BROWNSTONE INVESTMENT GROUP, LLC ORDER HANDLING POLICIES AND GENERAL DISCLOSURES
Brownstone Investment Group, LLC (Brownstone) is committed to providing transparency with regards to its business practices, customer order handling and execution. Our main objective is to deliver the best execution possible under prevailing market conditions and circumstances while adhering to all applicable regulatory rules, regulations and just and equitable principles of trade. Brownstone may execute client orders by accessing internal and/or external sources of liquidity as principal, riskless principal or agent. Please review the following general order handling policies and disclosures.
Brownstone is committed to providing the best execution for client orders. The firm has the obligation to use reasonable diligence to ascertain the best inter-dealer market under prevailing market conditions. To do so, Brownstone takes a number of factors into consideration in determining how to execute and where to send clients’ orders, including, among other things, the size and type of order, the terms and conditions of the order, the trading characteristics of the security, the accessibility of quotations, transaction costs, the opportunity for price or size improvement, the speed of execution, the availability of efficient and reliable order handling systems, the level of service provided by the market venue, and the client’s overall objectives with respect to the market. Brownstone regularly reviews transactions for quality of execution.
FINRA Rule 5320 – Prohibition Against Trading Ahead of Customer Orders
Financial Industry Regulatory Authority (“FINRA”) Rule 5320 generally provides that a broker-dealer handling a customer order in an equity security is prohibited from trading a security for its own account at a price that would satisfy the client order, unless the firm immediately executes the client’s order up to the size of its own order at the same price or better. The rule provides exemptions that permit broker-dealers to trade for their own account provided certain conditions are met. Described below are certain exceptions to the rule and an explanation of how Brownstone handles those exceptions. Please note that consistent with existing regulatory guidance, “not held” orders are outside the scope of this rule.
With respect to large orders (orders of 10,000 shares with a total value of $100,000 or more), and/or orders from institutional accounts (as defined in FINRA Rule 4512(c)) are exempted from the requirements of Rule 5320. Accordingly, Brownstone may trade for its own account while handling orders from institutional accounts unless the institutional client opted-in to the FINRA Rule 5320 protection by informing Brownstone. Please instruct your Brownstone representative should you wish to opt-in with respect to all or any particular order.
Not Held Orders
Brownstone generally handles orders from institutional customers on a “not held” basis unless requested otherwise through your Brownstone representative or population of the “held” order tag on the FIX order or other electronic protocol message.
FINRA Rule 5270 – Prohibition on Front Running Block Transactions
FINRA Rule 5270 prohibits a broker-dealer from trading for its own account while in possession of material, non-public market information concerning an imminent client block transaction or providing such information to others for trading purposes prior to the time information concerning the block transaction has been made publicly available or has otherwise become stale or obsolete. FINRA Rule 5270, however, recognizes three categories of permitted transactions set forth below:
Transactions that the firm can demonstrate are unrelated to the customer block order (such as where information barriers are in place, when the customer had a prior order in the same security, to correct bona fide errors or to offset odd-lot orders)
Transactions undertaken to facilitate the execution of the customer block order. In these situations, Brownstone may engage in trading to hedge the risk of the customer block facilitation. Brownstone will make every effort to minimize any potential market impact such activity may have on the order.
Trading activity undertaken in compliance with the rules of a national exchange and at least one leg of the activity is executed on that exchange.
As always, we will conduct this trading in a manner designed to limit market impact and consistent with our best execution obligations.
FINRA Rule 2124 – Net Trading
A net transaction means a principal transaction in which Brownstone, after having received an order to buy (sell) an equity security, purchases (sells) the security at one price and then sells to (buys from) you at a different price. The price difference represents the compensation that Brownstone receives for facilitating your order. Brownstone may handle orders from institutional customers on a net basis unless otherwise instructed. Please instruct your Brownstone representative should you not consent to net trading with us.
Guaranteed and Conditional Guaranteed Orders
When Brownstone accepts a guaranteed order, it is agreeing to execute your order as principal, at a price based upon agreed benchmark price or pricing formula (i.e. volume weighted average price). When handling guaranteed orders, Brownstone may trade in the security for its own account to facilitate the order, liquidate or cover an existing position established in connection with facilitating the order or engage in hedging or other risk mitigating trading activity. A conditional guarantee order is a type of limit order that is guaranteed execution at an agreed upon price or better. Such orders are “not held” and once quotations in the marketplace are equal to or better than the guaranteed price, the firm may execute all or a portion of the order as agent or principal.
Short Sell (Reg SHO)
Brownstone is subject to regulation SHO with respect to the failure to deliver long and/or short sales and will act in accordance with that rule with respect to the delivery of shares for long and/or short sales. Brownstone will assume all sell equity orders given to us by your firm are sell long unless otherwise denoted prior to or at the time of placing or routing the order to us. If placing an order to sell short a security, it is your responsibility to denote as such and provide Brownstone information relating to the locate where the shares can be borrowed for delivery by settlement date of the transaction.
