Kapitall Generation Disclosures and Notices
- Anti-Money Laundering
- Business Continuity Plan: FINRA Rule 4370
- SEC Rule 606 and 607
- SEC Rule 10b‐10
- SIPC Information: FINRA Rule 2266
- Investor Education and Protection: FINRA Rule 2267
- Mutual Funds – Charges, Breakpoints, and Fees
- Carrying Agreements: FINRA Rule 4311
- Liens and Levies
- Regulation E
- Callable Securities: FINRA Rule 4340
- Complaints: FINRA Rule 4513
- Financial Exploitation of Specified Adults and Trusted Contract Person
- Additional Assessment
To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account. This notice answers some questions about the firm’s Customer Identification Program (CIP).
What types of information will I need to provide?
When we open an account, we are required to collect information such as the following from you:
Your name, address, date of birth, identification number: (a) US Citizen: taxpayer identification number (social security number or employee identification number), or (b) A corporation, partnership, trust or other legal entity may need to provide other information such as its principal place of business, local office, employer identification number, certified articles of incorporation, government-issued business license, a partnership agreement or a trust agreement.
In addition, The United States Department of the Treasury, the United States Securities and Exchange Commission, and the Financial Industry Regulatory Authority (“FINRA”) currently require you to provide additional information, such as net worth, annual income, occupation, employment information, investment experience and objectives, and risk tolerance.
What happens if I don’t provide the information requested or my identity can’t be verified?
Your firm may not be able to open an account or process transactions for you. If your firm has already opened an account for you, it may be closed.
Apex Clearing Corporation (“Apex”) carries your account as a clearing broker by arrangement with your broker-dealer Kapitall Generation LLC. At Kapitall, we understand that privacy is an important issue for customers. It is our policy to respect the privacy of all accounts that we maintain as a broker and to protect the security and confidentiality of non‐public personal information relating to those accounts. Please note that this policy generally applies to former customers of Kapitall as well as current customers.
Personal Information Collected. In order to service your account as a broker, Kapitall collects information from you in order to provide the financial services that you have requested. The information collected by Kapitall may come from the following sources and is not limited to:
- Information included in your applications or forms, such as your name, address, telephone number, social security number, occupation, and income;
- Information relating to your transactions, including account balances, positions, and activity;
- Information which may be received from consumer reporting agencies, such as credit bureau reports;
- Information relating to your creditworthiness;
- Information which may be received from other sources with your consent or with the consent of your introducing firm.
In addition to servicing your account, Kapitall may make use of your personal information for analysis purposes, for example, to draw conclusions, detect patterns or determine preferences.
Sharing of Non-public Personal Information. Kapitall does not disclose non-public personal information relating to current or former customers of introducing firms to any third parties, except as required or permitted by law, including but not limited to any obligations of Kapitall under the USA PATRIOT Act, and in order to facilitate the clearing of customer transactions in the ordinary course of business.
Kapitall has multiple affiliates and relationships with third-party companies. Examples of these companies include financial and non-financial companies that perform services such as data processing and companies that perform securities executions on your behalf. We may share information among our affiliates and third parties, as permitted by law, in order to better service your financial needs and to pursue legitimate business interests, including to carry out, monitor, and analyze our business, systems, and operations.
Security. Kapitall strives to ensure that our systems are secure and that they meet industry standards. We seek to protect non‐public personal information that is provided to Kapitall by your introducing firm or otherwise obtained by Kapitall by implementing physical and electronic safeguards. Where we believe appropriate, we employ firewalls, encryption technology, user authentication systems (i.e. passwords and personal identification numbers) and access control mechanisms to control access to systems and data. Kapitall endeavors to ensure that third-party service providers who may have access to non‐public personal information are following appropriate standards of security and confidentiality. Further, we instruct our associated persons to use strict standards of care in handling the personal financial information of customers. As a general policy our staff will not discuss or disclose information regarding an account except; 1) with authorized personnel of your introducing firm, 2) as required by law or pursuant to a regulatory request, or 3) as authorized by Apex to a third party or affiliate providing services to your account or pursuing Kapitall’s legitimate business interests.
