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Prop Trading Firms - Note On Threatening Regulatory Developments
- Thread starter traderob
- Start date
Quote from trader76ab:
Riskarb, you seem most knowledgeable about this topic. What did that firm memo you mentioned say exactly? Does it say that even if traders have a series 7 they still will only get 4-1? That eliminates so many strategies...
Yes, S7 traders will be at 4:1 intraday if their firm requires a deposit. I don't have access to the memo, only a summary repeated by two independent sources. Both sources state that S7 traders will be at 4:1, but may apply to the firm for fully-backed status.
I can't imagine many firms going the 1st NY route... the revenue model is built on commissions. I would imagine this would have the greatest impact on the 100% payout firms that base their prop model on comms.
Response to Ang: I can't imagine how Bright Trading will avoid impact from the NASD-led action.
Quote from MushinSeeker:
This is what I got out of the conf call sponsored by Greentrader ( I was 10 min late so please correct me if I an way off.
The SEC is looking to crackdown on prop firms. The principals in the conf call then tried to distinguish between JBO firms whose members are licensed , members of an exchange, registered as a BD. VS. prop firms that are more like "wholesalers". The latter would typically open a retail account (ex. XYZ Trading Group) with a broker (Genesis, Assent,etc), deposit class A money lets say 400K, creates an LLC agreement where traders can put up 5K , get 20:1 margin intraday with zero overnight positions, and get paid accdg to pnl. Their lsoses are covered by the 5k deposit. They are allowed that leverage because they are in effect using the 400K 4:1 intraday BP of the class A members afforded to them under Reg T.
The difference lies in the fact that this company has a retail account with the broker and has very low barrier to entry vs. the former setup. The conf call principals implied that the SEC seeks to protect the "widows and orphans" which presumably would be found more in the XYZ trading group setup.
My personal opinion? I'd be wary of joining prop firms that have the latter setup. How about the future of the 1st? Mr. Bright , Jeff from Echo what ya think...
edit: Now don't get me wrong , there is very little diff bet the 2 setups in terms of real $ chaning hands. I think the issue is the barrier to entry. It is always politically correct expecially this year to protect "widows and orphans"
I really wish someone knowledgeable like RM, Don B, etc. would comment more on this because I am wondering whether this is a move by the bigger Clearing firms which have been getting bought up by commercial & investment banks. Do they want the daytrading firms to become true prop and take the risk of the % split, while they get the riskfree commission revenue. If you read my posts in economics, you would know where this is going.
Of course, I'm still not too clear on the language. In the sub LLC, there is additional owner capital backing the leverage, at least their should be. Since they're getting overrides, they gotta pay for the risk. So there are owners that put up money and make it at least half true prop.
Is the commission angle the barrier? No more overrides?
So not only 4:1 intraday but I would assume you would need at least 25K to get that 4:1 and avoid the PDT rules? Hopefully some kind of solution can reached if these rumors are indeed true....
maybe there's been a lot of complaints about company's like hlv not paying there traders and when the sec looks into it they see it's not even the traders own account but they're under an llc and can do nothing. in all honesty the 5k down gig for non series 7 people skirts the pdt rule. few people are getting liscensed anymore and just going under llc's were the trader is protected much less from fraud. in the late 90's with the explosion of all the day trading rooms people had to have a min of 40k and when one's account went down under 25k or so many day trading companies had inside people to extend loans. the end of that came with the mark barton killings in atlanta.
It is only natural for the trading business to be able to have trader incubators....
This means that traders should not risk lots of capital while learning....so definitely there is a place for the $5000 mins and 10:1 leverage ...in terms of having businesses that know how and have the desire to run this type of business...This ratio allows a learning trader to gain real experience while enabling the provider of funds to be profitable...This is definitely a prudent approach to learning...far more prudent than risking larger amounts...
Obviously the goal of trading firms is to have a stable of loyal profitable professional traders that appreciate being with a niche entrepreneurial firm...
There are a lot of politics still in action...and as you know ARCA was at one time an arch enemy of the NYSE...now the NYSE own ARCA...At one time NASDAQ catered solely to Market Makers leanings...now NASDAQ owns INET etc...
There is nothing wrong with prudence...and there is everything wrong with denying entrepreneurship that provides venues for the trading profession...which is a relatively new profession that has arisen because of direct access technology and the internet....
Why eliminate a legitimate and honest entrepreneurial enterprise ? Just does not make sense....
This means that traders should not risk lots of capital while learning....so definitely there is a place for the $5000 mins and 10:1 leverage ...in terms of having businesses that know how and have the desire to run this type of business...This ratio allows a learning trader to gain real experience while enabling the provider of funds to be profitable...This is definitely a prudent approach to learning...far more prudent than risking larger amounts...
Obviously the goal of trading firms is to have a stable of loyal profitable professional traders that appreciate being with a niche entrepreneurial firm...
There are a lot of politics still in action...and as you know ARCA was at one time an arch enemy of the NYSE...now the NYSE own ARCA...At one time NASDAQ catered solely to Market Makers leanings...now NASDAQ owns INET etc...
There is nothing wrong with prudence...and there is everything wrong with denying entrepreneurship that provides venues for the trading profession...which is a relatively new profession that has arisen because of direct access technology and the internet....
Why eliminate a legitimate and honest entrepreneurial enterprise ? Just does not make sense....
Quote from riskarb:
Yes, S7 traders will be at 4:1 intraday if their firm requires a deposit. I don't have access to the memo, only a summary repeated by two independent sources.
I haven't heard a single word from my firm, so I don't know, but I can't believe this will end up happening. It would be too destabilizing to the markets to drop volume by 70% by hamstringing licensed day traders.
Quote from libertad:
It is only natural for the trading business to be able to have trader incubators....
This means that traders should not risk lots of capital while learning....so definitely there is a place for the $5000 mins and 10:1 leverage ...in terms of having businesses that know how and have the desire to run this type of business...This ratio allows a learning trader to gain real experience while enabling the provider of funds to be profitable...This is definitely a prudent approach to learning...far more prudent than risking larger amounts...
Obviously the goal of trading firms is to have a stable of loyal profitable professional traders that appreciate being with a niche entrepreneurial firm...
There are a lot of politics still in action...and as you know ARCA was at one time an arch enemy of the NYSE...now the NYSE own ARCA...At one time NASDAQ catered solely to Market Makers leanings...now NASDAQ owns INET etc...
There is nothing wrong with prudence...and there is everything wrong with denying entrepreneurship that provides venues for the trading profession...which is a relatively new profession that has arisen because of direct access technology and the internet....
Why eliminate a legitimate and honest entrepreneurial enterprise ? Just does not make sense....
why were bullets eliminated?
figure out which powerful wall street interest does not like this prop model.
you will then have an answer.
Quote from Hydroblunt:
I really wish someone knowledgeable like RM, Don B, etc. would comment more on this because I am wondering whether this is a move by the bigger Clearing firms which have been getting bought up by commercial & investment banks. Do they want the daytrading firms to become true prop and take the risk of the % split, while they get the riskfree commission revenue. If you read my posts in economics, you would know where this is going.
Of course, I'm still not too clear on the language. In the sub LLC, there is additional owner capital backing the leverage, at least their should be. Since they're getting overrides, they gotta pay for the risk. So there are owners that put up money and make it at least half true prop.
Is the commission angle the barrier? No more overrides?
(Per my Compliance Officer)"We have not heard anything that affects our Firm." Nothing from Goldman, our Clearing firm, either. Our business model is a bit different than most. I'm as curious as the rest of you.
More as soon as I know.
Don