Regulation NMS (National Market System)
Regulation NMS requires broker-dealers facilitating a block of stock in a NMS security for a customer to route simultaneously with the execution an intermarket sweep order (“ISO”) to execute against the full displayed size of any protected quotation with a price superior to the block trade price
Extended Hours Trading
Brownstone offers institutional customers and broker-dealers the opportunity to trade securities through access to extended hours trading. You should consider the following points before engaging in extended hours trading. “Extended hours trading” means trading outside of “regular trading hours.” “Regular trading hours” for equities generally means the time between 9:30 a.m. and 4:00 p.m. Eastern Standard Time.
Risk of Lower Liquidity. Liquidity refers to the ability of market participants to buy and sell securities. Generally, the more orders that are available in a market, the greater the liquidity. Liquidity is important because with greater liquidity it is easier for 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 trading 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 trading hours. As a result, your order may only be partially executed, or not at all, or you may receive an inferior price when engaging in extended hours trading than you would during regular trading 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 trading hours, or upon the opening the next morning. As a result, you may receive an inferior price when engaging in extended hours trading than you would during regular trading 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 trading hours. Similarly, important financial information is frequently announced outside of regular trading 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.
15c3-5 Market Access
SEC Rule 15c3-5 requires broker-dealers that access or provide access to exchanges or alternative trading systems to establish, document and maintain a system of risk management controls that are reasonably designed to manage the financial, regulatory and other risks associated with market access. To this end, Brownstone will make use of an in-house risk management technology system, combined with vendor systems to electronically monitor orders entered for compliance with its financial and regulatory risk management policies.
Order Routing Disclosure – SEC Regulation NMS Rule 606
Regulation NMS, Rule 606 requires the Company, if it routes and exceeds a specific number of customer orders in equity and option securities, to make publicly available quarterly reports that disclose the venues to which it routes non-directed orders in certain covered securities, including listed options. The Rule further requires the Company to disclose the nature of any relationship it has with those venues, including any payment for order flow arrangements. Finally, the Rule requires the Company to disclose, upon customer request, the venues to which individual orders were sent for execution.
When applicable, Rule 606 reports can be found at www.brownstone.com under Disclosures. Further detailed information is available upon request.
Payment for Order Flow Disclosure
Brownstone may route customer orders to national securities exchanges, alternative trading systems and other market centers (including other broker-dealers), some of which provide Brownstone with payment for order flow. The source and amount of any compensation received by Brownstone in connection with any equity transaction for your account is available upon written request.
Conflicts of Interest Disclosure Related to ETF Transactions
Brownstone may have potential conflicts of interest relating to exchange-traded funds (ETFs) that you may purchase from or sell to us. The following is a non-inclusive list of potential conflicts:
Brownstone may seed the formation of an ETF using its own capital resulting in Brownstone having a position in the ETF prior to the ETF being available to the public.
Brownstone may act as an authorized participant in the purchase or sale of shares from an ETF. Brownstone may, from time, to time, receive a fee in connection with its role as an authorized participant. Brownstone may have information about pending creations or redemptions of ETF shares.
Brownstone can act as a market maker or block positioner in ETFs and/or the securities or other instruments that are held by the ETF. As a result, Brownstone may buy or sell ETF shares, securities or other instruments for other customers as agent or for its own account in conjunction with your ETF order.
Brownstone can receive remuneration in the form of commissions, mark-ups, mark-downs, or other charges and fees from ETF transactions and when acting as principal, may also benefit from a dealer spread.
Brownstone may have a large ownership interest (both long and short) in certain ETFs or related derivatives and effect transactions in such instruments for hedging purposes.
SEC Exchange Act Rule 13h-1 (Large Trader Rule)
Rule 13h-1 requires a “large trader,” defined as a person whose transactions in NMS securities equal or exceed 2 million shares or $20 million during any calendar day, or 20 million shares or $200 million during any calendar month, to identify itself to the SEC and make certain disclosures to the Commission. Please consult with your legal counsel to determine the applicability of the Large Trader Rule to your activities and please note that it is your responsibility to provide your LTID to us if applicable.
MSRB Rule G-10; FINRA Rules 2267
Brownstone Investment Group, LLC is a registered broker-dealer with the SEC, MSRB and FINRA. Please note that the website address for the Municipal Securities Rulemaking Board (MSRB) is http://www.msrb.org/ and the website address for the Financial Industry Regulatory, Inc. (FINRA) is http://www.finra.org/ where you can find an investor brochure that describes the protections that may be provided by the MSRB or FINRA rules and how to file a complaint with an appropriate regulatory authority. You may also obtain additional information by contacting FINRA’s public disclosure hotline at (800) 289-9999 or visit the BrokerCheck website at http://brokercheck.finra.org/.
