Is Prop Firm a Broker Dealer

bulllives · Oct 17, 2012

when it is registered SEC and CBOE Stock Exchange (CBSX) Member?

Or are you a broker dealer when you are registered with FINRA?

1245 · Oct 17, 2012

Not all prop firms are broker dealers. Some are structured like hedge funds. The prop firms that are broker dealers do it for many reasons. The ones your probably asking about do it for leverage and to mark up commissions. If you charge commissions you must be a broker dealer.

Every Broker dealer is registered with the SEC. Then they must choose a self-regulatory organization (SRO). The SRO can be an exchange or FINRA.

That institution is the regulatory body that the BD is "watched" by and the BD agrees to their rules and regulations. FINRA is typically the most difficult to deal with so BDs only choose FINRA when they have to.

1245

bulllives · Oct 17, 2012

So it's best to use a FINRA broker dealer? Versus the other because they are not "watched" or "examined"

1245 · Oct 17, 2012

Quote from bulllives:

So it's best to use a FINRA broker dealer? Versus the other because they are not "watched" or "examined"

No. FINRA is a regulatory body. They are more difficult to be regulated by than the CBOE.

dealmaker · May 5, 2013

Quote from 1245:

No. FINRA is a regulatory body. They are more difficult to be regulated by than the CBOE.

Then why would some prop firms choose to be regulated by an exchange and FINRA i.e. what would force them to do this?

1245 · May 5, 2013

Quote from dealmaker:

Then why would some prop firms choose to be regulated by an exchange and FINRA i.e. what would force them to do this?

Every Broker dealer must join an SRO- Self regulatory Body. They choose the one that fits their business model.

dealmaker · May 5, 2013

Quote from 1245:

Every Broker dealer must join an SRO- Self regulatory Body. They choose the one that fits their business model.

I understand every B/D must have an SRO, I am asking why some have 2 SROs and others not, if you do not know the answer say so, then perhaps someone else will respond.

1245 · May 5, 2013

Quote from dealmaker:

I understand every B/D must have an SRO, I am asking why some have 2 SROs and others not, if you do not know the answer say so, then perhaps someone else will respond.

Wow, that was nasty. If I'm a BD that joins the AMEX, CBOE and ISE to be an option market maker, I've joined three exchanged. If I also have equity traders that need access, so I join the NYSE and ARCA, I've joined two more exchanges. In addition to that I have a broker business with the public that requires me to be a Finra BD, another. Each one is a SRO but now I can choose who I want to regulate me. As long as each SRO agrees and signed off, that one can cover all my regulatory requirements. Typical with this example it would be FINRA . Without the customer business, any one will due.