Grace Master Disclosure Document- Risk, Margin, Day Trading, Futures, Extended Day, SIPC Thank you for choosing Grace Financial Group LLC. Before you begin trading, please read this document carefully. It contains important information about your account and GSEC/Grace Financial Groups policies. This document will serve as your acknowledgement to the fact that you have reviewed, read and understand the content of each disclosure within this master document. Each disclosure statement for Risk, Margin and SIPC must be initialed and the entire Master Disclosure Document signed once by each account holder and dated. GSEC Risk & Risk Calls The Goldman Sachs Execution & Clearing, L.P. (GSEC) Risk Management Department is responsible for assessing and controlling the market risks represented in various account types held within GSEC. The goal of the portfolio risk stress methodology used is to provide a realistic, theoretical assessment of the risk exposures that each account may have on an end-of-day or intra-day basis. The purpose of this document is to provide a general description of the calculation methods employed and a summary of the guidelines as a whole for all product types cleared by GSEC. GSEC risk systems are designed based on the assumption that a central clearing house mitigates most, if not all, counter-party or credit type exposures. For all GSEC clients, GSEC Risk analyzes exchange traded derivatives, futures, and securities for all US listed exchanges and many primary European listed exchanges. All portfolios and individual securities held within a client s account at GSEC will be subjected to a variety of stress tests to identify the amount of equity GSEC requires for a client to maintain it s positions. Those stress methods and general calculations are described herein to help clients understand how GSEC arrives at its risk requirements. Risk assessment methods and models are constantly being tested,developed and improved to ensure the most accurate and realistic assessments. Accordingly, GSEC may revise its guidelines, either generally or with respect to any particular account, as GSEC, in its sole discretion deems necessary. Stress Scenarios by Product Type GSEC employs various stress tests on all accounts. Risk exposures are measured at the individual security level and at the portfolio level. All theoretical profits/losses are summed for each security on a currency adjusted basis. Most market stress levels listed below also contain a volatility shock component. GSEC s risk systems are able to identify and stress portfolios based on the positions held in those portfolios as follows: Equity Portfolios Equity portfolios containing equity securities, options, security futures contracts, and equity-based futures are analyzed for overall market risk exposure as calculated at the levels below: -20%,volatility +50%, -15%, volatility +50%, -10%,volatility + 50%, -3 std dev.vol.+/20% -2 std dev, vol. +/-20%, -1 std dev, no volatility shock 0 move, vol. down 20% +1 std dev, vol. unchanged, +2 std dev, vol. +/-20%, +3 std dev, vol. +/-20% +10%, no volatility shock +15%, no volatility shock, +20% no volatility shock, +/-50% no volatility shock, in any single security. Equity Index Products Accounts trading Equity Index Securities, related ETFs, Futures, and Futures Options, are stressed as a portfolio based on the following market movements: -20%, volatility +50%, -15%, volatility +50%, -10%, volatility + 50%, -3 std dev, vol +/-20%, -2 std dev, vol. +/-20%, -1 std dev, no volatility shock, no price move, vol. down 20%,+1 std dev, vol. unchanged,+2 std dev, vol. +/-20%, +3 std dev, vol. +/-20%,+10%, no volatility shock,+15%, no volatility shock. Commodity Futures Products (All-non US Equity Futures Products) - Accounts with positions in futures products unrelated to equity or equity index instruments will be assessed under the stress levels set forth below: -3 std dev, vol. +/-20%, -2 std dev, vol.+/-20%, -1 std dev, no volatility shock, 0 move, vol. down 20%, +1 std dev, no volatility shock, +2 std dev, vol. +/-20%, +3 std dev, vol. +/-20%
