Prime Brokers make a killing on servicing hedge funds. And they provide a great foundation in vital aspects if a fund is not able to provide that for themselves.
Prop Trading Firms - Note On Threatening Regulatory Developments
- Thread starter traderob
- Start date
Prime Brokers make a killing on servicing hedge funds. And they provide a great foundation in vital aspects if a fund is not able to provide that for themselves.
Yes, but the BD is not providing the leverage, the LLC is. The BD sees my account as a customer and I have enough funds in cash to cover all the positions. I am giving leverage to YOU through MY funds. The BD is not granting anyone any leverage. I am giving you leverage and in return I am charging you a vig which is detailed in my operating agreement which the BD has on file.
Prime brokers are really set up for larger institutional accounts...they dot really care about prop trading. the leverage they provide is really not what you think....they allow the account to 'trade away' from the firm and then report them back and be locked in...prop trading is really just a way to avoid the PDT rule...ask Don...thats really all they are doing, although he does it much better then the others
The primary role of a PB is to facilitate OTC trading, clearing and credit. The PB role in listed trading is dwarfed by the requirements of OTC dealings. I've worked for three funds which report to MAR, Barclays, etc... two of the three were >100mm in AUM and had no PB relationship. They were trading equities, futures and options. The third fund was the smallest in AUM, but used Bear as their PB. The majority of the trading was OTC which required the use of a prime broker. PB's are not offering "XYZ long equity hedge fund" leverage beyond reg T.
Prime brokerage deals primarily with unregulated pools. I agree 100% with your comments, but unfortunately your business is regulated.
This is not true. Prime brokers can grant a lot of leverage, just look at what they allowed for LTCM. I know a lot of prime brokers that use the VAR model to margin accounts which is not REG T!!!!
And it does not matter if the prime broker is used for prop trading. You need to understand, that when you change the law, there is something called the law on unintended consequences. It affects everyone, the ripples. It doesn't matter what the prime brokers intent is. Under what many are proposing on this thread, prime brokers would be no more. That is a fact. Otherwise all prop firms would just set up prime brokerage accounts at Goldman. Think about it.
Well, of course they wrap their oppression in pretty (but empty) words. Bad goverments <b>always</b> do that. Just because they call it the Ministry of Love, doesn't mean you should go there expecting group hugs.
I agree, most PB serve the OTC market and also the DVP market. However I know a few PB which will be happy to set up an equity or future business for anyone on ET. Leverage included. In fact, they don't even touch OTC markets.
See Beck, this is the problem, if you close one hole over hear, another one opens over there. You can't get rid of the business, all you really do is move it to another location. The prop model will not go away, it simply gets shifted. Their really is no way to stop it. We haven't even gone into the offshore possibilities yet. That's why the SEC is choosing to actually force license and registration and keep everything the way it is. Because when you move it, they don't see what's going on anymore. If they force license and registration, they know exactly what everyone is doing and they can enforce the law.
If a trader has their account running below $15K for 30 days or longer (which would mean they are not profitable anyway), and they "hit it big" one month, they "subject" to sharing profits....but if they are net "down" for the year, they don't have to share anything.
We have, maybe, 2 occasions over the last decade where this came into play at all. Traders can choose to bring the account back up over $15K anytime within 30 days (most tend to make enough to bring the account back up anyway). This is just a way to prevent someone from running real low, putting the Firm at risk for months, and "taking a shot" in December and then withdrawing all the money again in January.
overall, a "non-event"
Don
"Ministry of Love" just seems to fit my vision of the SEC perfectly.
Don
