Professional Trader Status - question with personal accounts

L

LiquidMike

I trade options and have done very well with them and I have several friends wanting me to manage their capital for them; so I may start a small hedge fund.

I'm looking at Bermuda or Caymans (any opinions? or does it matter?)

The real question is that I have accounts with 4 different brokers currently. I asked one of them if I started a fund, how would that affect my trading status They said that it would link to my personal account and my personal account would then change to professional trader status which then means I also will incur monthly data charges.

With the other brokerages that I have accounts with find out about this and then force me to change status and then charge me monthly data fees?

thanks!
 
@LiquidMike, IMO best is by registering a small company, an LLC or so, and doing it via this company of yours.
By this, you can create many different roles (professional, non-professional etc.) inside the company, incl. for yourself... :) as well do it as the company/firm itself...

I myself am interested in doing similar soon (in a year or so), ie. creating a small hedge fund company; this all is on my TODO list :)

But I think one will need a certification (FINRA Series 65 or what's called), but that's no problem as there is enough prep material available on the web to buy for training... and then take the Multiple Choice exam. This is explicitly mentioned also in this good text:
https://www.investopedia.com/articles/investing/040915/how-start-hedge-fund-united-states.asp
Register the Hedge Fund Firm’s Representatives as Investment Advisers
If the hedge fund is going to operate as a going concern, some of its representatives will likely need to register as an investment advisor or adviser with the U.S. Securities and Exchange Commission. Representatives can register as the investment advisor by visiting the IARD website. Representatives can also check with the secretary of state in the state of incorporation for more information.

In order to register as an investment advisor, the representatives will need to take the Financial Industry Regulatory Authority (FINRA) Series 65 regulatory exam, which will test the representatives’ knowledge of securities laws and practices, as well as their understanding of ethics. After passing the exam, the representatives will be licensed investment advisers with the state. The fee to take the FINRA Series 65 exam is relatively inexpensive.
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But small hedge funds (AUM < 100m) maybe don't need to register. Can vary by state.

See also https://www.investopedia.com/articles/financial-theory/11/how-to-legally-form-a-hedge-fund.asp
 
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You have to be very careful providing this stock answer. All 50 states have different rules as when you need to register with the State or SEC. I did a quick search and I read:

In Texas, you may need to register to manage trading accounts if you meet any of the following criteria:
  • You have at least one Texas resident client
  • You manage less than $100 million in assets within the state
  • You market any of your services in the state
If you manage more than $100 million in assets, you might need to register with the SEC.

Just because IB allows it does not mean it is legal.

ZBZB said:
You can control 15 accounts in other peoples names with an interactive brokers friends and family master account.
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Robert Morse said:
You have to be very careful providing this stock answer. All 50 states have different rules as when you need to register with the State or SEC. I did a quick search and I read:

In Texas, you may need to register to manage trading accounts if you meet any of the following criteria:
  • You have at least one Texas resident client
  • You manage less than $100 million in assets within the state
  • You market any of your services in the state
If you manage more than $100 million in assets, you might need to register with the SEC.

Just because IB allows it does not mean it is legal.
More...

IB friends and family is worth investigating because it is free. Setting up a hedge fund can cost $100,000
 
hope there's big AUM because ongoing fund administration costs for an offshore master-feeder structure can be more than $50k
 
Robert Morse said:
Before I try and provide a more complete response, are all the investors USA tax payers? Is it your plan to continue to raise money or only manage these investments? Would you prefer to call me later to discuss this in more detail?
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This topic has already been covered. See the following quote.

schizo said:
Who Regulates Who

The SEC regulates investment advisers who manage $110 million or more in client assets, while state securities regulators have jurisdiction over advisers who manage up to $100 million. Advisers with less than $100 million in assets under management (AUM) must register with the state regulator for the state where the adviser has its principal place of business.

When a state-registered adviser’s AUM reach the $100 million threshold, the adviser might opt to register with the SEC—but when the adviser’s AUM exceed $110 million, they generally must register with the SEC. It’s important to find out exactly which services a professional who wears multiple hats will provide for you and what they’ll charge for their services.

https://www.finra.org/investors/investing/working-with-investment-professional/investment-advisers
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LiquidMike said:
I trade options and have done very well with them and I have several friends wanting me to manage their capital for them; so I may start a small hedge fund.

I'm looking at Bermuda or Caymans (any opinions? or does it matter?)

The real question is that I have accounts with 4 different brokers currently. I asked one of them if I started a fund, how would that affect my trading status They said that it would link to my personal account and my personal account would then change to professional trader status which then means I also will incur monthly data charges.

With the other brokerages that I have accounts with find out about this and then force me to change status and then charge me monthly data fees?

thanks!
More...
In fact, I suggest you to check out this entire thread. It outlines the legal ramifications on what you can and cannot do when managing OPM.

https://www.elitetrader.com/et/thre...-in-portfolio-assistance.376509/#post-5873047

Also to obtain a "professional" status, you really need to become licensed (eg. pass the exam) and registered with the state or the national agencies like FINRA or SEC/CFTC.


upload_2024-2-29_9-54-40.png
 
Thanks- but not looking for US based entities as stated in my initial post; so only Bermuda or Caymans, so this discussion moving off into US laws is a bit irrelevant in this case. One of the brokerages and a Bermuda law firm confirmed that having SEC licenses isn't required.

But ya, I think my question has been answered.
 
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