Patak/TopStep for Equities

[quannabe]

Quote from MichaelPatak:

Guys-

Let me know if I can help answer any questions.

mp

*************

Thanks Michael. I am seeing a shift occurring in the stock trading side of the business perhaps because of Dodd Frank. For example, a couple of firms who used to require licensing and/or deposits have changed their business models in the direction of traditional prop. It could be that a "family office" structure may be less cost/regulatory prohibitive than the broker/dealer model.

Michael, you mentioned that you are working on adding stock traders to your mix. Will you be able to use the same clearing firm, or is this yet to be arranged?

 

[quannabe]

Quote from Maverick74:

I think it's a horrible business model for stocks. I think ultimately more advantageous for the trader but between all the regs and the insane amount of capital needed to fund it, I don't see how Patak or anyone else would stay solvent. It definitely would have worked 10 years ago. In fact, that's pretty much what we had 10 years ago.

The only other market I think a firm like Patak could enter into would be FX. Low start up, low capital requirements and good risk controls. That's a healthy diet.

Mav, thanks for replying. In the interest of healthy discussion, I could use some clarification on a couple of your points. You say that the regs and capital required make it a horrible business model. Are you saying that the "discretionary"stock prop model (not trading arcade) has it's best days behind it? Because the fundamental difference between discretionary prop trading and TopStep that I'm seeing is their method of qualifying traders. Obviously, we're not talking about hiring guys to manage/override firm owned black/grey boxes. You mentioned that it might be more advantageous for the trader. Isn't the whole concept of backing traders about aligning interests?

Secondly, what regulations if they aren't a licensed b/d? There are no capital contributions. I'm confused on that point.

Finally not sure if you are privy to TST's working capital but yeah, capital is one of the main advantages/disadvantages in the business. Is this why so many prop firms also seed a hedge fund business, and how will that play out with DF rolling in? Respectfully, QB.

 

[Maverick74]

Quote from quannabe:

Mav, thanks for replying. In the interest of healthy discussion, I could use some clarification on a couple of your points. You say that the regs and capital required make it a horrible business model. Are you saying that the "discretionary"stock prop model (not trading arcade) has it's best days behind it? Because the fundamental difference between discretionary prop trading and TopStep that I'm seeing is their method of qualifying traders. Obviously, we're not talking about hiring guys to manage/override firm owned black/grey boxes. You mentioned that it might be more advantageous for the trader. Isn't the whole concept of backing traders about aligning interests?

Secondly, what regulations if they aren't a licensed b/d? There are no capital contributions. I'm confused on that point.

Finally not sure if you are privy to TST's working capital but yeah, capital is one of the main advantages/disadvantages in the business. Is this why so many prop firms also seed a hedge fund business, and how will that play out with DF rolling in? Respectfully, QB.

The regulations on the securities side is multiples of that on the future side. It doesn't matter if they back guys or not. The regulations are there regardless. It's only on the futures side where you get a break if you are backing guys vs the deposit model. It's insanely expensive. Not to mention the costs involved for Patak if they were to be a "broker" so to speak for the backer. Patak is NOT backing anyone. He is simply a recruiter who earns a nut on every trader. That's very easy to execute on the futures side. On the equity side, to earn that nut he would have to become licensed and regulated through either Finra or the NASD. Think expensive!

What I meant by more advantageous for the trader earlier was that I think stocks are easier to learn to trade then futures when one starts out. One, because you can learn to trade little "baby" stocks that don't move. You can't do that with futures. Even mini crude is as volatile as Aaron Hernandez on a bad night. It doesn't have anything to do with aligning interests. This is not a catholic charity, it's a business. Both trader and backer will operate at their greatest utility.

I'll bet dollars to doughnuts that Patak never gets into equities.

 

[volente_00]

Patak is NOT backing anyone. He is simply a recruiter who earns a nut on every trader.


Ptp is the backer. Care to venture who the owner of that is ?

 

[Maverick74]

Quote from volente_00:

Patak is NOT backing anyone. He is simply a recruiter who earns a nut on every trader.


Ptp is the backer. Care to venture who the owner of that is ?

