probably
say that the loan can be called in full at any time by the broker.  It
will probably also say that the broker can demand occasional payments
of interest.  Your agreement will also give the broker the right to
liquidate any and all securities in your margin account in order to
meet a margin call against you.

* Why is the interest rate so low?

Because the loan is fairly low-risk to the broker.  First, the loan is
collateralized by the securities in your margin account.  Second, the
broker can call the loan at any time.  Finally, there are rules that
set your maximum equity to debt ratio, which further protects your
broker.  If you fall below the requirements, you will have to deposit
cash or securities and/or liquidate securities to get back to required
levels.

* I see why it could be useful to get cash out of my account without
  having to sell my holdings, but why would I want to borrow money to
  buy more securities?

The reason is leverage.  Let's say you are really sure that XYZ is
going to go up 20% in 6 months.  If you put $10000 into XYZ, and it
performs as expected, you'll have $12000 at the end of six months.
However, let's say you not only bought $10000 of XYZ but bought
another $10000 on margin, and paid 8% interest.  At the end of 6
months the stock would be worth $24000.  You could sell it and pay off
the broker, leaving you with $14000 minus $400 in interest = $13600
which is a 36% profit on your $10000.  This is significantly better
than the 20% you got without margin.

But keep in mind what happens if you are wrong.  If the stock goes
down, you are losing borrowed money in addition to your own.  If you
buy on margin and the stock drops 20% in 6 months, it'll be worth
$16000.  After paying off the debit balance and interest you'd be left
with $5600, a 44% loss as compared to a 20% loss if you only used your
own money.  Don't forget that leverage works both ways.

* How much can I borrow?

There are two answers to this because there are two types of margin
requirements -- the initial margin requirement (IMR) and the maintenance
margin requirement (MMR).  The IMR governs how much you can borrow
when buying new securities.  The MMR governs what your maximum debit
balance can be subsequently.

The IMR is set by Regulation T of the Federal Reserve Board.  It
states the minimum equity to security value ratio that must exist in
your account when buying new securities.  Right now it is 50%.  It has
been as low as 40% and as high as 100% (thus preventing buying on
margin).  What this means is that your equity has to be at least 50%
of the value of the securities in your account, including what you
just bought.  If your equity is less than this, you have to put up the
difference.  For example, if you have $10000 of stock in your account
and no debit balance [thus you have $10000 in equity -- remember that
MARKET VALUE = EQUITY + DEBIT BALANCE, a variant of the standard
accounting equation ASSETS = OWNER'S CAPITAL + LIABILITIES], and buy
$20000 more, your market value including the purchase is $30000.  Your
initial required equity is 50% of $30000, or $15000.  However, you
only have $10000 in equity, so you have a $5000 equity deficit.  You
could send in a check for $5000 and you'd then be properly margined.

Let E and MV be equity and market value immediately after the purchase
(but before you make arrangements to be properly margined).  Let the
equity deficit ED be the difference between the required equity (which
is MV*IMR) and current equity (E). Let E1 and MV1 be equity and market
value after making arrangements to be properly margined.  The initial
requirement means that E1/MV1 >= IMR.  Let C, S, and L be the amount
of a cash deposit, a securities deposit, and a securities liquidation.

(1) You deposit cash
    E1 = E + C
    MV1 = MV
    So you need to solve (E+C)/MV >= IMR for C.

(2) You deposit securities
    E1 = E + S
    MV1 = MV + S
    So you need to solve (E+S)/(MV+S) >= IMR for S.

(3) You sell securities
    E1 = E
    MV1 = MV - L
    So you need to solve E/(MV-L) >= IMR for L.

Using ED [which we previously defined as (IMR*MV - E)], the answers are:
   (1) C = ED
   (2) S = ED/(1-IMR)
   (3) L = ED/IMR

If ED is negative (you have *more* equity than is required), then that
makes C, S, and L negative, meaning that you can actually take out
cash or securities, or buy more securities and still be properly
margined. 

So, now you know how much you can borrow to buy securities.  Having
bought securities there is now a MMR you have to continue to meet as
your market value fluctuates or you pull cash out of your account.
The MMR sets the minimum equity to market value ratio that you can
have in your account.  If you fall below this you will get a "margin
call" from your broker.  You must meet the call by depositing cash
and/or securities and/or liquidating some securities.  If you do not,
your broker will liquidate enough securities to meet the call.  The
MMR is set by individual brokers and exchanges.  The MMR set by the
NYSE is 25%.  Most brokers set their MMR higher, perhaps 30% or 35%,
with even higher MMRs on accounts that are concentrated in a
particular security.

