CFTC - Dynamic Trading System = Providing Trading Advice

P

PocketChange

Had a conversation with the CFTC regarding a High Frequency Algorithmic Trading System we developed. Hit a road block and want to get feed back from others in this line of business.

This particular trading system generates sequences of trades for a subscriber to execute... a chain of high probability calculated OCO's. The algo is dynamic and adjusts its calculations and trades based on the subscribers actual fills, P&L and the trading instrument's price movements.

The gist of the conversation was because the system makes trade calculations based on knowledge of the subscribers actual positions & P&L they would consider the system and provider as providing trading advice.

Obviously, to comply we can cut out access to the subscribers trade info and assume all trades execute. However, in trading our system over 50% of our fills do not match the systems expected prices either by price improvement or slippage resulting in the algo adjusting subsequent trades. Reality is there would be no margin for errors or ability for subscribers to adjust positions (ie. Missed fills) allowing the algo to recalculate.

So how does one market a dynamic trading system?
 
sell it to IBs/advisors or get licensed are two options.

You might make a bit more doing it this way than you would selling it as a system to retail guys
 
Quote from Mejia:

Can any of you recommend a site where I can get a good system? Thank you
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Might take a look <a href=http://coreyhoffstein.com/2009/01/08/automated-trading-resources/ >here</a> for a list of resources, or <a href=http://www.datatime.eu/public/gbot/ >here</a> for a system

Tom
 
Coin Flip Trading Corp

What does the "subscribers" PNL have to do with the system output? If you're being serious then this thread is a waste of time. If not, it's pretty amusing, thanks.
 
Amusing this is... the concept of dynamically calculating trades ruffles many feathers in our regulated democracy.

The system simply calculates sequences of trades that are dependent on the results of previous trades. Risk is managed within parameters specified by the subscriber based on realized, unrealized P&L and net open positions.

ie.

Sell 1 ES @ 1202 OCO Buy 1 ES @ 1204

The next trades depend on which order filled in the above OCO.

CFTC deems these dynamic calculations as providing subscriber specific trading advice. Looks like Licensing or a No Action Letter are required.

I am just amused that any computer program that makes trading calculations suggesting orders can be deemed as providing trading advice.


Quote from stock piker:

Coin Flip Trading Corp

What does the "subscribers" PNL have to do with the system output? If you're being serious then this thread is a waste of time. If not, it's pretty amusing, thanks.
More...
 
Wall street is regulated to protect the interest of the professional in the industry. If you want to make a living like providing financial advice or accepting funds from the public, you need to register as a financial advisor.. The reason is that this industry is filled with fraudulent people making outrageous claims and returns,even registered financial advistors make bogus returns etc. or saying your software will do that and that.


Quote from PocketChange:

Had a conversation with the CFTC regarding a High Frequency Algorithmic Trading System we developed. Hit a road block and want to get feed back from others in this line of business.

This particular trading system generates sequences of trades for a subscriber to execute... a chain of high probability calculated OCO's. The algo is dynamic and adjusts its calculations and trades based on the subscribers actual fills, P&L and the trading instrument's price movements.

The gist of the conversation was because the system makes trade calculations based on knowledge of the subscribers actual positions & P&L they would consider the system and provider as providing trading advice.

Obviously, to comply we can cut out access to the subscribers trade info and assume all trades execute. However, in trading our system over 50% of our fills do not match the systems expected prices either by price improvement or slippage resulting in the algo adjusting subsequent trades. Reality is there would be no margin for errors or ability for subscribers to adjust positions (ie. Missed fills) allowing the algo to recalculate.

So how does one market a dynamic trading system?
More...
 
The IB and advistors or pros at Goldman Sachs has all the automated software there is in the market.

I doubt they are interested in your software,,they are interested in your money deposit.




Quote from Trader922:

sell it to IBs/advisors or get licensed are two options.

You might make a bit more doing it this way than you would selling it as a system to retail guys
More...
 
why don't you just sell the software or license it to a financial advisor if it works as you claim. or become a financial advisor..a financial advistor is same as real estate agenet..anyone can pass the exam it's like $1000 course.



Quote from PocketChange:

Had a conversation with the CFTC regarding a High Frequency Algorithmic Trading System we developed. Hit a road block and want to get feed back from others in this line of business.

This particular trading system generates sequences of trades for a subscriber to execute... a chain of high probability calculated OCO's. The algo is dynamic and adjusts its calculations and trades based on the subscribers actual fills, P&L and the trading instrument's price movements.

The gist of the conversation was because the system makes trade calculations based on knowledge of the subscribers actual positions & P&L they would consider the system and provider as providing trading advice.

Obviously, to comply we can cut out access to the subscribers trade info and assume all trades execute. However, in trading our system over 50% of our fills do not match the systems expected prices either by price improvement or slippage resulting in the algo adjusting subsequent trades. Reality is there would be no margin for errors or ability for subscribers to adjust positions (ie. Missed fills) allowing the algo to recalculate.

So how does one market a dynamic trading system?
More...
 
If you gain access to information from a customer's account (trade executions) and provide tailored trading recommendations based on it, it is clearly financial advice.

You can argue it is "automated". For comparison imagine the customer lets you know execution details to you on the phone, you type teh data into a spreadshee and let the customer know what the spreadsheet suggests. This is clearly financial advice. On the other hand, if you sent the spreadsheet to teh customer so that they type the data in themselves. it would be licensing software.

You can argue the advice is automated... but it is at your dicretions to upgrade the software that does it, change parameters, stop it if something totally unexpected happens in the market (like large gaps in prices after Lehman default). So, the advice the customer receives is tailored to them and (at leats partially) based on your judgement.

Quote from financialmarket:

why don't you just sell the software or license it to a financial advisor if it works as you claim.
More...

There are lots of ways to protect your algorithms from being reverse engineered (beyond what can be inferred from customer trades) and unauthorised distribution.

Even if you want to charge the customer based on the size of the trades, you still can do it (think static DOM in NinjaTrader).
 
Quote from PocketChange:



I am just amused that any computer program that makes trading calculations suggesting orders can be deemed as providing trading advice.
More...

Are you serious? If so I am at a loss for words. If not then my sarcasm detector is running low on batteries.
 
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