You completely missed the point. It's irrelevant "who" the backer is. The point is, the mechanism in which the backer gets compensated would be a nightmare in the securities world vs the futures world. PTP would need to become a registered broker dealer which is very expensive to start and to maintain. Not going to happen. Not to mention the capital requirements on the securities side completely makes it not worth it.

 

[Don Bright]

Quote from Maverick74:

You completely missed the point. It's irrelevant "who" the backer is. The point is, the mechanism in which the backer gets compensated would be a nightmare in the securities world vs the futures world. PTP would need to become a registered broker dealer which is very expensive to start and to maintain. Not going to happen. Not to mention the capital requirements on the securities side completely makes it not worth it.

Hi Mav, hope all is going great with you!!

I was a bit curious as to the "backer" on all this as well. But, you are totally correct, it's much harder in the equities world to be a legitimate BD.

All the best, send me a PM with an update of how things are going with you.

Don

 

[quannabe]

Quote from Maverick74:

The point is, the mechanism in which the backer gets compensated would be a nightmare in the securities world vs the futures world. PTP would need to become a registered broker dealer which is very expensive to start and to maintain.

Mav, why on earth would the "backer" register as a broker/dealer when commissions are not applicable? Why not just set your company up as a "family office"? What mechanism?

 

[Maverick74]

Quote from quannabe:

Mav, why on earth would the "backer" register as a broker/dealer when commissions are not applicable? Why not just set your company up as a "family office"? What mechanism?

OK, let me walk through this more slowly. All conspiracy theories aside that have been mentioned in the past, we are dealing with two separate entities here. Please accept this as a given or the argument becomes more challenging. One entity is basically acting as a broker. Who this broker is is not relevant. The broker is basically introducing business (traders) to the backer. In return he gets a fee for that. That is 90% of this business model. I think most of the detractors on this site agree with that for the most part.

The other entity is the backer, again, who this person is doesn't matter. It could be the same person or different people. That part of the model I suspect makes very little for reasons discussed ad nausem on this board. The IB business exists on both the equity side and the futures side. On the futures side it's pretty simple. You actually become an IB to an established entity and you can be compensated for introducing business. In the securities world this is much more complicated because securities laws were created to protect mom and pop investors so the oversight is magnitudes higher then in futures where mom and pop don't exist. If you want to be compensated for introducing business on the securities side, in that would most likely come in the form of commissions, then one needs to create a broker dealer or partner with an existing broker dealer. This will require very expensive annual audits, lots of lawyers and lots of unnecessary BS.

Creating a family office does not change this equation. For one, I'm not even certain that one can even pay out fees for introducing business to a family because by definition, a family office usually deals with one client and you can't bring in retail type business into a family office.

Now if you wanted to create a family office and hire a bunch of guys to trade your money, and you seem to have implied some prop firms are doing that, I suppose that is feasible IF you are not intending to introduce business. What muddies the water is one somebody is getting compensated for the activity of someone else. This part of the industry is very very regulated. Even on the futures side it's pretty dense. But on the equity side it's a nightmare because of the intersection of retail and professional.

I honestly can't see how the patak equity model could ever be viable IF they primary source of revenue is not p&l but fees. I hope I helped make this more clear.

 

[thi4444]

I understand that if you past first evaluation, you will be given a second one. My question is, if you fail second evaluation do you lose or forfeit combine fees?

Also, who is the clearing firm for PTP? Thank you. Michael

 

[MichaelPatak]

Quote from thi4444:

I understand that if you past first evaluation, you will be given a second one. My question is, if you fail second evaluation do you lose or forfeit combine fees?

Also, who is the clearing firm for PTP? Thank you. Michael

thi444- Everyone who follows the rules and has a trading average greater than $0 is offered a refund or the ability to rollover that refund and start the Combine over.

In your example if the recruit completes the Combine successfully the back-office will refund that recruit for the Combine if they are moved by the scout team directly onto the equity partners account.

If the scout team determines the recruit needs a bit more time they may (50/50) ask that recruit to trade the Live Trader Preparation (this is paper environment but the rules are the same rules you would have on the funded account as a junior trader). You do not lose or forfeit your Combine fee if you are unsuccessful in LTP but you will be asked to go back to the Combine level and get things worked out there.

The clearing firm for PTP is Cunningham Commodities.

Let me know if that helps. It can be a bit difficult to explain via a post.

mp