The MMR calculations are very similar to the IMR calculations.  In
fact, just substitute MMR for IMR in the above equations to see what
you'll have to do to meet a margin call.  However, here a negative ED
does NOT necessarily imply that you can make withdrawals -- the IMR
rules govern all withdrawals (though the Special Memorandum Account
(SMA) adds some flexibility.
				   


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Subject: Trading - NASD Public Disclosure Hotline
Last-Revised: 15 Aug 1993
From: yozzo@watson.ibm.com, vkochend@nyx.cs.du.edu

The number for the NASD Public Disclosure Hotline is (800) 289-9999.
They will send you information about cases in which a broker was
found guilty of violating the law.

I believe that the information that the NASD provides has been
enhanced to include pending cases.  In the past, they could 
only mention cases in which the security dealer was found
guilty.   (Of course, "enhanced" is in the eye of the beholder.)


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Subject: Trading - NASD Licences
Last-Revised: 7 Nov 1995
From: Bill Rini <billman@centcon.com>

Series 2  NASD Non-Member Gen Securities Exam
Series 3  National Commodity Futures Exam
Series 4  Registered Options Principal
Series 5  Intrest Rate Options exam
Series 6  Investment Co./Variable Contract Rep Exam
Series 7  General Sec. Rep Exam  (***This is the stockbroker's exam***)
Series 8  Gen Securities Sales Supervisor
Series 11 Assistant Rep/Order Taker
Series 15 Foreign Currency Options
Series 22 Direct Participation Programs Rep
Series 24 General Securities Principal
Series 26 Investment Co./Variable contracts Principal
Series 27 Financial and Operations Principal
Series 28 Introducing Broker/Dealer Financial Operations Principal
Series 39 Direct Participation Prog. Principal
Series 52 Municipal Securities Rep.
Series 53 Municipal Securities Principal
Series 62 Corporate Securities Rep.
Series 63 Uniform Securities Agent State Law
Series 65 Uniform Investment Advisor Law

This article is copyright 1995 by Bill Rini.


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Subject: Trading - The NASDAQ
Last-Revised: 21 Apr 1995
From: billman@centcon.com

The NASDAQ market is an interdealer market represented by over 600
securities dealers trading more than 15,000 different issues.  Unlike
the New York Stock Exchange (NYSE), the NASDAQ market does not operate
as an auction market.  Instead, market makers compete against each
other to post the best bid/ask prices.

Market makers are required to provide continuous two-sided quotations
(i.e., a bid and an ask), be able and willing to execute a trade for
at least a normal trading unit (usually 1000 shares), file monthly
trading data to the National Association of Securities Dealers (NASD),
and submit daily volume reports.

The brokerage firm can handle customer orders either as a broker or as
a dealer/principal.  When the brokerage acts as a broker, it simply
arranges the trade between buyer and seller, and charges a commission
for its services.  When the brokerage acts as a dealer/principal, it's
either buying or selling from its own account (to or from the customer), 
or acting as a market maker.  The customer is charged either a mark-up
or a mark-down, depending on whether they are buying or selling.  The
brokerage can never charge both a mark-up (or mark-down) and a
commission.  Whether acting as a broker or as a dealer/principal, the
brokerage is required to disclose its role in the transaction.
However dealers/principals are not necessarily required to disclose
the amount of the mark-up or mark-down, although most do this
automatically on the confirmation as a matter of policy.  Despite its
role in the transaction, the firm must be able to display that it made
every effort to obtain the best posted price.  Whenever there is a
question about the execution price of a trade, it is usually best to
ask the firm to produce a Time and Sales report, which will allow the
customer to compare all execution prices with their own.


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Subject: Trading - Buying and Selling Without a Broker
Last-Revised: 27 Sep 1993
From: antonio@qualcomm.com, henryc@panix.com

Yes, you can buy/sell stock from/to a friend, relative or acquaintance
without going through a broker.  Call the company, talk to their investor
relations person, and ask who the Transfer Agent for the stock is.  The
Transfer Agent is the person who accomplishes the transfer, i.e., by
issuing new certificates with the buyer's name on them. The transfer
agent is paid by the company to issue new certificates, and to keep
track of who owns the company's stock.  The name of the Transfer Agent
is probably printed on your stock certificates, but it might have changed,
so it is best to call and check.

