NBS warning regarding unethical and unfair practices in the capital market

27. 11. 2009 | Information for Public

Národna banka Slovenska  would like to notify potential investors of entities pursuing  their  business in the financial market which, when acquiring clients and handling their money, use dishonest ( unfair and unethical) practices. Some intermediaries of investment services, when acquiring clients, are not interested in the benefit of their clients from trading in securities, instead, they want the client to perform a maximum number of trading activites regardless of profit or loss for the investor.

The client - a potential investor - is usually addressed by the intermediary of the investment services with an offer to invest in securities via telephone. However, all of the risks connected with the respective kind of financial instrument  or the offered investment service which they will have to undergo, are either concealed or insufficiently explained to them.

The clients are often intentionally exposed to time pressure by a  statement that they should begin making trades  as soon as possible because of the fact that  „ now is the best time to buy".

The intermediary of the  investment services usually recommends and instructs the client in the purchase/sale of securities which the securities dealer performs on behalf of the client´s account. Thus the client very often buys and sells securities on the basis of personal recommendations of the intermediary of the investment services, in some cases several times a day and pays fees for individual transactions. The clients , except for frequent capital loss caused by decline in market price, suffer from an overall loss of their invested funds.

This refers to the practice of excessive trading when the securities dealer excessively trades with securities which are in the client ´s  account with the purpose of generating fees.

An inadequately high turnover in the client´s account, frequent purchases and sales of securities and also high fees  demanded by the securities dealer are characteristic features of excessive trading. A further indicator of excessive trading is a high frequency of purchases and sales in the client´s account, usually with a low difference between the buying and selling price  of securities.

Narodna banka Slovenska would like to warn all potential clients, future investors  that if they are addressed by an intermediary of an investment services provider or  by  securities dealers to always ask for information regarding all risks connected with the stated kind of offered financial instrument and the fees connected with the  investment.

The clients should carefully read all documents before signing them. In addition, they should never  sign documents which they do not understand or which contain inaccurate data regarding their investment plans and experiences. Every future investor should always remember the basic rule regarding investment: „ The higher the profit I attempt to gain,  the higher the risk of loss I must accept and may have to undergo."


Jana Kováčová
Spokesperson of the NBS


National Bank of Slovakia
Communications Section
Imricha Karvasa 1, 813 25 Bratislava, Slovak Republic
Tel.: +421-2-5787 2168,+421-2-5865 2168, +421-2-5787 2169, 421-2-5865 2169
Internet: http://www.nbs.sk

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