Nope. you only have to register if you are making a commission or profit-sharing type of agreement. You would basically just be sharing space.
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How to establish a prop firm
- Thread starter proptrader911
- Start date
Nope. you only have to register if you are making a commission or profit-sharing type of agreement. You would basically just be sharing space.
Quote from Jack_Larkin:
If you're going to be a "prop firm", and structured as a partnership, not a broker-dealer, then no registration is required in the US.
Interesting if true (I'm actually surprised to hear this). How about the traders in this sort of arrangement? What licensing are required for them?
Quote from earlyexit:
Interesting if true (I'm actually surprised to hear this). How about the traders in this sort of arrangement? What licensing are required for them?
Is this ''partnership'' route still a legal way supposing, that the trader puts up a deposit, uses leverage higher than 4:1, keeps 100% of the profits, the ''prop'' firm doesnt make profits by marking up commission, or passthrough fees?
Thanks!
That's correct. If they are marking up the clearing rates from the clearing firm, they must register as a broker-dealer. This is also true if the traders are trading their own funds through the firm and not the firms fund.
You would still need to register an LP, an investment adviser, etc which can run up to 6 digits depending on how many investors and/or traders you will have.
If you plan on marking up software or commissions or letting traders put up deposits, you must register as a broker-dealer. The legal partnership is only valid if the firm is trading investors money and traders receive a profit-split as compensation. The hedge-fund model does not allow traders to put up capital so that you can profit off their trades.
The definitions of these terms weren't as clear a few years ago but this definitely seems to be the case now. Many Chicago firms are not broker-dealers. It saves a lot of time and compliance costs.
Simply opening a shop and renting out seats is something that a real-estate lawyer would be more knowledgeable about since the regulations governing that business activity is mostly related to sub-letting.
You would still need to register an LP, an investment adviser, etc which can run up to 6 digits depending on how many investors and/or traders you will have.
If you plan on marking up software or commissions or letting traders put up deposits, you must register as a broker-dealer. The legal partnership is only valid if the firm is trading investors money and traders receive a profit-split as compensation. The hedge-fund model does not allow traders to put up capital so that you can profit off their trades.
The definitions of these terms weren't as clear a few years ago but this definitely seems to be the case now. Many Chicago firms are not broker-dealers. It saves a lot of time and compliance costs.
Simply opening a shop and renting out seats is something that a real-estate lawyer would be more knowledgeable about since the regulations governing that business activity is mostly related to sub-letting.
HFT has devastated the prop trading industry in recent years. Therefore I bet you could take over an already existing troubled prop firm at bargain basement prices- No need to build one from scratch these days, IMO.
Quote from EvOTraderV2:
That's correct. If they are marking up the clearing rates from the clearing firm, they must register as a broker-dealer. This is also true if the traders are trading their own funds through the firm and not the firms fund.
You would still need to register an LP, an investment adviser, etc which can run up to 6 digits depending on how many investors and/or traders you will have.
If you plan on marking up software or commissions or letting traders put up deposits, you must register as a broker-dealer. The legal partnership is only valid if the firm is trading investors money and traders receive a profit-split as compensation. The hedge-fund model does not allow traders to put up capital so that you can profit off their trades.
The definitions of these terms weren't as clear a few years ago but this definitely seems to be the case now. Many Chicago firms are not broker-dealers. It saves a lot of time and compliance costs.
Simply opening a shop and renting out seats is something that a real-estate lawyer would be more knowledgeable about since the regulations governing that business activity is mostly related to sub-letting.
And what if everything stays on the BD side, deposits, commissions, software fees and only profit splits and fees for the inhouse algo are beeing passed by the BD to the prop LLC?
Thanks
Saico
you can't do anything through a broker-dealer except trade. Any algo or other side business has to be conducted separately (only securities transactions can be done through the broker-dealer. I.E. the broker-dealer can not charge someone's account $300 from their capital and pass it on to you) that would be a commission and require you to be a broker-dealer. You'd have to take payments for other items outside the scope of the actual trades in check, cash, etc. however you decide to do it.
Just a disclaimer. You should not take legal advice from me or anyone else on the internet. You should take any information someone provides you and verify anything with a securities lawyer who is licensed to handle these type of practices. Trying to start up a company (even a bagel shop) without legal representation is troublesome. There are far too many rules and regulations, even in "unregulated" financial firms. Nothing is truly unregulated. In fact, even hedge-funds are heavily regulated as they require annual audits for investors, accounting administrators, etc. It's not recommended you try anything without facilitating the process through a securities attorney licensed in your state.
Just a disclaimer. You should not take legal advice from me or anyone else on the internet. You should take any information someone provides you and verify anything with a securities lawyer who is licensed to handle these type of practices. Trying to start up a company (even a bagel shop) without legal representation is troublesome. There are far too many rules and regulations, even in "unregulated" financial firms. Nothing is truly unregulated. In fact, even hedge-funds are heavily regulated as they require annual audits for investors, accounting administrators, etc. It's not recommended you try anything without facilitating the process through a securities attorney licensed in your state.