The back of the certificate contains a stock power, i.e., those words
that say you want the shares to be transferred.  Fill out the transferee
portion with the desired name, address, and tax id number to be registered.
Sign the stock power exactly as the certificate is registered: joint
tenancy will require signatures from all the people listed, stock that
was issued in maiden name must be signed as such, etc.  In addition to
signing, you must get your signature(s) guaranteed.  The signature
guarantee is an obscure ritual.  It is similar to a notary public, but
different.  The people who can provide a signature guarantee are banks
and stock brokers who are members of an exchange.  Now, your stock
broker might not be too happy to see you and help you when you are
trying to avoid paying a commission, so I suggest you get the guarantee
from your bank.  It's very easy.  Someone at the bank checks your
signature card to see if your signature looks right and then applies
a little rubber stamp.  Also, if you have the time, have the transferee
fill out a W-9 form to avoid any TEFRA withholding.  W-9 forms are
available from any bank or broker.

Then send it all to the transfer agent.  The agent will usually recommend
sending securities registered mail and insuring for 2% of the total value. 
For safety, many people send the endorsement in a separate envelope from
the stock certificate, rather than using the back of the stock certificate
(if you do this, include a note that says so.)  SEC regulations require
transfer agents to comply with a 3 business day turn-around time for 90%
of the stock transfers received in good standing.  In a few days, the buyer
gets a stock certificate in the mail.  Poof!

There is no law requiring you to use a broker to buy or sell stock, except
in certain very special circumstances, such as restricted stock, or
unregistered stock.  As long as the stock being sold has been registered
with the SEC (and all stock sold on the exchanges, NASDAQ, etc. has been
registered by the company), then the public can buy and sell it at will. 
If you go out and create yourself a corporation (Brooklyn Bridge Inc),
do not register your stock with the SEC, and then start selling stock in
your company to a bunch of individuals, advertising it, etc, then you can
easily violate many SEC regulations designed to protect the unsuspecting
public.  But this is very different than selling the ordinary registered
stuff.  If you own stock in a company that was issued prior to the time
the company went public, depending on a variety of conditions in the SEC
regulations, that stock may be restricted, and restricted stock requires
some special procedures when it is sold. 

In brief:  I do not believe that the guy who offers to sell people 1 share
of Disney stock is violating any rules.  Just for full disclosure: I'm not
a lawyer.


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Subject: Trading - Order Routing
Last-Revised: 12 Aug 1996
From: billman@centcon.com, regald@msn.com, cml@cs.umd.edu

A common practice among brokerage firms is to route orders to certain
market makers.  These market makers then "rebate" 1 to 4 cents per
share back to the brokerage firm in exchange for the flow of orders.  
(The account executive does not receive this compensation.)  Order
routing occurs in stocks traded on the NYSE, AMEX and NASDAQ.
NYSE and AMEX stocks traded away from the exchange are said to be
traded "Third Market."

These "rebates" are the lifeblood of the deep discount brokerage
business.  Discount brokerage firms can afford to charge commissions
that barely cover the fixed cost of the trade (usually between $18 and
$30) because of the payments they receive for routing orders.

There are two schools of thought about the quality of execution that
the customer receives when his/her order is routed.  The phrase
"quality of execution" means how close was your fill price to the
difference between the bid/ask on the open market.  Those who feel
that order routing is not detrimental argue that on the NASDAQ, the
market maker is required to execute at the best posted bid/ask or
better.  Further, they argue, many market making firms such as Mayer
Schweitzer (a division of Charles Schwab) execute a surprising number
of trades at prices between the bid/ask.  Others claim that rebates
and conflict of interest sometimes have a markedly detrimental affect
on the fill price.  For a lengthy discussion of these hazards, read on. 

To realize the lowest overall cost of trading at a brokerage firm, 
you must thoroughly research these three categories: 
    1. The broker's schedule of fees.
    2. Where your orders are directed.
    3. If your NYSE orders are filled by a 19c-3 trading desk.

Category 1 includes "hidden" fees that are the easiest costs to
discover.  Say a discount broker advertises a flat rate of $29.00 to
trade up to 5,000 shares of any OTC/NASDAQ stock.  If the broker adds
a postage and handling fee of $4.00 for each transaction it boosts the
flat rate to $33.00 (14% higher).  Uncovering other fees that could
have an adverse impact on your ongoing trading expenses requires a
little more digging.  By comparing your broker's current fees (if any)
for sending out certificates, accepting odd-lot orders or certain
types of orders (such as stops, limits, good-until-canceled,
fill-or-kill, all-or-none) to other brokers' schedules of fees, you'll
learn if you're being charged for services you may not have to pay for
elsewhere.