Access to Your Information. You may access your account information through a variety of media offered by Kapitall (i.e. statements or online services). Please contact Kapitall if you require any additional information.
Kapitall may use “cookies” in order to provide better service, to facilitate its customers’ use of the website, to track usage of the website, and to address security hazards. A cookie is a small piece of information that a website stores on a personal computer, and which it can later retrieve.
Business Continuity Plan: FINRA Rule 4370
We have developed a Disaster Recovery (“D/R”) Plan to ensure business continuity. In our capacity as Broker Dealer, we provide a variety of services that require the provision of continual technological and operational support. In connection with accomplishing business continuity, we have established processes that allow us to operate and maintain business critical processes in the event that our primary location cannot be occupied due to anything from a natural disaster to a terrorist attack, whether or not such an event affects only our firm or is more regional in scope. The D/R Plan contemplates restoration of critical processes within a twenty‐four hour time span. Please note that the specifics of our D/R Plan are subject to modification.
SEC Rule 606 and 607
Disclosure of Payment for Order flow and Order Routing Information
Pursuant to SEC Rule 606, Kapitall is required to make publicly available a quarterly report with regard to its routing of non-directed orders. For the purpose of this Rule, we have entered into an agreement with APEX and S3 Matching Technologies LP, to disclose all required information pertaining to this rule. This information can be accessed on the Internet at www.apexclearing.com.
SEC Rule 606(b) requires a broker‐dealer to disclose to its customers, upon request, “the identity of the venue to which the customer’s orders were routed for execution in the six months prior to the request, whether the orders were directed orders or non‐directed orders, and the time of the transactions, if any, that resulted from such orders.”
Pursuant to SEC Rule 607, Kapitall is required to disclose its payment for Order Flow practices. Kapitall via Apex sends certain equity orders to exchanges, electronic communication networks, or broker‐dealers during normal business hours and during extended trading sessions. Some of those market centers provide payments to Kapitall, or charge access fees depending upon the characteristics of the order and any subsequent execution. In addition, Apex may execute certain equity orders as principal. The details of these payments and fees are available upon written request.
SEC Rule 10b‐10
SEC Rule 10b-10 requires that you are provided with prior written notification if certain transactions are not reported immediately through a trade confirmation. You will not receive an immediate trade confirmation for automatic reinvestments of money market dividends if there are no other transactions in your brokerage account on the day the automatic reinvestment occurs. A summary of these transactions will instead be reported in your quarterly brokerage account statement.
SIPC Information: FINRA Rule 2266
As a member of the Securities Investor Protection Corporation (“SIPC”), funds are available to meet customer claims up to a ceiling of $500,000, including a maximum of $250,000 for cash claims. For additional information regarding SIPC coverage, including a brochure, please contact SIPC at (202) 371‐8300 or visit www.sipc.org.
Investor Education and Protection: FINRA Rule 2267
FINRA Rule 2267 requires Kapitall to provide information about FINRA’s BrokerCheck program. An investor brochure that includes information describing the BrokerCheck program may be obtained from FINRA. The FINRA BrokerCheck hotline number is (800) 289‐9999. The FINRA web site address is www.FINRA.org.
Mutual Funds – Charges, Breakpoints, and Fees
Before investing in mutual funds, it is important that you understand the sales charges, expenses, and management fees that you will be charged, as well as the breakpoint discounts to which you may be entitled. Understanding these charges and breakpoint discounts will assist you in identifying the best investment for your particular needs and may help you to reduce the cost of your investment. Information about charges, discounts, sales charges, expenses, management fees and breakpoint discounts vary from mutual fund to mutual fund. Therefore, you should discuss these matters with your firm and review each mutual fund’s prospectus and statement of additional information to obtain the specific information regarding the charges and breakpoint discounts associated with a particular mutual fund.
