Tuesday, September 6, 2016

OptionsHouse kicked me out

A few days ago OptionsHouse sent me the following in an email:
After a review of your account, OptionsHouse has determined we will be unable to service your account ending *** going forward.  Your account has been placed in liquidation only trading status, meaning existing positions can be closed out but no new positions can be established. Please make arrangements to transfer your account out of OptionsHouse within thirty (30) calendar days.
They went on to explain the ways I could withdraw cash or transfer my account.  My wife has an account and got the same email.  They give no explanation.  I have been a customer for years.  I am active.  Now I'm given 30 days, don't let the door hit you on the way out.  Why must I leave...we won't tell you.  

I have talked with a few OptionsHouse reps and they cannot, or will not, tell me why this is happening.  I've heard many forms of "I can't say."  I'm told is has nothing to do with the types of stocks I own (dark, tiny, OTC, grey market, etc).  They say it has nothing to do with the recent purchase of Optionshouse by Etrade.  For sure they feel it is appropriate to cut ties with any one at any time with zero explanation.

Interestingly one rep told me they do not allow trades of dark companies and have not since the merger with TradeMonster.  That was 2 years ago so he must be mistaken as I've been buying and selling dark companies consistently for the past 6 or 8 months.  Maybe this policy just finally trickled down and is being enforced by kicking out customers.  

Here's the problem.  I own very illiquid stocks so selling within 30 days is difficult and perhaps not possible (one of my stocks I believe has literally no buyers).  At a minimum I'm going to lose money.  I explained this and they don't care.  If my stocks are not sold at the end of 30 days they will sell for me at whatever price they can get.  If there are no buyers I'm not sure what will happen so I guess we'll cross that bridge when we come to it.

I cannot transfer my account and they know this.  Brokerage houses do not generally allow OTC stocks in account transfers.  I don't understand but have been told they are afraid of the large price swings they think might occur during the process.  Let me list the brokerages who've specifically told me they don't allow OTC stock transfers:
  • OptionsHouse
  • ETrade
  • Fidelity
  • Capital One
  • Charles Schwab
  • Merrill Lynch
  • Scottrade
  • Union Bank
  • Trade King
  • Trade Station
  • TD Ameritrade
  • if you have suggestions for me to try I'm all ears

And here are those who allow an account transfer with OTC stocks
  • Interactive Brokers 
    • problem is they have minimum account balances, minimum net worth to trade OTC stocks, minimum monthly fees
    • other problem is they won't allow grey market securities which I own
  • no one else that I know of
So what to do now?  I stand to lose money by selling.  I can't transfer.  OptionsHouse doesn't care.  I wish I knew why this is happening so I could avoid it in the future but they won't tell.  It's amazing they are forcing me to liquidate at a loss and won't even tell me why.  Talk about customer service.  I pay commissions just like everyone else.  At least Fidelity gave their reason of perceiving dark companies as risky and didn't force me to close my accounts.   

My guess is this has something to do with dark companies.  I can't imagine what else it could be.  I deserve an explanation

Has anyone out there experienced this?  Do you know of a brokerage house that allows OTC stock transfers?

Disclosure: OptionsHouse should be avoided

38 comments:

  1. Thank you for the suggestion. I have called them and they won't allow the transfer either. Somehow I forgot them when typing my list above

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  2. J.H. Darbie very expensive, but can get it done

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  3. I talked with OptionsHouse again today. On the positive side they said they will let me go past the 30 days by a little bit as long as I'm trying to liquidate, sounded like a week or two max. On the negative side the account must be closed and they won't tell me why.

    They said this happens from time to time. They may close someone's account due to fraud or strange account activity but that's not me. He said everything they do is in response to the regulations handed down upon them so perhaps something has happened in the industry. In any case I just can't believe their response is forced liquidation

    I filed complaints with the BBB and CFPB so we'll see where that goes.

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  4. You should contact Jason Zweig. If there is anyone that can help you out, it's probably that guy. Also, maybe look into some of the newer online brokers, especially some of the ones out of Silicon Valley?