Category 2 is often overlooked.  Many investors, especially those who
are newer to the market, are not aware of the price disparities that
sometimes exist between the prices of listed stocks traded on the
primary exchanges (such as the NYSE or AMEX), and the so-called "third
marketplace."  The third marketplace is defined as listed stocks that
are traded off the primary exchanges.  More than six recent university
studies have concluded that trades on the primary exchanges can
sometimes be executed at a better price than comparable trades done 
on the third market. 

Although there is nothing intrinsically wrong with the third market,
it may not be in your best interest for a broker to route all listed
orders to that marketplace.  If you can make or save an extra eighth
of a point on a trade by going to the primary exchange, that's where
your order should be directed.  After all, an eighth of a point is
$125.00 for each 1,000 shares traded.

Here's how the third market can work against you: Say you decide to
purchase 2,000 shares of a stock listed on the NYSE.  The stock
currently has a spread of 21 to 21 1/4.  Your order, automatically
routed away from the NYSE to the third market, is executed at 21
1/4.  Yet at the NYSE you could have gone in-between the bid-ask and
gotten filled at 21 1/8, a savings of $250.00. 

Only a few of the existing deep discount brokers will route your
listed stock orders to the primary exchanges.  Most won't as a matter
of business practice even if asked to do so.  The only way to be sure
that your listed stock orders are being filled on the primary
exchanges is to carefully scrutinize your confirmations.  If your
confirmation does not state your listed order was filled on the NYSE
or AMEX then it was executed on the third market. 

You run the greatest risk of receiving a bad fill -- or sometimes
missing an opportunity completely -- whenever you trade any of the
stocks added to the NYSE since April 26, 1979, and your trade is
routed away from the primary exchange onto the third market.  Almost
all AMEX stocks run this risk. 

Category 3 was understood only by the most sophisticated of investors
until recently.  A 19c-3 trading desk is a (completely legal) method
of filling NYSE orders in-house, without exposing the orders to the
public marketplace at all.  Yes, you'll get your orders filled, but
not necessarily at the best prices.  NYSE stocks listed after April
26, 1979, sector funds (primarily "country" funds such as the Germany
Fund or Brazil Fund), and publicly-traded bond funds are the
securities traded at these in-house desks.  Recently, the NYSE 
approached the Securities Exchange Commission asking that Rule 19c-3,
that allows this trading practice, be repealed.  Edward Kwalwasser,
the NYSE's regulatory group executive vice president stated flatly
that, "The rule hasn't done what the Commission thought it would
do.  In fact, it has become a disadvantage for the customer." 

Here's a scenario that helps explain the furor that has developed over
the 19c-3 wrinkle.  Let's say that XYZ stock is trading with a spread
of 9 1/2 to 9 3/4 per share on the floor of the NYSE.  An investor
places an order to buy the stock and the broker routes that order away
from the NYSE to the internal 19c-3 desk.  The problem emerges when the
order reaches this desk, namely that the order is not necessarily
filled at the best price.  The desk may immediately fill it from
inventory at 9 3/4 without even attempting to buy it at 9 5/8 for the
customer's benefit -- this is the spread's midpoint on the floor of
the exchange.  Then, after filling the customer's order internally,
the firm's trader may then turn around and buy the stock on the
exchange, pocketing the extra 12 1/2 cents per share for the firm.
Project this over millions of shares per year and you can get an idea
of the extra profits some brokers are squeezing out at the expense of
their trusting, but ignorant, customers. 

You can most likely resolve this dilemma between low commissions and
quality of execution by examining the volume of trades you do.  If you
buy a few shares of AT&T once a year for your children, then the
difference in fees between a trade done by a discount broker as
compared to a full-service wire house will most likely dominate an 1/8
or even a 1/4 improvement in the fill price.  However, if you work for
Fidelity (why are you reading this?) and regularly trade large
amounts, then you certainly have negotiated nicely reduced commissions
for yourself and care deeply about getting a good fill price.

Note: portions of this article are copyright (c) 1996 by Terrence
Bergh, and are taken from an article that originally appeared in
Personal Investing News, March 1995.


-----------------------------------------------------------------------------

Subject: Trading - Day, GTC, Limit, and Stop-Loss Orders
Last-Revised: 11 Feb 1996
From: kamlet@colnet.cmhnet.org

Day/GTC orders, limit orders, and stop-loss orders are three different
types of orders you can place in the financial markets.  This article
concentrates on stocks.   Each type of order has its own purpose and
can be combined.

