Is autotrading legal?
- Thread starter ginux
- Start date
If you read news about the SEC you'll see they only act in the best interest of wall street. How many times do you read about shenanigans by brokers at XYZ brokerage, the brokers are fired and banned from Wall st while the firm is fined $1 million (1/100th of what they made from the illegal practices) and the firm continues the practice with other brokers, just more carefully.
How about the whole mutual fund "market timing" scandal? The result -- more restrictions on MY mutual fund trading, when it's not clear to me that the actual illegal behavior has been curbed.
The SEC is a giant waste of money....they should replace them with a bunch of monkeys....of course even if they did we'd never be able to tell....:eek:
got a reply from them:
We are taking your complaint very seriously, and have referred it to the appropriate people within the SEC. I cannot comment,however, on whether or not the actions of those involved with Collective2.com are legal. Whether or not an entity has to be registered as an investment adviser will depend on the specific facts and circumstances.
For your general information, in general, a newsletter must be registered (with the SEC) as an investment adviser if it meets the statutory definition under the Investment Advisers Act of 1940, http://www.sec.gov/divisions/investment.shtml. Under Section 202(a)(11) of the Investment Advisers Act, an investment adviser is a person or firm that (1) for compensation; (2) is engaged in the business of; (3) providing advice, making recommendations, issuing reports, or furnishing analyses on securities, either directly or through publications." One of the exclusions from the Act includes publishers of bona fide newspapers, news magazines, and business or financial publications of general and regular circulation. This provision has been interpreted by the Supreme Court (see Lowe v. SEC, 472 US 181 (1985)). Counsel can advise you of whether or not your newsletter will meet this exemption. You also may want to check with the state securities regulators (www.nasaa.org provides a list) for any applicable regulations.
You are welcome to send us the name of any entity that is connected with Collective2 whom you have reason to believe is not registered as an investment adviser, although they may meet the statutory definition.
We are taking your complaint very seriously, and have referred it to the appropriate people within the SEC. I cannot comment,however, on whether or not the actions of those involved with Collective2.com are legal. Whether or not an entity has to be registered as an investment adviser will depend on the specific facts and circumstances.
For your general information, in general, a newsletter must be registered (with the SEC) as an investment adviser if it meets the statutory definition under the Investment Advisers Act of 1940, http://www.sec.gov/divisions/investment.shtml. Under Section 202(a)(11) of the Investment Advisers Act, an investment adviser is a person or firm that (1) for compensation; (2) is engaged in the business of; (3) providing advice, making recommendations, issuing reports, or furnishing analyses on securities, either directly or through publications." One of the exclusions from the Act includes publishers of bona fide newspapers, news magazines, and business or financial publications of general and regular circulation. This provision has been interpreted by the Supreme Court (see Lowe v. SEC, 472 US 181 (1985)). Counsel can advise you of whether or not your newsletter will meet this exemption. You also may want to check with the state securities regulators (www.nasaa.org provides a list) for any applicable regulations.
You are welcome to send us the name of any entity that is connected with Collective2 whom you have reason to believe is not registered as an investment adviser, although they may meet the statutory definition.
This quote is pretty weird:
Under Section 202(a)(11) of the Investment Advisers Act, an investment adviser is a person or firm that (1) for compensation; (2) is engaged in the business of; (3) providing advice, making recommendations, issuing reports, or furnishing analyses on securities, either directly or through publications."
Does that mean that you need to be a registered investment advisor to publish those newsletter that says "buy xxx @ 12.24" etc. since they are (3)? How about those bloggers who say "buy XXX now. sell when it hit 123"?
Under Section 202(a)(11) of the Investment Advisers Act, an investment adviser is a person or firm that (1) for compensation; (2) is engaged in the business of; (3) providing advice, making recommendations, issuing reports, or furnishing analyses on securities, either directly or through publications."
