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item and the price received for selling it constitutes profit to
the dealer.
Secondly, Merit retained the interest earned on the margin
deposits that it required from its customers. "Margin" was the
amount of money deposited by both buyers and sellers of Merit's
contracts to ensure their performance pursuant to the terms of
those contracts. "Initial" margin is the minimum deposit required
when a position is established, and "maintenance" margin is the
money that an investor must maintain on deposit to allow the
investor to continue to hold that position.
Merit insiders--so-called market makers--were not required to
pay the bid/ask price, and they were allowed to retain the interest
earned on cash they had deposited as margin with Merit.
(3) Trading in Merit Options
The options that Merit dealt with in its T-bill and T-bond
activities were available only through Merit. No participant in
the Merit T-bill or T-bond activity ever took delivery of any T-
bills or T-bonds with respect to this activity.
The options traded over the Merit option markets were not
listed on any formally organized exchange. Nor were these
instruments registered with the Securities and Exchange Commission;
rather, Merit marketed its instruments as private placements.
Under Federal securities laws, a private placement can be offered
only to high-income, sophisticated investors and to investors
represented by qualified advisers. In order to trade in the
marketplace, a potential participant had to fill out a
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Last modified: May 25, 2011