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Artemy Zhdanov
Artemy Zhdanov

How Do I Buy Penny Stocks Without A Broker

Buying stocks may help you get started on the path to building wealth. And just like hiring professional movers can help make relocating less stressful, purchasing stocks through a broker can make the process of diversifying your portfolio easier.

how do i buy penny stocks without a broker

It is possible to buy stocks without a broker. In fact, there are three alternatives to using a full-service broker: opening an online brokerage account, investing in a dividend reinvestment plan, and investing in a direct stock purchase plan. This article will cover the pros, cons, and how-tos of each of these ways to buy stocks without broker involvement.

Direct Stock Purchase Plans (DSPPs) allow investors to purchase shares of company stock directly from the company itself. Specifically, trades are completed through a transfer agent.That means you could buy stocks without a broker, full-service or online, to complete the transaction.

Online brokerage accounts offer the convenience of being able to buy stocks online without a traditional full-service broker (and the typical traditional broker fees). Think of it as the difference between dining at a full-service restaurant versus a self-serve buffet.

Online brokerage accounts have helped to remove some of the barriers preventing people from investing. With an online broker like SoFi Invest, investors just need a few dollars to get started, and can choose between an automated investing account or use an active investing strategy. Members can invest in stocks, fractional shares, ETFs, cryptocurrency, and more.

FINRA sets a requirement of $25,000 in your brokerage account to begin, but there are other online brokerages that allow you to trade with a lower minimum. Check with your penny stocks app or broker to learn more.

The Securities and Exchange Commission today charged a Chicago-area company that provides stock loans using equities as collateral, its two co-founders, and its former chief operating officer with selling more than nine billion shares of penny stocks through purported stock-based loans, block trades, and other transactions without registering with the SEC as a broker-dealer as required under the federal securities laws.

The Securities and Exchange Commission (SEC) has adopted amendments to certain rules under the Securities Exchange Act of 1934 (Act) that apply to transactions in low-priced securities traded in the over-the-counter market. Specifically, the SEC amended Rule 15c2-6, which makes it unlawful for a broker/dealer to sell or effect the purchase of a "designated security" with a customer in a nonexempt transaction, unless the broker/dealer has specifically approved the customer's account for transactions in designated securities and has received the customer's written agreement to the transaction. The amendments conform the definition of "designated security" in Rule 15c2-6 to the definition of "penny stock" in Rule 3a51-1. With certain exceptions, the exemptions under Rule 15g-1 replace the transactional exemptions under Rule 15c2-6. The amendments redesignate Rule 15c2-6 as Rule 15g-9. The SEC also amended Rule 15g-2 and Schedule 15G under the Act to require a broker/dealer to obtain, before effecting any transaction in a penny stock, a written acknowledgment from the customer that the customer has received the Risk Disclosure Document required by Rule 15g-2. Finally, the SEC clarified Rule 15g-3, which mandates the disclosure to customers of current quotation prices or similar market information in penny stock transactions.

Following adoption of Rule 15c2-6, Congress passed the Penny Stock Reform Act (Reform Act). The Reform Act directed the SEC to adopt rules designed to address sales-practice abuses and manipulation involving speculative, low-priced over-the-counter securities by requiring broker/dealers to provide investors with material market and other information before effecting a transaction in a penny stock. In response, the SEC adopted Rule 3a51-1 and Rules 15g-1 through 15g-6 (Disclosure Rules). Rule 3a51-1 defines the term "penny stock"; Rule 15g-1 exempts certain transactions from the disclosure rules; and Rules 15g-2 through 15g6 generally require broker/dealers effecting transactions in penny stocks to provide their customers with a Risk Disclosure Document that describes the risks of investing in penny stocks, information regarding market quotations, information on the compensation of the broker/dealer and salesperson involved in the penny stock transaction, and monthly statements disclosing the market value of penny stocks held in the customer's account. (See Notice to Members 92-38, July 1992).

The amendments to Rule 15c2-6 conform the rule to the scope of the disclosure rules by: (1) replacing the designated security definition of Rule 15c2-6 with the Rule 3a51-1 definition of penny stock; (2) substituting with two significant exceptions the list of exempt transactions in Rule 15g-1 for the exempt transactions in Rule 15c2-6(c); and (3) redesignating Rule 15c2-6 as Rule 15g-9. Making the scope of Rule 15c2-6 consistent with the disclosure rules will simplify compliance with all of the rules directly relating to penny stocks. The amendments to Rule 15c2-6 took effect on August 11, 1993.