Does that mean that you need to be a registered investment advisor to publish those newsletter that says "buy xxx @ 12.24" etc. since they are (3)? How about those bloggers who say "buy XXX now. sell when it hit 123"?
ginux, as you posted in your own quote from the SEC above "One of the exclusions from the Act includes publishers of bona fide newspapers, news magazines, and business or financial publications of general and regular circulation." As I said before, that's "freedom of speech" and you do not have to register to give an opinion to the general public, even if you are paid a fee to do so.
The SEC (above) has written the same as I posted here last week regarding the rules of registration.
As stated here on this thread the newsletters simply sell their stock advice by subscriptions to the general public. That's exempt from registration.
Then (and all my words here are specifically chosen) the subscribers, individually, independently, without informing the newsletter, without the newsletter even being specifically aware, contract with an independent 3rd party (C2 or similar) who has a software routine that lets the SUBSCRIBER make decisions of when and how to use the software and how and when to use the stock advice that was given out to ALL subscribers, to automate execution of the stock advice fed from the newsletter.
If I stated an accurate description of the C2/newsletter situation, then comparing it to the SEC response (above) there is no registration needed.
If you open a managed futures account, you still have the same level of control as a C2 autotrading account - that is you can always revoke trading POA and take manual control of the account yourself.
I see no difference between C2/autotrading and a traditional managed account. In both cases the subscriber does not (and cannot) make trading decisions - the trades are placed automatically in the subscribers account without any opportunity for the subscriber to intervene other than to take action after-the-fact.
The only control a subscriber has is to turn it on or turn it off - the C2 system vendor is making the trades in the autotrading accounts.
Does the C2 system vendor KNOW his advice is being autotrade by "John Jones?" Does the C2 system vendor then make decisions that "John Jones" is too heavy in this area, I'll go light on this week's recommendation?
I understand the answers are that the C2 system vendor has no clue if "John Jones" is auto trading or not, when "John Jones" has it turned on or what parameters are set as to size of position and so forth.
I imagine there's even a switch that allows the subscriber to do the exact opposite as the newsletter says to do. I might call that the "Cramer delay effect switch"
In short, the newsletter is not telling "John Jones" on personal level to buy or sell. Rather the newsletter is saying this is what I think, use it if you want to, or don't use it. The choice is always that of the subscriber.
The subscriber can turn his autotrade on and off all day long and the newsletter advisor would have no clue one way or the other, and the newsletter advisor has no clue as to the other positions in the account, the amount of money in the account and so on.
I DO wonder though... what happens when the advice is to sell a position - but the subscriber does not actually hold that stock any longer? ALSO, a related question is when a sell order comes in how does the autotrader software know how many shares to sell?
Nope
No, there is no such "do the opposite" feature that I am aware of with C2. With stops and limit orders there would be considerable ambiguity/difficulty with such an option.
You seem to be hung up on comparing newsletter writing to C2 autotrading. Why aren't you comparing C2 autotrading to the SEC's defintion of autotrading to see if its a match? The SEC has already said that autotrading requires registration so the only issue here is whether C2's version of autotrading falls into the scope covered by the SEC. By focusing on the newsletter issue you are just beating up on a strawman.
The autotrading software has to handle all of those cases. If you join a subscription and the first signal is to close a position (that you wouldnt have) then that trade is ignored automatically. There are tons of unusual cases that the autotrade software has to handle - such is the life of someone who embarks on this task.
What do you mean "if SOMEONE complains to the SEC?"
According to their response...you just did.
Did you just fall off the potato truck? Do you think that regulators are sitting at their desks to NOT regulate?
IMO, C2 provides an extremely valuable service to the trading and investing public by publishing the actual records of trading systems for public inspection. This is one hell of a lot more honest and direct that the plethora of ads I see published, and receive in my email inbox daily, that promise "extraordinary results" from a newsletter.
If those viewing the results on C2 make a decision to follow the system in question, they clearly do so as a result of their own decision, no matter by what methodology. They can engage, or not, with a moment's notice.
However....I also have little doubt that someone at the SEC will view this as "inciting" poor Mr. and Mrs. Smith to invest their retirement dollars in trading "schemes" that are published on C2.
And if so, the value that C2 brings to everyone will vanish.
Thanks for your involvement. Much appreciated.