Leema Enterprises, Inc. - Page 19




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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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Last modified: May 25, 2011