Because the Rule 15g-1 exemptions have replaced the exempt transactions of Rule 15c2-6, Rule 15c2-6 no longer exempts transactions with all accredited investors. The amended rule now includes the Rule 15g-1 exemption for transactions with institutional accredited investors (defined in Rule 501) as well as transactions with the penny stock issuer and any director, officer, general partner, or beneficial owner of more than 5 percent of any class of equity security of the issuer. In addition, the rule provides the frequently referred to "de minimis exemption" for transactions by non-market makers receiving less than 5 percent of their total sales-related revenue from transactions in low-priced over-the-counter securities. Transactions not recommended by the broker/dealer remain exempt under Rule 15c2-6.

Broker/dealers relying on the de minimis exemption will be permitted to calculate their 5 percent revenue based on transactions in designated securities as originally defined in Rule 15c2-6, rather than penny stocks as defined in Rule 3a51-1, for a period of six months following publication of the SEC's adopting release in the Federal Register at 58 FR 37413.

Rule 15g-2 makes it unlawful for a broker/dealer to effect a transaction in a penny stock with or for a customer account unless the broker/dealer distributes a Risk Disclosure Document to the customer before effecting the customer's first transaction in a penny stock. The Risk Disclosure Document, which is set forth in Schedule 15G to the disclosure rules, defines the term penny stock, identifies certain risks associated with investing in penny stocks, describes the penny stock market, provides a brief description of a broker/dealer's obligations under the disclosure rules, and informs customers of their rights and remedies under federal and state law, among other things. (See Notice to Members 92-42, August 1992).

To better enable broker/dealers to demonstrate, and regulators to examine for, compliance with the Rule 15g-2, the SEC adopted amendments that require a broker/dealer to obtain a signed and dated acknowledgment from its customer demonstrating that the customer has actually received the required Risk Disclosure Document before the customer's first transaction in a penny stock. Corresponding amendments to Schedule 15G, which take effect November 1, 1993, include a description of this new requirement. In this regard, the amended Rule 15g-2 requires that broker/dealers maintain a copy of the customer's written acknowledgment for at least three years (with the first two years in a readily accessible place) following the date on which the broker/dealer provided the Risk Disclosure Document to the customer.

The amendments to Rule 15g-2 apply only to customers that have not received and were not required to have received the Risk Disclosure Document as of August 11, 1993. Accordingly, broker/dealers need not obtain a signature from customers that received the Risk Disclosure Document in the past year. However, broker/dealers will have to get signatures for customers entering into a penny stock transaction after August 11, 1993 (the effective date of this amendment), if they have not yet received the document from the broker/dealer effecting the transaction.

By way of background, under Rule 15g-3 a broker/dealer may not effect a non-exempt transaction in a penny stock without first disclosing, and subsequently confirming in writing to the customer, current quotation prices or specified market information for the penny stock that is the subject of the transaction. For transactions effected on a non-risk-less principal basis, Rule 15g-3 requires the broker/dealer to provide the calculated inside bid and offer quotations for a penny stock as those inside quotations appear in a Qualifying Electronic Quotation System (QEQS). The Reform Act precisely defines a QEQS and the NASD's Over-the-Counter Bulletin Board (OTCBB) service has been granted interim designation as the only QEQS. As a result, OTCBB calculated inside quotes are qualified for use in complying with Rule 15g-3 disclosure requirements.

If QEQS inside quotation information is unavailable, the broker/dealer must then look to its own bid and offer quotes in the penny stock for disclosure to the customer. However, a broker/dealer cannot use its own quotations to satisfy Rule 15g-3 disclosure requirements unless: (1) the broker/dealer has effected at least three bona fide inter-dealer transactions consistently at its bid or offer prices over the previous five business days, (2) no less than 75 percent of these transactions have occurred consistently at such quotes, and (3) the broker/dealer reasonably believes that such quotes accurately reflect the prices at which it is prepared to trade with other dealers.1 041b061a72


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