Day and GTC orders:

An order is canceled either when it is executed or at the end of a
specific time period.   A _day order_ is canceled if it is not
executed before the close of business on the same day it was placed.
You can also leave the specific time period open when you place an
order.  This type of order is called a _GTC order_ (good 'til canceled) 
and has no set expiration date. 

Limit orders:

Limit orders are placed to guarantee you will not sell a stock for
less than the limit price, or buy for more than the limit price,
provided that your order is executed.  Of course, you might never buy
or sell, but if you do, you are guaranteed that price or better.

For example, if you want to buy XYZ if it drops down to $30, you can
place a limit buy @ $30.  If the price falls to $30 the broker will
attempt to buy it for $30.  If it goes up immediately afterwards you
might miss out.  Similarly you might want to sell your stock if it
goes up to $40, so you place a limit sell @ $40.

Stop-loss orders:

A stop-loss order, as the name suggests, is designed to stop a loss.
If you bought a stock and worry about it falling too low, you might
place a stop-loss sell order at $20 to sell that stock when the price
hits $20.  If the next trade after it hits $20 is 19 1/2, then you
would sell at 19 1/2.  In effect the stop loss sell turns into a
market order as soon as the exchange price hits that figure. 

Note that the NASDAQ does not officially accept stop loss orders since
each market maker sets his own prices.  However, many brokers will
simulate stop-loss orders on their own internal systems, often in 
conjunction with their own market makers.   These are not official
stop loss orders in the sense that a stock exchange stop order is.

If you sell a stock short, you can protect yourself against losses if
the price goes too high using a stop-loss order.  In that case you
might place a stop-loss buy order on the short position, which turns
into a market order when the price goes up to that figure.

Example:

Let's combine a stop loss with a limit sell and a day order.

    XYZ - Stop-Loss Sell Limit @ 30 - Day Order Only

The day order part is simple -- the order expires at the end of the
day.

The stop-loss sell portion by itself would convert to a sell at market
if the price drops down to $30.  But since it is a stop-loss sell limit
order, it converts to a limit order @ $30 if the price drops to $30.

It is possible the price drops to 29 1/2 and doesn't come back to $30
and so you never do sell the stock.

Note the difference between a limit sell @ $30 and a stop-loss sell
limit @ $30 -- the first will sell at market if the price is anywhere
above $30.  The second will not convert to a sell order (a limit order
in this case) until the price drops to $30.

You can also work these same combinations for short sales and for
covering losses of short stock.  Note that if you want to use limit
orders for the purpose of selling stock short, there is an exchange
uptick rule that says you cannot short a stock while it is falling -
you have to wait until the next uptick to sell.  This is designed to
prevent traders from forcing the price down too quickly. 


-----------------------------------------------------------------------------

Subject: Trading - Pink Sheet Stocks
Last-Revised: 27 Oct 1993
From: a_s_kamlet@att.com, rsl@aplpy.jhuapl.edu

A company whose shares are traded on the so-called "pink sheets" is
commonly one that does not meet the minimal criteria for capitalization
and number of shareholders that are required by the NASDAQ and OTC and
most exchanges to be listed there.  The "pink sheet" designation is a
holdover from the days when the quotes for these stocks were printed
on pink paper.  "Pink Sheet" stocks have both advantages and disadvantages.

Disadvantages:
1) Thinly traded.  Can make it tough (and expensive) to buy or sell shares.
2) Bid/Ask spreads tend to be pretty steep.  So if you bought today the
   stock might have to go up 40-80% before you'd make money.
3) Market makers may be limited.  Much discussion has taken place in this
   group about the effect of a limited number of market makers on thinly
   traded stocks.  (They are the ones who are really going to profit).
4) Can be tough to follow.  Very little coverage by analysts and papers.

Advantages:
1) Normally low priced.  Buying a few hundred share shouldn't cost a lot.
2) Many companies list in the "Pink Sheets" as a first step to getting
   listed on the National Market.  This alone can result in some price
   appreciation, as it may attract buyers that were previously wary.

In other words, there are plenty of risks for the possible reward,
but aren't there always?


-----------------------------------------------------------------------------

Subject: Trading - Round Lots of Shares
Last-Revised: 23 Apr 1993
From: a_s_kamlet@att.com

There are some advantages to buying round lots (usually 100 shares)
but if they don't apply to you, then don't worry about it.  Possible
limitations on non-round-lots are:

 - The broker might add 1/8 of a point to the price -- but usually
   the broker will either not do this, or will not do it when you
   place your order before the market opens or after it closes.

 - Some limit orders might not be accepted for odd lots.

 - If these shares cover short calls, you usually need a round lot.


