The Penny Stock Rules refer to the requirements of Section 15(h) of the Securities Exchange Act of 1934, under which Congress prohibited broker-dealers from effecting transactions in penny stocks unless they are in compliance.
Under the Penny Stock Rules Broker-Dealers Must Do the Following
- Approve the shareholder for the specific penny stock transaction; and
- Receive from the shareholder a written agreement to the transaction; and
- Provide a disclosure document which describes the risks of investing in penny stocks; and
- Disclose the current market quotation, if any, for the penny stock; and
- Disclose the amount of compensation the firm and its broker will receive for executing the trade; and
- After executing the sale, the broker-dealer must also send monthly account statements to the shareholder, which detail the market value of each penny stock in the shareholder’s account.