becoming your own broker dealer

Quote from Warrior4g:

so basically anyone can open a retail account with 4-1 margin and then offer sub accounts to friends? in order to do that,do they have to become an LLC for the retail firm to allow the account to be broken up or the retail firm has no idea this is going on?
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(Been away for a few days, maybe all this was answered).

Pretty close, yes. If you chose to allow your cousins to trade your retail account, then you sign an authorization, and they can do it. In the case of professional firms, everyone would need to be registered and licensed.

Don
 
Quote from TM_Direct:

You guys crack me up....I pretend??? LMAO...Oh Ok...Im sure I canot possibly match youur wisdom and experience...question: ARe you registered? Ever serve on NASD committees? ever sell clearing? ever sign on over 100 frims to clear through you?

re:;; Swift....They are piggybacking Penson...If penson is JBOing ( do you even know what that means or what happens?) they can give out almost 7:1....if they are now doing portfolio margining they can give a little more...the bottom line is....have you ever in your life extended margin? Buying POwer? Have you ever issued a m-call ( do you know what that stands for?) for a couple million becuase a firm blew through their BP? once again.....just becuase the firm tells you you have 50 million in BP....doesn't mean you actually have it....and unless all the branches each had open 50 million dollars worth of BP in positions...it is kind of moot...don;t wast my time any more ...seriously...I could be an awesome resource for all of you to use yet ass holes like you who have never done squat excpet work for the man give me shit....

your nothing but a tool being used...they tell you these things you think are real and then you actually believe them LMAO...PSSSttt...here's another secret....Hedge funds and LLC's.....they are on the radar and the regualators are looking long and hard at making them compliant and on the same playing field as FINRA firms...now you see ....if you look it up you will only see a couple of speeches re: hedge fund and llc regulation...but if you work with the committees who meet and discuss new regulations and proposals you would know this....but who am i? I have no clue...but mark my words right here: once they start bringing it up at District...it will be less then a year...options could b next after that (25k min equity ) for al opton traders

remember BUllets?? Shorting? SOES bandits? day trading with 1 k in your account???
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Apparently you seem right by the definintion of JBO (http://www.sec.gov/news/studies/daytrading.htm). Thanks to google:)

" Proprietary day-trading firms often enter into joint back office ("JBO") arrangements with their clearing firms. These arrangements allow day-trading firms to receive preferential margin treatment from their clearing firms. Specifically, a day-trading firm that participates in a JBO arrangement can receive credit from its JBO clearing firm on "good faith" terms. As a result, the customer margin requirements found in Regulation T and SRO rules do not limit the extension of credit to a JBO participant. Rather, credit can be extended for up to 100 percent of the purchase price of securities. Because of the borrowing power permitted by JBO arrangements, the leverage of day-trading firms using a JBO is limited only by the net capital rule. A day-trading firm participating in a JBO must maintain equity in its account equal to the haircut percentages under the net capital rule."

It goes on to state:

"While individual clearing firms allow proprietary firms to have different amounts of leverage, all day-trading firms examined by the Staff received leverage in amounts that greatly exceeded the amounts permitted under Regulation T and SRO maintenance rules. The examinations revealed that several firms allowed member day traders up to ten times the equity in their accounts intra-day, while limiting overnight positions to approximately four times their equity. At several other firms, there appeared to be no stated trading limits either for intra-day or for overnight trading positions. Finally, a few firms maintained more conservative limits, lending a maximum of four times the equity in the account both intra-day and overnight."

Apparently, its seems that swift does have pretty good contacts that allows it to have virtually unlimited BP. As you stated, i believe it has something to do with some agreements they previously had with Penson. In your other post you also mentioned the possibility that it is a "gamble that the firm plays." I agree with that. Again, this is the only possible explanation that swift would allow virtually unlimited BP to all its offices due to its tight risk management and controls. Basically, it does not matter what BP you max out, if you hit certain stop losses, the firm will auto flatten your position thereby making the margin call unnecessary. In theory, you could max out your say 20M BP but if your stop loss is say 1k you would be flattened within seconds if the trade went against you in theory (so it would be to your disadvantage to use your BP unless you had a proven strategy that was scalable). But to say that the BP is a hoax is not true. You could max it out but only for a brief moment if it went against you so to speak.

As you stated, since none of us has access to swift's back office we would never know the exact leverage they have access to (only that they are given "preferential treatment"). We can only say its pretty big and much larger than usual. Also, the website above states "all day-trading firms examined by the Staff received leverage in amounts that greatly exceeded the amounts permitted under Regulation T and SRO maintenance rules". Given the fact that they do have tight risk parameters (with proven track record) and only engage in intraday trading and no overnight positions (they will not hesitate to flatten you at a large loss if you are not flat by EOD), it seems plausible that they may be given 20:1 or higher. As for the individual offices, they are given astronomical BP (maybe as high as 1000:1)as swift is taking the risk that the individual offices will be able to help manage themselves.

JMHO:)
 
I tried to educate a lot of you but maybe the SEC can...there will be much more coming donw the pike BTW....this is just the tip of the iceberg...now where are all those posters who told me I didn;t understand???????

Autoex?
Szeven?