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    1. Thanks. Do you know any specific brokerages? I'll have to do a search

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    2. Sorry not really. Wish I could be more help. Maybe something on the lines of Robinhood (not really, since it's only for mobile devices). But you get the idea... something like that

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  5. are you sure about interactive brokers? i think that it is 10,000$ minimum account balance. i could buy penny stocks when i had account balance of 20k when i opened account. i think that it is based on years of experience, not account balances. also, inactivity fees are 10$ per month or 120$ per year for accounts under 100k. accounts over 100k no minimum activity fees. 120$ per year is not much. u cud always transfer to interactive brokers while looking for other brokers. in the mean time, you will not get forced out of stock positions.

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    1. I have chatted back and forth with IB. I would need to get clarification on a few points if I am going to really move there. and I haven't asked if I could get any special treatment. At the moment I don't meet the min account balance and they won't accept some of my stocks anyhow.

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  6. What's the minimum you need for Interactive Brokers? Can't you use cash to make up the difference (not necessarily invest it, just to open the account, even use a 0% credit card)

    Just to look on the bright side, let's say 50% of your positions are underwater and 50% are positive. liquidating the account can harvest tax losses right...With the now liquid capital base, you can then reallocate to the same holdings over the next quarter...
    Of course there are transaction costs, but perhaps the transaction costs < the tax loss gain.

    I'm new to your blog, but you have my best wishes.

    Also I noticed TradeMonster is not in your list of attempts, maybe go direct to source saying you want to close an account and switch services.

    By the way I once switched from TD to IB. And it took 3-4 weeks to just transfer holdings. That sucked big time, as I couldn't trade or do anything. So to be honest, selling up and reallocating in my view is better - imagine stocks crash when you are transferring, and you open your account in 3 weeks to a blood bath where you couldn't exit or even buy more during the chaos.

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    1. thanks for looking on the bright side. Yes some of my holdings will make money and some will lose but the pain is that the account as a hole will lose money by selling out due to the low liquidity and high bid/ask spreads. As for re-allocating yes that would be my plan but you never know what might happen

      IB account min is $10k. Yes I suppose I could use a 0% credit card or get a loan but it's just more hassle. Thanks for the ideas

      Trademonster merged with Optionshouse a couple years ago

      Selling may normally be better and easier but my stocks are very illiquid so it's not so easy for me. They grey market ones I cannot see bid/ask; I believe there is a low bid on one and no bid on the other. I have stocks with the high bid at half the ask

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  7. I had a broker put me in "liquidation only", and of course they wouldn't say what, if anything, I had done to deserve this. However, they didn't close my account or selling any stocks - they just made it annoying to do anything and hoped I would voluntarily leave on my own. I would double check with OX what will happen if you do nothing. Outside of a margin call, I don't think they have permission to liquidate your holdings just because they don't like them anymore, and they would probably be legally liable. My guess is you can just hold indefinitely, but obviously need a new broker going forward.

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    1. sorry to hear you got put into liquidation status. That's crazy. What did you end up doing?

      I have tripled checked with them and they have made clear it's within their legal rights to liquidate my holdings on my behalf. They even went as far as to say they could close my account today and liquidate. I'm no lawyer but they say it's there in the agreement, I'm sure it is. They don't have to continue doing business with anyone and have the right to cancel accounts for any reason

      They have told me flat out they will sell my stocks if I don't, taking whatever price they can get

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  8. Why do you tink you can't use Interactive Brokers? What grey market stocks do you own that you think they won't support? I own quite a few OTC stocks with them (some of them you posted about on this board).

    Additionally, if you just want to move, IB will likely take your portfolio even if they don't support some of the stocks. They will just allow you to buy more.

    Finally, the minimum trading fees per month ($10 per month) if you also setup the Stock Yield Enhancement Program (http://ibkb.interactivebrokers.com/node/1838) where you allow them to lend out your stocks to short sellers and split the profit. All other brokers just do this without your permission and don't split the profits. You will receive a nightly collateral in your account if anything goes wrong (which is unlikely). This program makes me significantly more than $10 a month and I don't have a particularly huge portfolio. Also IBs minimum is portfolio size is only $10k.

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    1. I own two grey market stocks which I haven't named publicly. Would rather not name them now

      I don't meet the min account balance for IB and they won't accept me anyhow due to the grey market stocks. I am not sure if I meet the min experience and net worth thresholds for penny stocks, haven't looked that deeply yet.

      thanks for the enhancement program note

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  9. Alternatively: ask them to put the stocks in your name. Request a paper stock certificate in your name (this will cost you something though but they are required by law to comply).