FINRA Rule 2266 – SIPC Information
You may obtain information about SIPC, including the SIPC brochure, by contacting SIPC at (202) 371-8300 or their website at www.SIPC.org/
Brownstone may provide indicative valuations of securities in your portfolio. Brownstone is not a pricing service and all prices expressed are for informational purposes only and may be based on Brownstone’s own assumptions and proprietary models that do not represent an explicit bid or offer for securities. Providing an indicative valuation is not meant to imply that an actual trading market exists for the financial instrument. At no time shall Brownstone be deemed to guarantee the accuracy of such prices, make any representation or warranty or be held responsible for losses or damages arising out of errors, omissions, changes in market factors or conditions, or any circumstances beyond Brownstone’s control.
Clearly Erroneous Policy
Consolidated FINRA Rule 11891 specifies that “the terms of a transaction are ‘clearly erroneous’ when there is an obvious error in any term, such as price, number of shares or other unit of trading, or identification of the security.” The Company must abide by any and all clearly erroneous determinations made by FINRA. Please refer to the FINRA Rule 11890 Series for additional information concerning clearly erroneous transactions and filings.
Business Continuity Plan
Brownstone maintains a Business Continuity Plan (BCP) in accordance with FINRA Rule 4370. Our BCP details how we will respond to events that significantly disrupt our business. Since the timing and impact of disasters and disruptions are unpredictable, we will have to be flexible in responding to actual events as they occur. 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 the firm'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 firms, Goldman, Sachs & Co. and Pershing, LLC, back up our important records in geographically separate areas, as we also do. While every emergency situation poses unique problems based on external factors, such as time of day and the severity of the disruption, we have been advised by our clearing firms that their objective is to restore their own operations and be able to complete existing transactions and accept new transactions and payments within a reasonable time period based on the degree of disruption and magnitude to the general financial community. Your orders and requests for funds and securities could be delayed during this period.
Contacting Us - If after a significant business disruption you cannot contact us as normal at (212) 905-0550, you should call our alternative number (212) 661-0033 or go to our web site at http://www.brownstone.com for additional contact information or instructions. Please note that Brownstone is an Introducing Broker and as such does not maintain custody of customers’ funds or securities. If you cannot access us through either of those means, you should contact our clearing firms for instructions on how they may provide prompt access to funds and securities, enter orders and process other trade-related, cash, and security transfer transactions. Our clearing firms’ contact information: Goldman, Sachs & Co. at 212-357-2260 or visit their website at http://gsec.gs.com or Pershing, LLC, at 201-413-4800 or visit their website at http://www.pershing.com.
Varying Disruptions - Significant business disruptions can vary in their scope. They can affect only our firm, a single building housing our firm, the business district(s) where our firm is located, the cities where we are located or whole regions. Within each of these areas, the severity of the disruption can also vary from minimal to severe. As Brownstone operates offices in several different geographic areas, the Firm may be able to transfer operations to an office not affected. In a disruption to only our firm or a building housing our firm, we will transfer our operations and expect to recover and resume business within two hours. In a broader disruption we will transfer our operations to a site outside of the affected area, and recover and resume business within twenty-four hours. In either situation, we plan to continue in business, transfer operations to our clearing firms if necessary, and notify you through our web site http://www.brownstone.com on how to contact us. If the significant business disruption is so severe that it prevents us from remaining in business, we will assure our customer's prompt access to their funds and securities.
For more information - If you have questions about our business continuity planning, you can contact us at (212) 905-0550.
In accordance with the Gramm Leach Bliley Act, all financial institutions including broker/dealers such as Brownstone Investment Group, LLC, are required to send their privacy statement to their customers. The following is our privacy statement:
At Brownstone Investment Group, LLC (“Brownstone”) our customers’ trust and privacy is extremely important to us. Brownstone has taken safeguards to protect the paper documents, the collection of data, and the electronic data stored at Brownstone.
In order to process and services your financial needs, Brownstone has collected customer non-public and personal information, including but not limited to name, address, social security and tax identification numbers. This information enables us to perform your financial transactions.
Brownstone does NOT disclose any information relating to its customers or former customers to affiliates or third parties, except as permitted by law, to process your transactions or to fulfill legal and/or regulatory requirements. In addition, Brownstone will only provide information to relationships you have established and have authorized us to do so (i.e. power of attorney, request for duplicate confirmations or other similar items). Brownstone does not provide current or former customer account information to any outside organizations such as catalogue or direct mail companies.
Brownstone has implemented policies and practices with respect to safeguarding the confidentiality and security of our customers’ information. All our employees are required to protect and comply with these policies and practices and are subject to disciplinary action or termination if they fail to do so. Brownstone, our affiliates, and clearing firms have secured your information through encryption technology, password protection, and physical safeguards.
Brownstone considers the protection of clients’ personal information to be of vital importance and will continue to protect our clients’ interests.
Should you require additional information, please feel free to contact us at (212) 905-0550.