-----------------------------------------------------------------------------

Subject: Trivia - Bull and Bear Lore
Last-Revised: 29 Jul 1994
From: orwant@home.media.mit.edu, dolson@baldy.den.mmc.com

This information is paraphrased from _The Wall Street Journal Guide to 
Understanding Money & Markets_ by Wurman, Siegel, and Morris, 1990.

One common myth is that the terms "bull market" and "bear market" are
derived from the way those animals attack a foe, because bears attack
by swiping their paws downward and bulls toss their horns upward. 
This is a useful mnemonic, but is not the true origin of the terms.

Long ago, "bear skin jobbers" were known for selling bear skins that
they did not own; i.e., the bears had not yet been caught.  This was
the original source of the term "bear."  This term eventually was used
to describe short sellers, speculators who sold shares that they did 
not own, bought after a price drop, and then delivered the shares.

Because bull and bear baiting were once popular sports, "bulls" was
understood as the opposite of "bears."  I.e., the bulls were those
people who bought in the expectation that a stock price would rise,
not fall.

In addition, the cartoonist Thomas Nast played a role in popularizing
the symbols 'Bull' and 'Bear'.


-----------------------------------------------------------------------------

Subject: Trivia - Dollar Bill Presidents
Last-Revised: 28 Apr 1994
From: par@ceri.memst.edu, pmd@cbnews.cb.att.com, aaner001@maroon.tc.umn.edu

US Currency:
           Portrait		Embellishment on back
	   --------		---------------------
      $1 - George Washington	Great Seal of U.S.
      $2 - Thomas Jefferson	Signers of the Declaration
      $5 - Abraham Lincoln	Lincoln Memorial
     $10 - Alexander Hamilton	U.S. Treasury
     $20 - Andrew Jackson	White House
     $50 - Ulysses S. Grant	U.S. Capitol
    $100 - Benjamin Franklin	Independence Hall
    $500 - William McKinley	Ornate demominational marking
  $1,000 - Grover Cleveland	Ornate demominational marking
  $5,000 - James Madison	Ornate demominational marking
 $10,000 - Salmon P. Chase	Ornate demominational marking
$100,000 - Woodrow Wilson	Ornate demominational marking


U.S Tresury instruments:
	       Savings Bond - Treas. Bills  - Treas. Bonds - Treas. Notes
	       ------------   ------------    ------------   ------------
         $50 - Washington   -               - Jefferson
         $75 - Adams        -
        $100 - Jefferson    -               - Jackson
        $200 - Madison      -
        $500 - Hamilton     -               - Washington
      $1,000 - Franklin     - H. McCulloch  - Lincoln      - Lincoln
      $5,000 - Revere       - J.G. Carlisie - Monroe       - Monroe
     $10,000 - Wilson       - J. Sherman    - Cleveland    - Cleveland
     $50,000 -              - C. Glass
    $100,000 -              - A. Gallatin   - Grant        - Grant
  $1,000,000 -              - O. Wolcott    - T. Roosevelt - T. Roosevelt
$100,000,000 -              -                              - McKinley


-----------------------------------------------------------------------------

Subject: Trivia - Getting Rich Quickly
Last-Revised: 18 Jul 1993
From: jim@doink.b23b.ingr.com

Take this with a lot of :-) 's.

Legal methods:
  1. Marry someone who is already rich.
  2. Have a rich person die and will you their money.
  3. Strike oil.
  4. Discover gold.
  5. Win the lottery.

Illegal methods:
  6. Rob a bank.
  7. Blackmail someone who is rich.
  8. Kidnap someone who is rich and get a big ransom.
  9. Become a drug dealer.

For completeness sakes:
 10. "If you really want to make a lot of money, start your own religion."
                - L. Ron Hubbard

Hubbard made that statement when he was just a science fiction writer in
either the '30s or '40s.  He later founded the Church of Scientology. 
I believe he also wrote Dianetics.


-----------------------------------------------------------------------------

Subject: Trivia - One-Letter Ticker Symbols
Last-Revised: 11 Jun 1993
From: a_s_kamlet@att.com

Not all of the one-letter symbols are obvious, nor does a one-letter
symbol mean the stock is a blue chip or even well known.  Most, but
not all, trade on the NYSE.  The current list of one-letter symbols 
follows.  I'm not sure about "H" - has that been reassigned recently?  
Also "M" might have been reassigned.

