Brokerage

I have written many posts on Sogoinvest (you can search for them under this category, the latest of which was Positive steps taken by Sogoinvest). This is yet another post on Sogoinvest; this time I have two positive things to say about them.

The first is related to the margin charges that were levied on my account in August when they were changing and finalizing their ACH timeline. I wrote them a polite secure mail, pointing out that I had relied on their customer service’s reply to time my transfer of funds into Sogoinvest in order to avoid margin interest. In the mail, I asked that they waive the margin interest charged.

I received a prompt reply about half an hour later: they were unable to waive the charges but they will credit me with free trades to compensate me. The number of free trades (based on $1 per trade) happens to be the amount of margin interest charged. I think this is a reasonable resolution.

The second issue is related to the trading fill of one of the trades I made. I submitted a limit order to purchase 50 shares of VWO this afternoon at $66.30 and it was filled at $66.26 around 12.57pm PDT. This was a good fill as the lowest transacted price at that time was $66.31 and the bid and asking prices at that time were $66.26 and $66.37, respectively. No transaction was reported on level I at $66.26, so I felt like I had bought below the “market” price. 😉

The level I quotes are shown below:

Overall, I am happy to continue my ETF investments with Sogoinvest.

I read about Zecco several days back on FWF. According to the original link, Zecco supposedly will allow customers to trade stocks for free, much like the predecessor of Izone, Freetrade.com. It sounds interesting but if trades are free, it makes one wonder about the viability of the business model.

Details of the trading plan at Zecco are not out on the website. But, let me start the ball rolling by listing the wish-list for features I would like to see:

1. reasonable minimum investment (e.g. $1000 or $2000),
2. supports margin account,
3. supports ACH in and out with reasonable time schedule (no lengthly funds withholding time),
4. trades settle on the normal day T+3 schedule,
5. no ACAT (transfer out) fees,
6. no inactivity fee,
7. supports both market and limit orders,
8. ability to change the limit order price with one step, instead of a cancel-and-resubmit,
9. no separate per share trading fee (do not want for example $0.01 per share beyond 1000 shares), and
10. supports tax-lot specification sales.

I guess if there are no ACAT fees and it supports limit orders, it does not harm much to try out Zecco when it debuts since you can always transfer out for free if you find that you don’t like them.

Additional note on tax-lot specification sales

Regarding the tax-lot specification, it is useful in the taxable account where an investor can specify, for example, to sell a specific “lot” of shares to minimize on taxes.

Fairmark has one very good section on specifying tax-lots. The link is

http://fairmark.com/capgain/ident.htm

The link covers a lot of detail but actually, there is very little additional work that a brokerage needs to do. The investor could for example send the following message to the broker:

“For my trade placed on 9/20/06 to sell 100 shares of QQQQ, please match it to my purchase made on 5/25/2006”.

The broker simply needs to quote the request and reply with

“Your request is acknowledged”.

Although the question of whether email acknowledgement is acceptable was raised at Fairmark, I think it is a reasonably small risk to take with email acknowledgements versus paying the tax based on un-optimized tax-lot sale.

An alternative method (like Brownco used to do) is to provide a space in the trading screen for investors to key in a custom tax-lot specification message which will be printed in the trade confirmation. No additional work is needed from the broker in this case.

By the way, Ameritrade Izone supports this email acknowledgement scheme, although they do put in a disclaimer that “Ameritrade Izone makes no determination or assertion regarding the legal sufficiency of the email acknowledgement under IRS regulations”.

Sogoinvest has been reasonably receptive to client feedback. I have provided feedback to them through various channels, including emails, this blog [1] [2] and through Grant’s TheCornerOffice blog.

Two of my greatest dissatisfactions with Sogoinvest had been the following:

• Long ACH delay between bank debit of funds and posting of credit into the Sogoinvest account.

• Margin interest accruing from trading day instead of the normal day T+3 where T is the trading day.

I am happy to report that Sogoinvest has taken steps to address these issues:

1. From Sept 15, 2006, the ACH posting date is reduced from day T+5 to day T+2 where day T is the date of ACH submission. Not as fast as Izone’s T+1 but good enough for me. The following is their reply regarding the new ACH timeline:

2. Sogoinvest will charge margin interest only from day T+3. This is as reported on TheCornerOffice blog:

Notice that the above message says “has always been to charge margin interest … upon settlement” whereas I had been told on the phone and through their secure mail that “to avoid margin, I must clear my margin positions at the end of the day”.

It appears that this is probably a case of mis-information from the CSR or that Sogoinvest has changed its policy but does not want to admit it. Either way, I can confirm from my August statement that margin interest is indeed only charged from day T+3 onwards. So I am happy with this outcome.

With these positive steps, I think I am willing to direct more of my investments through Sogoinvest.