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    1. I've looked into this a bit and it's not simple. Probably too much for me. thanks for the idea

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  10. Thanks for the ideas everyone. One positive in this is that my account with OptionsHouse is not very big, less than $10k. This account is just for investing some savings that would otherwise be earning nothing in a bank account. I'd be in more pain if I was getting kicked out of my retirement accounts.

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  11. Hi,

    This is a fascinating post and thread. A lot of brokers are clamping down on OTC stocks. FINRA claims they're used for money laundering and that most are frauds.

    What did you do? I have a lot of gray stuff at Fidelity and I can't buy more, but they allow me to sell it. I've been told IB, MerrillEdge, Scottrade and ETrade are all good choices and don't have restrictions yet. Maybe try one of those?

    Instead of asking I'd try to transfer first. Just initiate the transfer and see what happens. If it's rejected then you try someone else. If it's accepted you move on.

    Nate

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    1. So we're in the same boat at Fidelity. This whole situation sucks but also reinforces with me that I'm looking for stocks in the right places. I'll do a follow up post once I'm through all this as I'm sure there are some people out there interested in my findings.

      What did I do. Well first I got super angry and talked with OptionsHouse a number of times over the phone and by email. Once I found they won't budge I started contacting other brokerages. I had already contacted those listed above in this post back when Fidelity started blocking my dark company buys.

      As of now I have a list of 39 online brokerages. I have contacted 34 of them and heard back from 29. The vast majority say no we won't take those kinds of stocks. So far 1 company has said for sure they'll take my account in transfer and let me trade the stocks. One other has said most likely it'll transfer and I'll be able to trade but we have to try to find out for sure. One (IB) will allow me to transfer but they will only allow sells on grey market. One will allow me to transfer but then would only allow sells on all OTC stocks. One will allow transfer and trade of everything but grey market.

      The funniest thing about this is the sound of shock/pity in the voice of the people I talk to when I name the stocks I'm concerned with. They immediately dive into all the risks... Money laundering and fraud..whatever just let me do my trades. I don't see why they care, it's my stock and my risk so just let me sign a waiver and move on. I think it's probably not profitable for them

      Merrill, Scottrade, Etrade will not take OTC stocks in transfer. I would rather not just try to transfer because you have to open a new account first and I wonder if you have to pay the fees up front.

      I have about two weeks left to get out of OptionsHouse. At the moment I'm frantically trying to find a place to transfer. One problem with the places that'll accept my stocks is higher fees than I'm used to ($35 per trade) and in one case completely prohibitive at 4.5% of principal

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    2. Correction on IB, they would allow me to transfer if the account in question met their $10k minimum.

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    3. Are you really not able to just fund the account a bit more to reach $10k? So much easier and better than the other solutions (plus I consider IB to be the best broker, I'm very happy they exist).

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    4. Yes I am really not able to fund the accounts more (mine and my wife's) and they have confirmed they won't budge on the min. My job supports my wife and kids, I don't have spare money just laying around. I suppose I could use a home equity line to fund then take the money back out but I don't know if they would allow that and it's really more of a pain that I don't want to get into.

      Other downside to IB is they don't allow grey market buys. And they have a liquid net worth requirement for penny stock trading that I'm not sure I meet.

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  12. What's their liquid net worth requirement? What do they consider liquid? (more and more of my portfolio I wouldn't really call liquid).

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    1. IB requires a liquid net worth of $50k for penny stock trading. I asked the same question you are and they consider liquid net worth to be "the total value of all your assets that can be readily converted into cash or cash equivalents without a major loss in value (stocks, bonds, bank accounts, etc.)" I don't know how they verify this, they might just ask.

      They also have a minimum experience requirement of 2 years trading and 100 trades completed; this one there is no requirement to submit proof.

      Overall these types of requirements annoy me. But there are some worse than IB, like Schwab will only allow you to trade OTC stocks if you have $250k in your account with them invested in things other than OTC stocks.

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  13. http://ibkb.interactivebrokers.com/node/1287

    5. Minimum Monthly Activity Fee - as we cater to active traders we require accounts to generate a minimum in commissions each month or be charged the difference as an activity fee. The minimum is $10 per month for accounts maintaining a balance above $2,000 and $20 per month for accounts whose equity has fallen below $2,000.