A  Attwoods plc
B  Barnes Group
C  Chrysler Corporation
D  Dominion Resources
E  Transco Energy
F  Ford Motor Company
G  Gillette
H  Harcourt General (formerly General Cinema; H used to be Helm Resources)
I  First Interstate Bancorp
J  Jackpot Enterprises
K  Kellogg
L  Loblaw Companies
M  M-Corp ( defunct - absorbed by BancOne )
N  Inco, Ltd.
O  Odetics  (O.A & O.B  - no "O")
P  Phillips Petroleum
R  Ryder Systems
S  Sears, Roebuck & Company
T  AT&T
U  US Air
V  Vivra Inc
W  Westvaco
X  US Steel
Y  Alleghany Corp.
Z  Woolworth


-----------------------------------------------------------------------------

Subject: Warning - Advertisement in the misc.invest.* groups
Last-Revised: 20 Aug 1996
From: skruege@arco.is.arco.com, cml@cs.umd.edu

I find unsolicited advertisements to be the obnoxious junk mail of the
net.  I feel about them much the same as I do about the people who
interrupt my dinner or wake me at 6 AM (it's happened!) with phone
calls requesting money for this or that cause.  But there is an
additional concern I have for the longer term.  What is the long-term
consequence of the commercialization of the net?  If the ads begin to
swamp the traditional users you will not only lose a lot of those
users (who will tune out), but you run the risk of inviting
governmental regulation.  All it takes is a few novices to get
snookered by slick scams on the net and call the police, go running to
the SEC, call their congressman, etc., to get the idea of rampant net
fraud on the front page of your morning paper.  And there is nothing
your local congressman would rather do than come riding in on a white
horse to save us from this evil.  Censorship and the limitation of
access can happen a lot quicker than some might think.  After all, the
internet was created by government funding, and the US backbone is
still supported by Uncle Sam.  I'm already reading in the papers about
the explosive growth of traffic on the net, and I am not eager to
hasten the day when the ever-brightening public spotlight brings the
regulation which inevitably follows.  Most of the usenet traffic is
still friendly "What does anyone know about X?" and "Here's what I
know about X!" kind of communication, but as the volume of readers
expands it attracts the commercial vultures who will gladly use this
"free" medium to search for a quick buck.  It may be that those of us
who flame the occasional unsolicited commercial posts are simply
trying to hold back an inevitable flood, but that won't keep us from
trying.

What can you do about it?  First, you can reply to the poster
directly to express your distaste and disgust at his/her shameless 
use of the net for his/her personal monetary gain.  Be polite but
direct.  I don't recommend mail-bombing (sending hundreds if not
thousands of messages) because that's just stooping to their level.
Second, when you reply, be sure to use the CC: field to direct a
carbon copy to the system administrator; one of the addresses root or
postmaster should work.   E.g., you can complain to the administrator
of site "big.company.com" by sending mail to "root@big.company.com" 
or to "postmaster@big.company.com".  Readers of misc.invest report
that large service providers such as AOL, Delphi, and Sprint, where 
an unfortunate number of junk articles seem to originate, have started
to listen to complaints about their misguided users and have in some
cases responded by canceling the article, the user, or both.  Take a
stand and write some mail.  It won't even cost you a stamp.  Let your
voice be heard.  Usenet is a self-policed state of anarchy, and if its
users complain loudly, consistently, and clearly about the advertisers,
then I think there's hope. 

Some additional help for solving this problem is in sight as of
August 1996.  The group "misc.invest.marketplace" was approved.
This group will be the place for investment-related advertisements.


-----------------------------------------------------------------------------

Subject: Warning - Charles Givens
Last-Revised: 29 Mar 1995
From: Chris.Hynes@launchpad.unc.edu, jmincy@avid.com,
	cml@cs.umd.edu, cjh@holmes.acc.virginia.edu

Charles J. Givens, born in 1941, is a self-styled investment guru who
regularly appears in info-mercials on late-night television to tell
the world about the fortunes he has made and lost, his free seminars
run by his associates, and the Charles J. Givens Organization.  

Givens offers investment advice through his seminars and publications.
He has written several best-selling books:
	Wealth Without Risk (1988)
	Financial Self-Defense (1990)
	More Wealth Without Risk (1991)

Membership in his organization is offered for about $2,000 up front with
subsequent dues of $8.11/month or $97.20/year.  (The up-front fee can be
paid in installments, but is then subject to a 14% finance charge.) 
According to reference (2), a member of his organization receives printed
materials, videotapes, and audio tapes which describe financial strategies. 
The organization publishes a monthly newsletter.  Telephone advice is also
offered to members.
          