In addition, most mutual funds offer different share classes. Although each share class represents a similar interest in a mutual fund’s portfolio, the mutual fund will charge you different fees and expenses depending upon the share class selected. As a general rule, Class A shares carry a “front-end” sales charge or “load” that is deducted from your investment at the time you buy shares. This sales charge is a percentage of your total purchase. Further, many mutual funds offer volume discounts to the front-end sales charge assessed on Class A shares at certain pre-determined levels of investment, which are called “breakpoint discounts.” Conversely, Class B and Class C shares usually do not carry any front-end sales charges. Instead, investors that purchase Class B or C shares pay asset-based sales charges, which may be higher than the charges associated with Class A shares, and investors that purchase Class B and C shares may be required to pay a sales charges known as a contingent deferred sales charge when they sell their shares, depending upon the rules of the particular mutual fund. To learn more about mutual fund share classes, charges, breakpoints, and fees, you may want to consider reviewing the following FINRA investor alerts:
Carrying Agreements: FINRA Rule 4311
Your account has been introduced to Apex by Kapitall, your broker-dealer with which you have opened your securities account. Apex is to provide certain record keeping or operational services. These services, such as the execution and settlement of securities transactions, custody of securities and cash balances, and extension of credit on margin transactions, are provided under a Fully Disclosed Clearing Agreement between Apex and your broker-dealer. As a member of FINRA, Apex is required (under FINRA Rule 4311) to disclose to you the details of its Fully Disclosed Clearing Agreement with your broker-dealer, which are summarized below.
Responsibilities of Your Broker-Dealer
Your broker-dealer has the responsibility to:
- Approve the opening of your account
- Obtain necessary documentation to help fight the funding of terrorism and money laundering activities
- Service and supervise your account through its own personnel in accordance with its own policies, procedures, applicable laws, and regulators
- Know you and your stated investment objectives
- Provide appropriate investment advice, recommendations, or management services based on your investment objectives
- Determine whether particular kinds of transactions such as margin, option, and short sale are appropriate for you
- Obtain the initial margin as required by Regulation T if a margin account is opened for you
- Accept and, in certain instances, execute securities orders
- Know the facts about any orders for the purpose or sales of securities in your account
- Comply with fair pricing and disclosure responsibilities (if your firm is a market maker in any securities or otherwise trades as principal with you)
- Correctly identify and promptly forward funds or securities intended for your account to Apex
- Supervise the activities of any individual who services your account, resolve any complaints regarding the handling of your account and manage the ongoing relationship that it has with you
Responsibilities of Apex
In general, Apex is only responsible to perform the services within the scope of the Fully Disclosed Clearing Agreement that your broker-dealer specifically requests Apex to perform. For example, Apex may fulfill the following responsibilities on behalf of your account at your broker-dealer’s instruction:
- Create computer-based account records
- Process orders for the purchase, sale or transfer of securities (Apex is not obligated to accept orders directly from you and will do so only at Apex ’s discretion in exceptional circumstances)
- Receive and deliver funds and securities
- Record such receipts and deliveries according to information provided either by your firm or directly, in writing, by you
- Hold securities and cash in custody (after it comes into Apex’s physical possession or control)
- Collect and disburse dividends and interest
- Process reorganization and voting instructions with respect to securities held in custody
- Prepare and transmit confirmations of trades to you with the exception of the following transactions which will alternatively appear on account statements:
- Systemic investments or withdrawals of investment company products
- Transactions in money market funds that have no purchase or redemption fees
- Dividend reinvestments
- Prepare and transmit periodic account statements summarizing transactions
- Provide your firm with written reports of all transactions processed for your account to enable your firm to carry out its responsibilities under the Fully Disclosed Clearing Agreement
- Assist you and your firm with any discrepancies or errors that may occur in the processing of transactions.
Apex maintains the books and records required by law and business practice. The Fully Disclosed Clearing Agreement does not encompass transactions in investments other than marketable securities, which Apex normally processes on recognized exchanges and over‐the‐counter (“OTC”) markets. In furnishing services under the Fully Disclosed Clearing Agreement, Apex may use and rely upon the services of clearing agencies, automatic data processing vendors, proxy processing, transfer agents, securities pricing services and other similar organizations. This document addresses the basic allocation of functions regarding the handling of your account. It is not meant as a definite enumeration of every possible circumstance, but only as a general disclosure.
