General Rules and Regulations
Securities Exchange Act of 1934
Rule 15g-4 -- Disclosure of Compensation to Brokers or Dealers
Preliminary Note: Brokers and dealers may wish to refer to Securities Exchange
Act Release No. 30608 (April 20, 1992) for a discussion of the procedures for computing
compensation in active and competitive markets, inactive and competitive markets,
and dominated and controlled markets.
Disclosure requirement.It shall be unlawful
for any broker or dealer to effect a transaction in any penny stock for or with the
account of a customer unless such broker or dealer discloses to such customer, within
the time periods and in the manner required by paragraph (b) of this section, the
aggregate amount of any compensation received by such broker or dealer in connection
with such transaction.
The information described in paragraph (a) of this
Shall be provided to the customer orally or in
writing prior to effecting any transaction with or for the customer for the purchase
or sale of such penny stock; and
Shall be given or sent to the customer in writing,
at or prior to the time that any written confirmation of the transaction is given
or sent to the customer pursuant to Rule 10b-10.
A broker or dealer, at the time of making the disclosure
pursuant to paragraph (b)(1)(i) of this section, shall make
and preserve as part of its records, a record of such disclosure for the period specified
in Rule 17a-4(b).
Definition of compensation.For purposes
of this section, compensation means, with respect to a transaction in a penny
If a broker is acting as agent for a customer, the
amount of any remuneration received or to be received by it from such customer in
connection with such transaction;
If, after having received a buy order from a customer,
a dealer other than a market maker purchased the penny stock as principal from another
person to offset a contemporaneous sale to such customer or, after having received
a sell order from a customer, sold the penny stock as principal to another person
to offset a contemporaneous purchase from such customer, the difference between the
price to the customer and such contemporaneous purchase or sale price; or
If the dealer otherwise is acting as principal for
its own account, the difference between the price to the customer and the prevailing
Active and competitive market. For purposes
of this section only, a market may be deemed to be "active and competitive"
in determining the prevailing market price with respect to a transaction by a market
maker in a penny stock if the aggregate number of transactions effected by such market
maker in the penny stock in the five business days preceding such transaction is
less than twenty percent of the aggregate number of all transactions in the penny
stock reported on a Qualifying Electronic Quotation System (as defined in Rule
15g-3(c)) during such five-day period. No presumption shall arise that a market
is not "active and competitive" solely by reason of a market maker not
meeting the conditions specified in this paragraph.
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