Introduction to General Trading

Introduction to general trading

At Charles Schwab, you can trade securities from many different security types including equities, mutual funds, fixed income, exchange-traded funds, money market funds, and alternative investments to meet your clients’ needs. In order to trade effectively and efficiently, there are some policies, rules, and general trading information to be aware of.

Key information related to general trading:

  • To make trades on behalf of your clients, your firm must be assigned trading authority. Refer to How to add power of attorney to an account for information on adding trading authority to your firm. Complete an Authorized Agent Designation Form to make updates to authorized agents when you add or change staff.
  • Even if your clients have assigned your firm trading authority, they may still wish to place their own trades. Your clients can make trades electronically on the Schwab Alliance website. Alternatively, your clients can also place trades by calling the Schwab Alliance trading desk at 800-515-2157 between 8:30 a.m. and 7:00 p.m. ET, Monday through Friday.
  • To obtain access to the Web Trading platform, contact your firm security administrator.

For additional trading policies and rules, refer to the following:

 

Closing prices

In most instances, Schwab bases prices on the last trade in the primary exchange as of the market close of the regular trading session. Schwab uses the primary last-trade price instead of the composite price Tooltip because the primary last-trade price is not subject to individual interpretation. Schwab considers the primary trade price to be an accurate representation of the relative end-of-day value.

 

Schwab money funds

Uninvested excess cash will be held in the FDIC-insured Bank Sweep feature. Depending on eligibility, some accounts have the option to remain in a sweep money market fund as currently designated on the account. Additionally, clients have the option to invest in a Schwab position-traded money fund.

Investors should carefully consider information contained in the prospectus, including investment objectives, risks, charges and expenses. Refer to Investment Management to view the prospectus.

 

Electronic trade confirmations

You and your clients can both elect to receive electronic trade confirmations via email for simple electronic filing and faster delivery than paper confirmations. Refer to Introduction to paperless documents for more information.

 

Freeride rule

Freeriding occurs when you or your client buys a security and sells the same security before depositing funds to pay for its purchase. For example, purchasing 300 shares of ZZZ and selling it same day or on a later date without paying for it is considered freeriding.

To avoid a freeride, you or your client may sell another security to pay for the trade or deposit funds.

 

Reneges

Reneges
A trade renege occurs if the client does not pay for a trade within the time periods specified by the Federal Reserve Board Regulation T, and Schwab’s margins department initiates market action.

If a renege occurs, the account will be restricted to settled cash-up-front for 90 days.

 

Good faith violation

A good faith violation occurs when a security is purchased without sufficient funds in the account to cover the trade. Then that same position is sold and the funds are subsequently deposited by the settlement date to cover the initial purchase. This violation can also occur when a fully paid for security is sold and the proceeds are used to purchase another security, and then the security that is purchased is sold before the security that generated the proceeds has settled.

 

Extensions

If payment is not made on a stock purchase, or shares are not delivered for a stock sale within the designated timeframe, Schwab must either request an extension or buy back/sell out the position. There are different practices for extensions on purchases and sales.

 

Liquidation rule

A liquidation occurs when you or your client elects to sell securities rather than deposit funds to meet a Fed call or cash account trade obligation.

To avoid a liquidation, you or your client needs to sell sufficient securities Tooltip on or before the purchase trade date if the proceeds are intended to be applied against the new purchase or to meet a Federal Reserve call. The one exception to this rule allows you or your client to sell non-sweep money funds after the trade date to meet a new purchase obligation as long as the sale settles on or before the purchase settlement date.

Any three violations within a rolling 12-month period require a 90-day settled cash-up-front restriction be placed on the account. In the case of a freeride or buy-in, an account is immediately subject to a 90-day settled cash-up-front restriction. On the fifth violation, the account will receive a permanent cash-up-front restriction.