    Appearently they don't kick you out even if you fall below $2k

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    1. yes. You just need $10k to open an account

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  14. I just had this happen to me with the major Financial Services Firm in Boston whose name begins with "F". We have been customers for about 30 years - in their premium services group (very substantial assets) - no "dark", "grey" or unusual investments or activities. Getting ready to retire and wanted to consolidate some accounts from other institutions. We planned to follow a well-respected investment allocation/tax strategy. Asked for help and was told had to go through the assigned Financial Consultant. This person was demeaning and mocking of the strategy (it sounded extremely sexist in tone as I am a female but one who is quite well-versed with the investment world)- probably because we said we were not yet ready to use their expensive fund management services. Thanked this person and said I would speak with someone else. Their manager called the next day to apologize - clearly this person knew they had overstepped their bounds. The manager asked what had been said and shared the details of the conversation how it made me feel. Manager said that they could not do anything to make me happy and would not provide any further services. Received a set of overnighted letters saying that they were terminating my accounts - I had to move them all within 30 days or they would liquidate them. Was also being removed as attorney-in-fact for some relatives for whom I have served in this capacity for many years and that I would not longer be permitted to do business with "F" again.
    This is mindboggling and does not appear to be legal. They cited something that said they have the right to cancel accounts at any time for any reason (they have so far refused to provide a reason despite my asking for this in writing). Had no idea they could do this and since the accounts were opened many years ago pre-internet have no idea when/if this was in any document I signed (asked them to produce this they don't respond). This has the potential to cause significant financial harm as the accounts are a wide mix of investment, retirement and other accounts.
    Is there any resource to turn to? Is this legal? It appears from some research that I am not the only person they have done this to. Thank you for any suggestions.

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    1. Geez that sounds rough. I wonder why they would do that. Wish I could help but I don't know who you could turn to. OptionsHouse told me the same thing, they have the ability to cancel any account at any time for any reason, I imagine it's there in the fine print somewhere.

      I hope you are able to transfer to a new firm without issues.

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    2. Maybe try to find a financial services specialized lawyer?

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  15. I've had this happen to me. Schwab closed my account saying they (paraphrased) - they don't want me as their client and I should move out within 30 days.

    There's no way in hell any company would tell you why they don't want you as a customer for one simple reason - They don't want to be sued. If they tell you why they kicked you out, then it'd be a point of contention and could raise a possibility of a lawsuit if the client feels he was wrongly terminated. So they simply point to their ToS that says either party can terminate the relationship at any time for any or no reason.

    For everyone wondering why this happens, it could be a number of things and usually it's because the account hits the risk threshold of some sort. It could be large ACH transfers in and out within a short period of time without apparent reason, or could be trading in dark stocks, or attempted market manipulation (placing and canceling too many orders for the same stock in a very short period of time) or whatever else. These companies have internal risk management teams and if your account seems like it poses risk to the firm in any way (legal or financial or reputational) they will axe you.

    I guess if you have millions of dollars at the firm and/or if you generate tremendous profits for the firm, you could get a friendly heads up to stop whatever it is that makes them nervous, rather than getting the axe without any prior warning. But for most minnows like us, there's no arguing.

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  16. Hard to find cheap brokers that allow opening of new trades for grey market securities. E-trade worked as of a few months ago (last trade I made in that account).

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  17. Just spoke to Merril Edge and they said they do allow purchase of OTC/Dark companies.
    Fido and TDA do not.
    IB seem to allow.

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    1. You may find my post on different brokerages interesting. I talked to quite a few to find out if they allow Dark companies.
      http://www.nonamestocks.com/2016/10/brokerage-firms-otc-markets-and-dark.html

      My problem with Merrill was their minimum cash in the account requirement.

      What specifically did TDAmeritrade block? I know people who have bought dark companies through them

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  18. Replies
    1. Thanks. I've never looked into that one

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  19. Well at least I'm not the only one this has happened to. Just got the axe by TD, and previous to that 4 years ago was E-Trade, and before that...Wells Fargo. No explanation, no nothing. I have a feeling it's the little OTC Pinks I have held for many years. But who knows? Only they do, and they won't tell me. Thinking of liquidating the Pinks before I transfer to yet another brokerage. It's ironic that these same firms advertise like crazy on OTCMARKETS.COM looking for business from people who buy OTC securities! I'm disabled, and every day a struggle. This is the LAST thing I need right now. Thanks for everyone's comments on this subject.

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