I now understand that prop firms don't need NASD membership because they aren't dealing with retail clients.
Below is wording from EchoTrades Risk Disclosure page.
Is a sub account the same as a sub llc???
<p class="border">A member should only invest risk capital in the firm. No person should fund their contribution to the firm with retirement savings, student loans, second mortgages, emergency funds, funds set aside for purposes such as education or home ownership, or funds required for current income to meet your living expenses.<br />
A trader that contributes capital to the firm is subject to the risk that his capital may be lost to satisfy a liability of the firm if another member fails to satisfy his obligation to contribute capital to the firm. This situation may arise if a member incurs an unpaid trading debit balance. A trader that contributes capital to the firm is also subject to the risk that he may be liable to contribute additional capital to the firm to eliminate a deficit in his own capital account.
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<p class="border">ECHOtrade's current risk management policies require that a member cease trading if his trading sub-account balance is $5,000 or less; a minimum of $25,000 is needed to trade options on a limited basis. The firm also restricts trading activities of traders with trading sub-account balances that are greater than $5000, but less than the required starting balance. The firm's risk management policies permit the firm to assume control over a member's trading sub-account and to adjust, close-out or liquidate a member's positions. The firm can change its risk management policies and liquidation procedures from time to time and that the firm may use different liquidation procedures in similar circumstances, as the firm's management shall determine is in the best interests of the firm. ECHOtrade is a broker-dealer registered with the Securities and Exchange Commission and is a member of the Philadelphia Stock Exchange. ECHOtrade is a proprietary trading firm. The firm does not have retail customers. ECHOtrade is organized as a limited liability Company. Each trader is admitted to ECHOtrade as a member of the firm and trades a trading sub-account that is designated as a sub-account of the firm's account. As a member of ECHOtrade, a trader will not receive any of the protections generally afforded to customers of a broker-dealer, such as the customer protection rules of the National Association of Securities Dealers Regulation, Inc. and the segregation of customer funds and securities required under the Securities Exchange Act of 1934. The Securities Investor Protection Corporation does not insure members' trading sub-accounts with the firm nor does any other form of insurance cover them. As a member of the firm, a trader's capital is part of the firm's capital and can be used by the firm in the operation of its business. Use by the firm of a member's capital is not limited to the activities of such member.</p>
<p class="border">There are a number of members (Backed Traders) whose trading activities are and will be backed by other members (Backers). Such arrangements involve the agreement of the Backers to accept responsibility for trading losses of the Backed Traders. The trading profits of the Backed Traders trading sub-accounts are split between the Backed Traders and the Backers. However, the Backers are not required to contribute a specified amount of capital or any capital to the firm to support the trading of the Backed Traders so long as ECHOtrade has sufficient amounts of capital to support all of its trading activities or can borrow from its the capital necessary to support such trading activities. This leverage is available because the capital of all of ECHOtrade's members' constitutes firm capital for regulatory purposes, and the firm, as a registered broker-dealer, is not restricted by the margin regulations as to the amount of funds it can borrow from its clearing firm to support its trading activities. To the extent the trading activities of the Backed Traders are supported by ECHOtrade's capital without any capital contributions being made by any members for a particular Backed Trader, such trading activities may be supported by the capital of the other members. The members, other than the firm's manager and the Backers, have no control over the trading activities of the Backed Traders.</p>
<p class="border">ECHOtrade, in its sole and absolute discretion, (i) limits the amount of capital available for trading by each member, (ii) shall limits the leverage available to a trader for intra-day and overnight positions, (iii) can change the amount of leverage available to a trader at any time, (iv) may apply different limitations to different members, and (v) may suspend or terminate the trading activities of any member at any time.</p>
<p class="border">ECHOtrade has absolute authority: (i) to sell any and all securities and other property in any member's trading sub-account, (ii) to buy any or all securities and other property which may be short in such accounts, (iii) to adjust the positions in such accounts, (iv) to implement hedging or offsetting transactions to reduce risk in such accounts, in all such cases without demand for margin or capital or additional margin or capital, notice of sale or purchase, or other notice of any kind to the affected member or members, and (v) to transfer funds from the capital account of a Backer to the trading sub-account of a Backed Trader to cover losses incurred by the Backed Trader, without prior notice to the Backer.</p>