LMAO





U.S. Securities and Exchange Commission
Litigation Release No. 20480 / March 6, 2008
SEC OBTAINS EMERGENCY ORDERS AGAINST UNREGISTERED DAY-TRADING FIRM AND ITS PRINCIPAL
SECURITIES AND EXCHANGE COMMISSION v. TUCO TRADING, LLC, AND DOUGLAS G. FREDERICK, Case No. 08 CV 0400 DMS BLM (S.D. Cal.)
The Securities and Exchange Commission announced today that on March 4, 2008, it filed an emergency action against Tuco Trading, LLC, an unregistered securities day-trading firm in La Jolla, California, and its principal, Douglas G. Frederick, charging them with violations of the broker-dealer registration and antifraud provisions of the Securities Exchange Act of 1934. On March 5, 2008, U.S. District Judge Dana M. Sabraw of the U.S. District Court for the Southern District of California found that the SEC had made a prima facie showing that Tuco and Frederick have engaged in, and will continue to engage in future violations, of the broker-dealer registration and antifraud provisions of Sections 10(b) and 15(a) of the Securities Exchange Act and Rule 10b-5 thereunder, appointed a temporary receiver as a monitor over Tuco, and issued orders against the defendants for accountings, expedited discovery, and prohibiting destruction of documents.

According to the SEC’s complaint, the defendants provided securities day-trading capability to Tuco’s over 250 traders who had approximately $10.2 million invested in Tuco. They permitted traders to day-trade securities in Tuco’s own brokerage accounts at registered broker-dealers through sub-accounts created at Tuco for each trader. The complaint alleged that Tuco provided traders with services unavailable at a registered broker-dealer. As alleged in the complaint, they allowed traders to day-trade without meeting the $25,000 minimum equity requirement under NASD regulations for such trading. The SEC’s complaint also alleges that for each $1 in the trader’s sub-account, Tuco and Frederick allowed the traders at Tuco to use up to $20 of Tuco’s equity, which has been invested by other traders, to purchase securities (20:1 buying power). NASD and NYSE regulations, however, only allow a day-trader to have 4:1 buying power.

The SEC’s complaint also alleged that Tuco received transaction-based compensation for its members’ trading, and Tuco’s traders conducted substantial day-trading through Tuco’s brokerage accounts both in dollar amounts and number of trades. As a result, Frederick earned substantial commissions on the trading as the registered representative for the Tuco principal accounts at the registered broker-dealer. The complaint alleged that Frederick then used substantial amounts of his commissions to pay Tuco’s operating expenses.

The complaint also alleged that the defendants’ inaccurately reported to the traders their equity balances. Specifically, the complaint alleged that as of December 31, 2007, Tuco and Frederick had used about $3.62 million of the traders’ approximately $10.2 million total equity to pay Tuco’s expenses and to cover trader losses and that as of January 31, 2008, approximately a $1.35 million shortfall remained. As alleged in the complaint, Tuco and Frederick failed to disclose those details or that Tuco and Frederick’s recovery of the shortfall in the traders’ equity is dependent on Frederick’s recovering the funds from third parties.

In its complaint, the SEC also seeks against Tuco and Frederick preliminary and permanent injunctions against future violations of the broker-dealer registration and antifraud provisions of Section 10(b) and 15(a) of the Securities Exchange Act and Rule 10b-5 thereunder, disgorgement, and civil penalties, and against Tuco, a permanent receiver.

SEC Complaint in this matter



http://www.sec.gov/litigation/litreleases/2008/lr20480.htm



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Home | Previous Page Modified: 03/06/2008
 
I just searched my name to see if anyone had done any recent 'call outs' similar to this and now am forced to respond.

I re read the thread so i could remember what the conversation was about, and the story is definitely not as you are trying to paint in this last post.

I never said you didnt understand how clearing worked. I said you didnt understand how buying power worked at prop firms. You explained that and it made sense. But it took several posts i believe for you to understand that when you have $0 up, you arent being leveraged and theres no 'trader deposit money' being pooled. I fully understand that if you are leveraged with a JBO at 6.67x or whatever that you can give out say 10x to your traders and hope not everyone uses their BP at the same time. But then, trying to link me to tuco is just ridiculous.

I love how you call out 2 people who dont work even at tuco, and not even a sub llc! Its awesome. I work at a prop firm, im not part of this mess (yet?!). I told you the B/D of my prop firm is registered with FINRA, but you cant get over the fact that my deposit that i dont have and my retail account that doesnt exist isnt SIPC insured?!? I have no leveraged deposit, no marked up commission, no mingling of deposits with profits, or deposits for expenses, or commissions blah blah blah. Apples/Oranges.

The people you should be calling out, if thats what you want, are the people who recruit to these sub llcs who really have no clue and no regard for the law. Granted this came from ignorance and turning a blind eye to things instead of true malicious behavior, but still, you need to refocus your energy!
 
You are a total tool...but your fun to play with anyway......I was not suggesting that you worked for Tuco....I was bringing up the point that everyone claims they have this leverage and this rate and yadee yadee ydaee...and then BOOM...here goes a prop firm and the $$ is in limbo....Tell the truth...after getting lectured by me you went and did some more due dili on your firm didn;t you?
 
Quote from TM_Direct:

You are a total tool...but your fun to play with anyway......I was not suggesting that you worked for Tuco....I was bringing up the point that everyone claims they have this leverage and this rate and yadee yadee ydaee...and then BOOM...here goes a prop firm and the $$ is in limbo....Tell the truth...after getting lectured by me you went and did some more due dili on your firm didn;t you?
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TM you do have some quality posts.
 
Quote from TM_Direct:

You are a total tool...but your fun to play with anyway......I was not suggesting that you worked for Tuco....I was bringing up the point that everyone claims they have this leverage and this rate and yadee yadee ydaee...and then BOOM...here goes a prop firm and the $$ is in limbo....Tell the truth...after getting lectured by me you went and did some more due dili on your firm didn;t you?
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Of course. I had (and still have) no idea what FINRA does or why i should look at their website. I still have no idea where you come up with stuff. I feel I have responded to your attacks again... done for now!
 
Nows a good time to revive this thread...:D :D :D Hows that 30-40:1 levarage and .000000000001 per share working out now?

FWIW...Two more clearing fims are set to bite the dust....I know...Im out of touch with pricing and profit margins!:p
 
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