Registered: Mar 2010
09-06-12 04:41 AM
Quote from VinMan:
What is the risk to the trader of the non registered firm as far as regulators are concerned? Wouldnt they be a "customer"?
There is a lot of talk recommending traders only go to CBSX firms but why? Is it for more safety of risk deposit and withdrawals or is it a regulatory issue (to the trader).
Correct me if I'm wrong but CBSX requires a lockup of funds??? Also they require the trader to receive a "payout" so he is not a "customer"? Whereas a non CBSX firm the trader can withdraw his money whenever and get 100% payout
Or is the only risk you are talking about the risk deposit and your money disappearing more potentially at a non registered firm.
Are there stats that show how many traders lost risk deposit registered vs non registered?
Since I've traded with a non registered firm in the past and currently trade with a CBSX firm, here's my response:
At the unregistered firm, we were not "customers" we were "subcontractors" and traded on a "sub-account" of the master account. The master account is the "customer" of the broker-dealer and has the relationship with the clearing firm.
The risk to the trader is of course the risk deposit, since the owners of the unregistered firm can commingle the funds under one or more LLCs. Also, there is no oversight and audits from any SRO, since they most likely are not b/d's, which makes it a concern for the regulators. As the other post mentioned, they cannot mark up commissions, only b/d's can mark up commissions.
Joining a CBSX firm does not protect you outright from your risk deposit ("capital contribution"). In fact, you sign an agreement noting that you agree that your funds are subject to risk, not only of the firm but also from OTHER traders, since the aggregate funds are commingled (legally) by the CBSX firm for net capital purposes at their clearing broker. Since there are daily net capital requirements for CBSX firms, weekly audits and yearly SEC filings, it is LESS LIKELY that the firm is going to abscond with your capital vs. an unregistered firm.
Do a search for Broad Street Trading (CBSX). They recently withdrew from the CBSX, but there were posts stating that traders RECEIVED their deposits back after their final audit. Protrade Securities (CBSX) is another firm that is no longer a CBSX member, but sent back the funds to their traders.
Yes, the CBSX firms require the one year "lock up" of any capital contribution as per net capital rules defined by SEC Rule 15c3-1. Traders may receive distributions on any net positive amounts over and above their capital contributions (i.e, their watermark), based on the percentage agreed upon via written contract. The CBSX firms do not have "customers" only "members" and therefore cannot pay 100%. Retail customers get 100% and can withdraw their settled cash balances whenever.
Regarding your final two sentences, just do a search on this board for "Warrior Fund", "VCM Trading", "Team Trading", "Element Trading", "Epiphany Trading", "Tuco Trading".
When Team Trading closed shop in March 2010, approximately 500 traders were owed funds around $2 million owed in total. Although many got their funds returned, I personally know traders who still have not received their funds, despite complaints being filed with SEC/NYAG, etc.
Money disappearing is always a factor, regardless of the firm. Even the big firms have issues (MF Global, PFG, etc.)
Given that many unregistered firms have been either shut down and/or closed shop without returning traders' capital, you run the risk of doing business with any firm that has no oversight.
In the end, it's still a matter of trust, like in any business, and the characters of the owners.
Hope that helps.