Further, regardless of whether our account has been introduced by a broker-dealer or registered investment advisor, Apex does not control, audit, or otherwise supervise the activities of your firm or its employees. Apex does not verify information provided by your firm regarding your account or transactions processed for your account. Apex does not undertake responsibilities for reviewing the appropriateness of transactions entered by your firm on your behalf.
Liens and Levies
If, for any reason, your account(s) is/are subject to a lien or levy directed to Kapitall, Kapitall will abide by the directions of the federal, state, or other levying authority unless it receives:
- A court order staying or quashing the lien or levy
- Some other form of release from the levying authority
If Kapitall receives a lien or levy on your account, you may be assessed a reasonable processing fee. Questions concerning liens or levies may be directed to the Compliance Department at 888-952-7482.
Regulation E of the Board of Governors of the Federal Reserve System requires disclosure regarding electronic transfers. Electronic transfers include:
- Authorized Debits − A client provides their checking account information to a company (such as mortgage, utility) and the company electronically sends debits directly to the client’s checking account, which debits the brokerage account.
- Debit Card Transactions − Any merchant purchase, automatic teller machine (ATM) withdrawal or cash advance done with the debit card issued from the account.
- Check conversion − A client provides checks for deposit into their Kapitall accounts which Apex scans and converts them into either an image replacement document (IRD) or ACH file.
Questions concerning electronic transfers may be directed to Kapitall on 888-952-7482.
Callable Securities: FINRA Rule 4340
Once a security is deemed callable (callable security) by the issuer, DTC or the custodian will notify Kapitall of the call and the clearing firm Apex which will implement a random lottery call process, based on account eligibility. Eligibility for the random lottery process is based on the securities call classification of ‘favorable redemption call’ or ‘unfavorable redemption call’. The term favorable or unfavorable is based on a comparison between the call price and the market price. When the comparison between the call price and market price are beneficial to the account, the call is deemed favorable. Favorable redemption calls will exclude any account in which Apex or its associated persons have an interest until all other customers’ positions in such securities have been satisfied.
An unfavorable redemption call is when the comparison between the call price and market price are not as beneficial to the account and therefore deemed unfavorable. Apex will not exclude its positions or those of its associated persons (including those persons performing solely clerical and ministerial functions) from the pool of any securities deemed unfavorable and eligible to be called.
A determination will be made as to which redemption call the security is subject to (favorable or unfavorable) prior to commencement of the lottery process.
Once the terms of the call have been determined and eligible accounts have been selected, the random lottery process will occur to select accounts for the partial call redemption. A random start and jump number is executed at the beginning of the lottery to ensure the process is impartial, fair and consistent with the call allocation. When the redemption call has ended for each security, Apex is notified of the called account by its vendor and will inform your firm who will notify you of your account status, if applicable.
Complaints: FINRA Rule 4513
The FINRA has jurisdiction over virtually every brokerage firm and its employees. To request an informational brochure, inquire about your broker-dealer firm or file a complaint, visit their website at www.finra.org or call (301) 590-6500.
Financial Exploitation of Specified Adults and Trusted Contract Person
Under FINRA Rule 4512, Kapitall is required to disclose to you (the customer) that Kapitall or an associated person of Kapitall is authorized to contact the trusted contact person you may have identified in your account opening documents and disclose information about your account to address possible financial exploitation, to confirm the specifics of your current contact information, health status, or the identity of any legal guardian, executor, trustee or holder of a power of attorney, or as otherwise permitted by FINRA Rule 2165.
Kapitall does not charge or receive remuneration on buy or sell orders. However, Kapitall charges an “Additional Assessment”, which typically ranges from $0.01 to $0.03 per $1,000 of principal. Kapitall uses the Additional Assessment to pay certain charges imposed on Kapitall by national securities associations, clearing agencies, national securities exchanges, and other self-regulatory organizations (collectively, “SROs”). The SROs in turn pay the SEC using the money they collect from Kapitall and other broker-dealers. The Additional Assessment that Kapitall charges you is designed to offset the charges imposed on Kapitall by the SROs, which in turn are intended to cover the costs incurred by the government, including the SEC, for supervising and regulating the securities markets and securities professionals.