Margin & Day Trading Disclosure 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 in your account, in order to maintain the required equity in the account. It is important that you fully understand the risks involved in trading securities on margin.these risks include the following: You can lose more funds than you deposit in the margin account. A decline in the value of securities that are purchased on margin may require you to provide additional funds to the firm that has made the loan to avoid the forced sale of those securities or other securities in your account. The firm can force the sale of securities in your account. If the equity in your account falls below the maintenance margin requirements under the law, or the firm s higher house requirements, the firm can sell the securities in your account to cover the margin deficiency. You also will be responsible for any shortfall in the account after such a sale. The firm can sell your securities 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 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 interest, including immediately selling the securities without notice to the customer. You are not entitled to choose which security in your margin account is liquidated or sold to meet a margin call. Because the securities are collateral for 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 requirement 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. 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. Day Trading Disclosure FINRA Rule 2631 You should consider the following points before engaging in a day-trading strategy. For purposes of this notice, a "day-trading strategy" means an overall trading strategy characterized by the regular transmission by a customer of intra-day orders to effect both purchase and sale transactions in the same security or securities. Day trading can be extremely risky. Day trading generally is not appropriate for someone of limited resources and limited investment or trading experience and low risk tolerance. You should be prepared to lose all of the funds that you use for day trading. In particular, you should not fund day-trading activities with retirement savings, student loans, second mortgages, emergency funds, funds set aside for purposes such as education or home ownership, or funds required to meet your living expenses. Further, certain evidence indicates that an investment
Day Trading Disclosure FINRA Rule 2631-Con t of less than $50,000 will significantly impair the ability of a day trader to make a profit. Of course, an investment of $50,000 or more will in no way guarantee success. Be cautious of claims of large profits from day trading. You should be wary of advertisements or other statements that emphasize the potential for large profits in day trading. Day trading can also lead to large and immediate financial losses. Day trading requires knowledge of securities markets. Day trading requires in-depth knowledge of the securities markets and trading techniques and strategies. In attempting to profit through day trading, you must compete with professional, licensed traders employed by securities firms. You should have appropriate experience before engaging in day trading. Day trading requires knowledge of a firm's operations. You should be familiar with a securities firm's business practices, including the operation of the firm's order execution systems and procedures. Under certain market conditions, you may find it difficult or impossible to liquidate a position quickly at a reasonable price. This can occur, for example, when the market for a stock suddenly drops, or if trading is halted due to recent news events or unusual trading activity. The more volatile a stock is, the greater the likelihood that problems may be encountered in executing a transaction. In addition to normal market risks, you may experience losses due to system failures. Day trading will generate substantial commissions, even if the per trade cost is low. Day trading involves aggressive trading, and generally you will pay commissions on each trade. The total daily commissions that you pay on your trades will add to your losses or significantly reduce your earnings. For instance, assuming that a trade costs $16 and an average of 29 transactions are conducted per day, an investor would need to generate an annual profit of $111,360 just to cover commission expenses. Day trading on margin or short selling may result in losses beyond your initial investment. When you day trade with funds borrowed from a firm or someone else, you can lose more than the funds you originally placed at risk. A decline in the value of the securities that are purchased may require you to provide additional funds to the firm to avoid the forced sale of those securities or other securities in your account. Short selling as part of your daytrading strategy also may lead to extraordinary losses, because you may have to purchase a stock at a very high price in order to cover a short position. Potential Registration Requirements. Persons providing investment advice for others or managing securities accounts for others may need to register as either an "Investment Advisor" under the Investment Advisors Act of 1940 or as a "Broker" or "Dealer" under the Securities Exchange Act of 1934. Such activities may also trigger state registration requirements. I/We have read and understood the Day-Trading Disclosure Statement and have been furnished a copy of this statement for my records. Initial Here:
ETF s- Enhanced Leveraged Products Effective December 1, 2009 GSEC implemented additional margin requirements on all ETF leveraged products. The new requirements are listed below: 2x Enhanced Leveraged Products- 2x normal margin requirement. 3x Enhanced Leveraged Products- 3x normal margin requirement. Requirements on Options on ETF leveraged products and day trading requirements have been delayed until April 30, 2010, update to follow. Futures Risk Disclosure THE RISK OF LOSS IN TRADING COMMODITY FUTURES CONTRACTS CAN BE SUBSTANTIAL. YOU SHOULD, THEREFORE, CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES. YOU SHOULD BE AWARE OF THE FOLLOWING POINTS: 1.You may sustain a total loss of the funds that you deposit with your broker to establish or maintain a position in the commodity futures market, and you may incur losses beyond these amounts. If the market moves against your position, you may be called upon by your broker to deposit a substantial amount of additional margin funds, on short notice, in order to maintain your position. If you do not provide the required funds within the time required by your broker, your position may be liquidated at a loss, and you will be liable for any resulting deficit in your account. 2. Under certain market conditions, you may find it difficult or impossible to liquidate a position. This can occur, for example, when the market reaches a daily price fluctuation limit ("limit move"). 3. Placing contingent orders, such as "stop-loss" or "stop-limit" orders, will not necessarily limit your losses to the intended amounts, since market conditions on the exchange where the order is placed may make it impossible to execute such orders. 4. All futures positions involve risk, and a "spread" position may not be less risky than an outright "long" or "short" position. 5. The high degree of leverage (gearing) that is often obtainable in futures trading because of the small margin requirements can work against you as well as for you. Leverage (gearing) can lead to large losses as well as gains. 6. You should consult your broker concerning the nature of the protections available to safeguard funds or property deposited for your account. ALL OF THE POINTS NOTED ABOVE APPLY TO ALL FUTURES TRADING WHETHER FOREIGN OR DOMESTIC. IN ADDITION, IF YOU ARE CONTEMPLATING TRADING FOREIGN FUTURES OR OPTIONS CONTRACTS, YOU SHOULD BE AWARE OF THE FOLLOWING ADDITIONAL RISKS: 7. Foreign futures transactions involve executing and clearing trades on a foreign exchange. This is the case even if the foreign exchange is formally "linked" to a domestic exchange, whereby a trade executed on one exchange liquidates or establishes a position on the other exchange. No domestic organization regulates the activities of a foreign exchange, including the execution, delivery, and clearing of transactions on such an exchange, and no domestic regulator has the power to compel enforcement of the rules of the foreign exchange or the laws of the foreign country. Moreover, such laws or regulations will vary depending on the foreign country in which the transaction occurs. For these reasons, customers who trade on foreign exchanges may not be afforded certain of the protections which apply to domestic transactions, including the right to use domestic alternative dispute resolution procedures. In particular, funds received from customers to margin foreign futures transactions may not be provided the same protections as funds received to margin futures transactions on domestic exchanges. Before you trade, you should familiarize yourself with the foreign rules which will apply to your particular transaction.
8. Finally, you should be aware that the price of any foreign futures or option contract and, therefore, the potential profit and loss resulting therefrom, may be affected by any fluctuation in the foreign exchange rate between the time the order is placed and the foreign futures contract is liquidated or the foreign option contract is liquidated or exercised. THIS BRIEF STATEMENT CANNOT, OF COURSE, DISCLOSE ALL THE RISKS AND OTHER ASPECTS OF THE COMMODITY MARKETS. Initial Here: Extended Hours Trading Risk Disclosure 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 a 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. Initial Here: SIPC NOTIFICATION Please be advised that you may obtain information about SIPC (Securities Investor Protection Corporation) by contacting SIPC. You may review their website at www.sipc.org, or call at (202) 371-8300 to obtain a SIPC brochure or get further information. Initial Here:
I HAVE READ EACH DISCLOSURE (Risk, Margin, Day Trading, Futures, Extended Day, SIPC) AND AN HAVE A FULL UNDERSTANING OF EACH ITEM I HAVE INTITIALED; NAME: SIGNATURE: DATE: GFG_2009