Can a new brokerage firm in the US for only US stocks and options operate legally with only these products and features: 1) Just one standard CashAcct only (no MarginAcct, no IRA etc) 2) LongStock trading (incl. Index and ETF) 3) LongCall options trading 4) LongPut options trading 5) CoveredCall (ie. LongStock + ShortCall) trading 6) Realtime Level-I quotes (no Level-II), and option chains (of course) 7) A simple but safe API for automation [optional] And nothing more (at least initially). Ie. a limited brokerage firm. This is of course to specialize only on a subset of the brokerage business, and also keep it as simple and easy as possible for the company and also for their such special trader clients, who of course very well will get informed in advance about this all. Would the requlator (SEC/FINRA?) allow such a limited subset of a full-blown normal brokerage firm? Or can/should this better be done as a client firm of another brokerage firm like IB, TDA/Schwab etc?
I don't see any reason it would not be allowed by the regulatory agencies. But the objection would be that if a new firm is going to jump through all the hoops required to establish a new broker-dealer, why would they choose to limit their offerings in this way?
I will provide a detailed response later, but what is the purpose of the question? Are you looking to create your own broker? Like BMK said, why would you limit your revenues?
B/c want to start small and grow only slowly, due to manpower, knowledge, finances etc. The whole broker-biz looks too much complicated with too many regulations etc, so better concentrate on a subset only and grow just slowly... These are just some ideas atm, was just curious; no concrete plans yet.
This has been done. Some years ago there was a firm called Sharebuilder, and they had a very limited product range, almost identical to what you are suggesting. This was back in the days before zero-commission stock trading. Sharebuilder offered very low stock trading commissions. I think it was $6.00. And there was a way to do commission-free trades at a time when that was unheard of at regular brokers. You could sign up for automated dollar-cost averaging, e.g., you automatically by $40.00 worth of XYZ on the 6th of every month, at the market price. You could do those trades with no commission. And they only offered like four ways to title the account: 1. Individual 2. Married Couple 3. IRA 4. Custodial account for a minor And you could do an IRA for a minor. That was it. No business entities. But quotes were not real-time. The original model did not include options trading. They added that later. And they may have added trusts to the availalbe account types. It was great while it lasted. I think once the other big brokers started offering zero commission stock trades, they lost any edge they might have had. They sold out to Capital One or Wells Fargo or something.
Clearing firm or Broker today requires a team and a lot of money and technology. And the team requires experience and licenses.
Successful brokerage startups are usually options related. Optionsexpress sold for $1billion to Schwab, Thinkorswim sold to TDA for $606m, Tastytrade sold to IG for $1bn. The last two were sold by the same person.
There are a handful of boutique institutional brokers or idea shops that offer a lesser menu of services - do a Google search. They are quite expensive because they're often buying services and expecting you to pay for what they don't provide. Some of the forum members have worked with them. You would need a phenomenal amount of activity to do it all in-house.