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trading accounts. Merit typically charged a bid/ask spread only on
opening trades.
Customers of the stock forwards were required to make an
initial margin deposit of $25,000. Customers were also required to
post a "maintenance" margin during the time they had established a
position. Like the option trades, Merit's stock forwards did not
trade as outright positions in the stock forwards. All its trades
took the form of spreads or combination spreads.
Most margin accounts had excess funds on deposit. In
general, margin deposits were greater than the amount required.
Moreover, these accounts were left with Merit longer than the
clients' spread positions were open.
(2) Trading in the Merit Stock Forwards Market
In order to trade, investors first had to fill out an offeree
questionnaire in the PPM, and, if they lacked the requisite
sophistication, their offeree representative was required to submit
a questionnaire as well. Inexperienced traders were required to be
represented in their trading by investment advisers. Of these
advisers, at least eight traded their customers' accounts in the
Merit stock forwards market--including petitioners Keeler and
Richartz, and Messrs. Alessandra, Seykota, Haberlein, and Monex--as
well as other customers who traded for themselves. There were 60
participants in the stock forwards market.
As was the case for its option markets, Merit used a
demonstration model of its computer system to show potential
customers how the stock forwards market worked. Merit disseminated
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