Series 7 to trade my Own money?!

[RAMOUTAR]

Quote from marketsurfer:

jai,

thanks for your insightful posts. am i correct in assuming that floor traders don't need a series 7 ? it seems to me that a series 7 is simply a way for so called prop firms to seperate those who are serious from those who are not. unless it is money raised by a public offering is not all money "private" ?? any light you can shed on this would be appreciated.

thanks !

You're welcome Dave. When you say "floor traders" I'll assume that you mean (NYSE, AMEX, PHLX, etc), in which case they are S7. The average time cycle for a newbie getting 7,63 & 55 is:

- Open window with NASD- 1-2 weeks (assuming a clean U-4)
- Schedule 7 and study - 3-4 weeks
- Schedule 63 and study - 1 week
- Schedule 55 and study - 3-4 weeks

Now at some firms, the timeframes can vary longer and shorter. Assuming the timeframe above and someone passing all exams, you're looking at 8 weeks (at best), plus the learning curve for trading. Before the newbie goes from red to black (even, not green) it can be 4-6 months at best.

When I ran a prop floors it was very frustrating for both me and the newbie traders. No one is making money. This became tougher if a trader failed any of the exams. The mandatory waiting time is 30 days to retake the exam, fail three times and it's a six-month wait.

LLC's are more attractive since the 8-week lag is eliminated. I have never found someone with a 7 & 55 (prop) to be a better trader over an LLC trader, perhaps a better test taker.

unless it is money raised by a public offering is not all money "private" ??

Yes Surf, you are correct. I used "private" to differentiate "firm" capital.

 

[RAMOUTAR]

Quote from ertrader1:

I have two words for the reasons you need a 7 to trade prop..POOLED MONEY....look into the definition to the latter.

why holds does not require a 7 for PROP....i dont think its a legal requirment.........its more of an insurance policy for the Firm.

Schonfeld did not originaly have a rule on the serious 7 and 55 until they got sanctioned by the SEC. Then they wanted to pass on liability to the traders..HENCE THE 7 and 55 becomes the norm for all traders...I think many PROP SHOPS followed suite.

There are ways around the 7 and Holds, i belive did adopt the 7 rule for Props, if im not mistaken, back in like 1999/2000 but dont hold me to this, i was with Schonfeld, not holds.

7 was always required to trade prop (risking NASD member firm capital). In 1998 or 99 NASD invented the 55 to register all "market makers" and "prop traders". This was mandated by NASD, and no one else. The prereq for the 55 is the 7 or the 62, that is the only reason why 7 is required. I advised new traders to take the 62 as a shorter stepping stone to the 55, and then take the 7 if they needed it later. (62=125 questions, 7= 250 questions). The 55 became a requirement not a norm, firms had to follow suit if they wanted traders to risk the firm's capital.

 

[hoodooman]

No one has mentioned the lower fees for trading prop and what about improved reliability. Almost anything is better than IB.

 

[AZ_Trader_Girl]

Quote from Mecro:

Basically it's proprietary vs retail. One of the few advantages of a prop trader vs retail remains that you get more leverage although even that is changing. It also used to be that only prop traders received office space and computer stations

If you just care to trade, go retail. You still get leverage, 4:1.
Personally, I feel that prop blows because of the ridiculous regulations. There are almost no reasons left to be prop.

One of the things I wasn't getting was why non-prop traders got office space and computers at firms like Assent...that wasn't making sense, but I think now you've helped me with that one. On a related note to another post (I think) and specifically to Jai... I assume then that most traders set up a Corporation when they trade their own money... Right? Seems to me like a formality because I'd be the only agent...right?

 

[Mecro]

Quote from AZ_Trader_Girl:

One of the things I wasn't getting was why non-prop traders got office space and computers at firms like Assent...that wasn't making sense

Well basically some of the traders figured out that the whole proprietary title is overexaggerated with the popularity of retail trading. So they basically started retail groups. It's about who is backing the group and takes the risk of a blow out.

Just like one of the principals said once, "It's amazing how the advantages of proprietary over retail have almost completely dissapeared". I am strongly considering turning retail just so that I do not have to report my outside holdings and my past part time jobs (soon to be a future one as well).

 

[marketsurfer]

jai,

thanks for the answer. i was not aware that to buy a seat and trade on the floor of one of the stock exchanges, one needs a series 7. it seems like an odd test for a trader in my opinion.

surfer

 

[ertrader1]

The 55 became a requirement not a norm, firms had to follow suit if they wanted traders to risk the firm's capital.


__________________

so this only applies to equity traders....because option traders trading options on Nasdaq underlyers do not have to have ANY LISC. WHAT SO EVER.

I think ur correct Jai, the NASD did make it manditor in 99 for 55, but most firms grandfather in traders that were trading Nasdaq before the rule came out....

Hell, whats the big deal...for all you newbis' Just take the test and if you fail at trading, you can go grab a cubical at one of the brokerage firms....and start banging phones.......

no big deal

 

[ertrader1]

"thanks for the answer. i was not aware that to buy a seat and trade on the floor of one of the stock exchanges, one needs a series 7. it seems like an odd test for a trader in my opinion."

No shit....what a wast of time.....taking the 7, i would think something geared towards the 55 would make more sense, but the 7, that test was designed for BROKERS.

 

[AZ_Trader_Girl]

Quote from Mecro:

Well basically some of the traders figured out that the whole proprietary title is overexaggerated with the popularity of retail trading. So they basically started retail groups. It's about who is backing the group and takes the risk of a blow out.

I'm gonna throw something out here and hopefully I'm at least on track....cause I think that I've got a better general understanding but we'll see....:

If I wanted to use a firm like Assent (for the office space, software, various quotes and info systems, etc) then either I have to be a prop trader (which based on your opinions and what I ultimately want to do, this wouldn't be a good choice) or I trade for myself....and it appears that most people create corporations (even if they are the only member) in order to do so... Other than for things like medical insurance, pensions etc, there must be some reason to do this...either because it is required or because its just the better thing to do... Obviously I've confused myself but I'm trying to go at this the right way to start with, not have to fix my mistakes later on down the road. Ultimately I will have to get guidance from my dad's accountants and whatever, but I really wanted to do the bulk of this without his help. If I go in with the reasons why I need to form a corp or whatever I need to do, then I can get help with the details without having to count on someone else to interpret my wants and needs.... So any and all advice is greatly appreciated... GREATLY appreciated.

 

[jeffgus]

Some firms use membership at the different exchanges for different purposes. B/D that are NASD registered have to abide by the NASD rule for the prop structure which is 7, 55. The other: CBOE, PCX, Philly, BOX have other requirements and any firm that is a member there must abide by those rules.

We have EPT membership at the PCX /Arca and have their specific requirements. We do a majority of our volume on the floor and thus have different upstairs requirements than another group on the PCX. we do not have the S7 requirement currently. Our operation last years was a sub group at the CBOE and no S7 was required but we did the U4 process. So exchange is different and things may be changing again.

CME and CBOT each have different requirements for their member rates and groups that trade pooled accounts. Due your homework and you will find the best situation....Trade well.