October 17, 2011
1. What is the purpose of allowing DTC to impose an arbitrary illiquid charge on penny-priced securities transactions? For example, a trade with net proceeds of $10,000 (in penny-priced stock) could incur $1,000,000 in illiquid charges that would need to be wired by the clearing firm pending settlement of the trade. The unintended consequence is that clearing firms are imposing onerous purchase and/or deposit requirements that hinder and possibly prohibit otherwise legitimate public trading of these stocks. What is the formula used to compute these illiquid charges, and how does this both protect the investor and maintain orderly markets?