His advice is generally simplistic and sometimes contradictory.  All
examples are taken from Wealth Without Risk, as cited in Reference (4).
Simplistic:	number 210, don't buy bonds when interest rates are rising. 
Contradictory:  number 206, do not put your money in vacant land;
		number 245, invest your IRA or Keogh money in vacant land.

Givens offers some helpful advice but contrary to the titles of his books,
his ideas can be extremely risky.  For example, some of his suggestions
about insurance, especially dropping uninsured motorist coverage from
one's automobile insurance, may leave people underinsured and vulnerable
in case of an accident unless they are very careful about reading their
policies and asking hard questions.  He also makes aggressive inter-
pretations of tax law, interpretations which might get one in trouble
with the IRS.  Prospective followers of Givens must, absolutely must,
read about recent successful lawsuits against Givens as well as his
criminal convictions and other disclosures about him and his organization. 
See below for exact references.  In conclusion: his advice is simply
not appropriate for everyone.

References:

(1) _Smart Money_, August 1993. 

(2) The Wall Street Journal, ``Pitching Dreams,'' 08/05/91, Page A1.

(3) The Wall Street Journal, ``Enterprise: Proliferating Get-Rich Shows
    Scrutinized,'' 04/19/90, Page B1.

(4) The Wall Street Journal, ``Double or Nothing,'' 02/15/90, Page A12.

(5) The Wall Street Journal, `` Tax Report: A Special Summary and Forecast
    Of Federal and State Tax Developments,'' 11/01/89.


-----------------------------------------------------------------------------

Subject: Warning - Nordex of Denmark
Last-Revised: 26 Aug 1996
From: fmurtagh@eso.org, eklund@cc.hut.fi

Beware of Nordex Denmark I/S, Copenhagen, Denmark; also doing business
as Laurion, Hamburg, Germany.  As of August 1996, Nordex Denmark became
Nordex Asset Management, 36 Av du Cardinal Mermillod, CH-1227 Geneva
Carouge, Switzerland.  Related companies include Laurion Treasury
Management, Zurich, Switzerland.   

Experienced by many people: Initial investment quickly lost and
further investments requested.  Subsequent near impossibility of
retrieving any remaining funds.  Contract leaves room for no redress.
International holding company structure mitigates against legal action
in any regulated country.  Reports of trades are just lists of
figures, with no proof of actually having being made.  Repeated
promises to make great gains, and repeated offloading of client onto
other contact points.

For more information, see the 'Financial Questions and Answers' column
in The International (monthly magazine published by the Financial
Times, Issue 102, Aug. 1996 issue, pp. 23-24).  Further information
can be obtained from the Fraud Division, Danish Police, Politgarden,
1567 Copenhagen V, Denmark.  Tel: +45 33 14 14 48, Fax: +45 33 91 26 40.


-----------------------------------------------------------------------------

Subject: Warning - Dave Rhodes and Other Chain Letters
Last-Revised: 6 Sep 1994
From: pearson_steven@tandem.com, foo@netcom.com, gwu@esl.com

Please do NOT post the "Dave Rhodes" or any other chain letter,
pyramid scheme, or other scam to misc.invest. 

Pyramid schemes are fraud.  It's simple mathematics.  You can't
realistically base a business on an exponentially-growing cast of
new "employees."  Sending money through the mails as part of a
fraudulent scheme is against US Postal regulations.  Notice that
it's not the *asking* that is illegal, but rather the delivery of
money through the US mail that the USPS cares about.  But fraud is
illegal, no matter how the money is delivered, and asking that
delivery use the US Mail just makes for a double whammy. 

Note that when someone posts this nonsense with their name and home
address attached, it's fairly simple for a postal inspector to trace
the offender down.

Although the "Dave Rhodes" letter has been appearing almost
weekly in misc.invest, and it's getting pretty old, it's mildly
interesting to see how this scam mutates as it passes through
various bulletin boards and newsgroups.  Sometimes our friend
Dave went broke in 1985, sometimes as recently as 1988.  Sometimes
he's now driving a mercedes, sometimes a cadillac, etc., etc.
The scam just keeps getting updated to keep up with the times.

To close on a funny note, here's a quote from the "Ask Mr. Protocol"
column of the July 1994 (v. 5, n. 7) SunExpert magazine:
     ``Rhodes (n) - unit of measure, the rate at which the same 
     annoying crud is recycled by newcomers to the net.''


-----------------------------------------------------------------------------

Compilation Copyright (c) 1996 by Christopher Lott, cml@cs.umd.edu
-- 
Christopher Lott	Compiler of the FAQ for misc.invest, misc.invest.stocks
cml@cs.umd.edu		http://www.cs.umd.edu/users/cml/
