Prop firm asking for source code and strategy??

W

WinstonTJ

I'm going to keep this vague on purpose because I don't know if this is a regulatory requirement or not...

A friend of mine called me yesterday and said he spoke to a prop firm about trading, etc. He does 100% automated trades. The prop firm said flat out that he would need to disclose his source code as well as strategies (that are fully automated) if he were to trade there and that this was an SEC and compliance rule.

My first reaction was that this was total BS but its a pretty well-known and reputable firm (which I will not be disclosing so don't ask).

Are there any SEC/FINRA or even in-house compliance regulations that would require a shop to have or understand the source code or automated strategies to "prevent against manipulation" or the like?
 
The only reason I may think of is if they are giving him direct market access so that the system sends orders to the exchange bypassing any controls. In this case it may not the actual words of regulatory requirements but the firm must make reasonably sure the system doen't do something crasy like taking 100x normal position size etc.

However, if the orders are sent through an interface provided by the firm, which enforces risk controls, I can't think of why the firm would need the system code...
 
I've heard of the SEC requiring a broker to get the trader's code in regards to certain events, but never a broker flat out asking for code ahead of time. Sounds shady.
 
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you mean,

without code, he has no trading skills?.

so then he's just an execution monkey? (no offense, but that's the term)

iow, someone who watches an automated system and tweaks according to their risk management trading limits
 
Quote from limitdown:

you mean, without code, he has no trading skills?.

so then he's just an execution monkey? (no offense, but that's the term)

iow, someone who watches an automated system and tweaks according to their risk management trading limits
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Quote from EMRGLOBAL:

Seems to me that such a monkey is kicking the average Joe Day traders ass.
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I understand Limitdown hints that a number of "automated traders" don't have any skill at either trading manually or at developing trading systems. They just have a system they purchased from a developer or "borrowed" from a past employer.
 
Run. Run fast. Reminds me of the time I had to wrestle my laptop back from an overzealous Millenium programmer at a second round interview.
 
Just give them the finger and stay the held away from them; they are trying to steal your strategy. I have seen this kind of heinous act before from one of the very popular firm among ET sponsors. Beware!
 
Pretty sure it's not an SEC rule cause I know of a few large hedge funds with very strict compliance departments that definitely do not have those requirements. At those places the compliance department does have a general idea of what the strategies do and then will have checks on the back end when orders are booked to look for manipulative activity and correct position marking and what not. But definitely don't require giving up source code.
 
Quote from WinstonTJ:

I'm going to keep this vague on purpose because I don't know if this is a regulatory requirement or not...

A friend of mine called me yesterday and said he spoke to a prop firm about trading, etc. He does 100% automated trades. The prop firm said flat out that he would need to disclose his source code as well as strategies (that are fully automated) if he were to trade there and that this was an SEC and compliance rule.

My first reaction was that this was total BS but its a pretty well-known and reputable firm (which I will not be disclosing so don't ask).

Are there any SEC/FINRA or even in-house compliance regulations that would require a shop to have or understand the source code or automated strategies to "prevent against manipulation" or the like?
More...

This is absolutely not true. We do ask to have a basic business plan of the "what" you're attempting to do so we can offer some assistance - and GS holds Bright responsible of something goes haywire, so we "may" share some of the concept....but never have we asked for source code, never.

I can see the concerns that clearing firms have - the old "oops, I left my newspaper on the keyboard and accidentally bought 8million shares of GE, or "oops, we accidentally shut down ARCA" or something.

But I have never seen any FINRA type rule - not that we may in the future.

FWIW,

Don
 
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