 

Advisor trade errors

Schwab recommends that as an advisor you have a disclosed trade error policy. In the event a discrepancy, error, or omission is found, any instruction you give to Schwab to correct a trade error you have made must be consistent with your own trade error policy and basic fiduciary principles. Refer to Schwab’s Trade Error Policy for more information.

 

Cancel rebill requests

You can submit the Cancel Rebill Request form to your Schwab service team to cancel and/or correct trades for the following product types:

 

  • Equities
  • Options
  • Fixed Income
  • Mutual Fund
  • Prime Broker Services
  • Trade Away Services

 

Trades older than 10 business days from the trade date (posted date for prime broker accounts) may require an account holder’s signature on the Addendum to Cancel Rebill Request form.

It is your responsibility to review all components of an order prior to transmitting the order to Schwab. Schwab will make every effort to correct the trades as intended in a timely fashion, acknowledging that the submission of this form is not an agreement by Schwab that a trade adjustment will be made. If a trade correction is not made, you agree that you are bound by the original order as placed and executed.

If my client wants to start making trades from the Schwab Alliance website, how do I get them started?

You can send your clients Schwab Alliance enrollment instructions from the Schwab Advisor Center® website. Refer to How to invite clients to Schwab Alliance for more information.

 

From where does Schwab get the primary last-trade prices?

Schwab obtains this pricing data from various third-party sources, which are not readily available to the general public.

 

How can I request to stop receiving duplicate copies of my clients’ paper trade confirmations?

Complete the Request to Cancel Duplicate Paper Trade Confirmations form and send it to your Schwab service team via a service request.

How to add a power of attorney to an account

How to invite your clients to Schwab Alliance

How to trade equities, mutual funds, and options through the Web Trading platform

How to trade fixed income securities

Introduction to cash options and investments

Introduction to equity trading

Introduction to fixed income trading

Introduction to investment research

Introduction to mutual fund trading

Introduction to paperless documents

Introduction to Schwab Alliance

See the Charles Schwab Pricing Guide for fee information.

 

Review the Extended Hours Trading document for information on processing orders after standard market hours.

 

Access the Research page on Schwab Advisor Center for specific information pertaining to securities available to trade.

 

Refer to the Schwab Commitment to Best Execution and Schwab’s Trade Error Policy documents for more information on trade execution and remediation at Schwab.

 

To learn more about general trading information, contact your Schwab service team.

Access to electronic services may be limited or unavailable during periods of peak demand, market volatility, systems upgrades, maintenance, or other reasons.

Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Investment value will fluctuate, and bonds, when sold, may be worth more or less than original cost. Fixed income securities are subject to various other risks including changes in interest rates and credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications, and other factors.

Section 204-2(b)(3) of the Investment Advisers Act of 1940 requires that investment advisors, who have custody or possession of securities or funds of any client, maintain among other records, copies of confirmations of all transactions affected by or for the account of any such client. Consult with your Legal or Compliance Department to determine the requirements and applicable responsibilities of your firm with respect to trade confirmations.

Investment value will fluctuate, and shares, when redeemed, may be worth more or less than original cost. You can lose all or a portion of the funds invested in a mutual fund.

Real-time quotes may be subject to Internet traffic or other delays.

Pricing information in the Charles Schwab Institutional Pricing Guide supersedes this sheet or any prior pricing details and notices you may have received. Charles Schwab reserves the right to change or waive fees at its discretion.

Options carry a high level of risk and are not suitable for all investors. Certain requirements must be met to trade options through Schwab. Please read the options disclosure document titled Characteristics and Risks of Standardized Options before considering any option transaction. With long options, investors may lose 100% of funds invested. Covered calls provide downside protection only to the extent of the premium received and limit upside potential to the strike price plus premium received.
 
With long options, investors may lose 100% of funds invested. Multiple leg options strategies will involve multiple commissions. Spread trading must be done in a margin account. Covered calls provide downside protection only to the extent of the premium received and limit upside potential to the strike price plus premium received. Writing uncovered options involves potentially unlimited risk.

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