becoming your own broker dealer

S

Sky123987

Not really at this stage at all, and I'd have to get some other traders involved to think about doing this, but it is worth the effort to become your own broker dealer, rent the software, and clear through goldman.


Say you partner up with some others to do this and say you can do around 20 million a month. What would an estimate of your rates be? and how leverage would you get my being a broker/dealer?
 
You can clear through goldman and the most you can get is 6.25 to 1, if I am not mistaken. There is no guarantee that you will get the full leverage.

Establishing a b/d is a lengthy process.
 
According to Don Bright, who does clear thru Goldman, he gets 6.67x leverage day/night.

http://www.elitetrader.com/vb/showthread.php?s=&postid=1704757&highlight=6.67#post1704757

http://www.elitetrader.com/vb/showthread.php?s=&postid=1629683&highlight=6.67#post1629683

With portfolio margining, you can get up to 6x leverage.

To set up and establish a b/d, there are added costs that have to be added to your trading for you to evaluate to determine whether or not being registered is cost effective, such as compliance, proper books, reports and such (labor!!!). It works for Don because they have something like 500+ traders. After considerations, I came to the conclusion that it is more cost effective to go prime broker than get a b/d, but my situation is a little complex.

If all you are looking for is cost, then you can negotiate a deal that is peanuts. Just pick up the phone and inquire from the firm directly instead of coming here constantly with your questions.
 
To me, you would have to be trading with a LOT of people to make this worth your while. Let's take a forex example (because that's really all I'm familiar with at that level):

NetCap requirements are $5,000,000. While it IS possible to trade your NetCap, no one (that I'm aware of) does it because it's a giant pain to get this set up. So that's 5M you have locked up right there, not doing anything.

Then there are the requirements set on you by your prime broker. In fx, you could do as low as $10M, and get reasonable leverage. The efforts to get this deal working would be huge, not to mention legal fees, etc. etc.

It seems to me that you would need to be trading with a lot of people and for a long time to make the deal worth it from a financial standpoint. It's not really for the guys who have some partners and a few million to trade with. There are institutional "retail" type houses catering to that market.

My .02
 
Quote from Sky123987:

Not really at this stage at all, and I'd have to get some other traders involved to think about doing this, but it is worth the effort to become your own broker dealer, rent the software, and clear through goldman.


Say you partner up with some others to do this and say you can do around 20 million a month. What would an estimate of your rates be? and how leverage would you get my being a broker/dealer?
More...

In order to get the 6:1 leverage you need to do two things 1) set up a JBO with Goldman, Bear or other NYSE member and 2) Put up a min. of 1 million dollars with them as deposit.....and there is no guarentee they will accept you ayway...the NYSE has to approve.
 
Quote from SwingOutOn5:
NetCap requirements are $5,000,000.
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I'm not sure about forex, but for securities, it's WAY less. If you're setting up a broker (client accounts), it's $250,000. But if you're setting up a dealer (only trade your own account and this is what we're talking about here), it's only $100,000. Read more about this:
http://www.law.uc.edu/CCL/34ActRls/rule15c3-1.html


Quote from TM_Direct:

In order to get the 6:1 leverage you need to do two things 1) set up a JBO with Goldman, Bear or other NYSE member and 2) Put up a min. of 1 million dollars with them as deposit.....and there is no guarentee they will accept you ayway...the NYSE has to approve.
More...

As you know, leverage is provided by the clearing firm and not the B/D itself (hence this discussion is slightly of topic here). 6:1 leverage sucks IMHO, you should be able to get WAY more with Penson for example .


Quote from SwingOutOn5:

It seems to me that you would need to be trading with a lot of people and for a long time to make the deal worth it from a financial standpoint. It's not really for the guys who have some partners and a few million to trade with. There are institutional "retail" type houses catering to that market.

My .02 [/B]
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Since you only need $100,000 in assets and the operational costs of running the B/D are not that steep, I disagree. If you have a group of a few good traders and are willing to invest the time and energy to set it up, it can be very worthwile. It's my prediction that you'll see this happening more and more in the future: good traders will quite their propfirms and start their own groups.
 
Quote from TM_Direct:

In order to get the 6:1 leverage you need to do two things 1) set up a JBO with Goldman, Bear or other NYSE member and 2) Put up a min. of 1 million dollars with them as deposit.....and there is no guarentee they will accept you ayway...the NYSE has to approve.
More...

What are the steps to set up a JBO?
 
Quote from yip1997:

What are the steps to set up a JBO?
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1) must be a FINRA approved b/d
2) Clearing agreement in place with an exchange member
3) the clearing firm wll equire 1 million plus on deposit

re: BP....the most a LEGAL finra firm can give is around 6:1 ....these other people who tout 10,20, 50 to 1 are not FINRA firms but are LLC's operating outside Finra...Also, I don;t beleive Penon offers JBO's because they are not NYSE members...although they are CHXmembers and may be abl to o it through th
 
As a side note, if you want some somewhat easy business, if you are not a women or minority find one to be a partner. Quite a few state investment boards, pension funds, etc are required by law to give out some of there business to minorities or women based firms.
 
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