I've had a few traders contact me on the forum lately that have asked me about their money being "locked up" with their current firms. Most of the guys experiencing this have not been trading in New York. I've been trading for a while and have only first heard of this practice in the last week or so. I'm just wondering what the firm's explanation for doing this is. I have in depth knowledge of almost every shop in NYC and don't know any who implement this practice. Please let me know if any of you have ever experienced or heard of a company either holding onto your profits or deposits and not allowing you to withdraw your funds or part of your funds should you choose to leave the firm or simply just want your money. Thank you.
fwiw, In a prop firm, meaning a proprietary account of a broker-dealer, whether a finra bd trading with s7 and other licenses OR a cbsx bd trading without those licenses, capital contributions are subject to a 1 year lock up of that capital. Some firms have the option in certain cases of not locking up all the capital. Only locked up capital can be used for the purposes of good net capital at the firm and from what I understand any capital that is deposited in the clearing account by the bd should be considered good capital. Trading profits are not subject to this lock up only capital contributed to the bd from the registered or associated class b member of the firm.
So in a situation where a trader puts up 100k to open an account and decides to stop trading after a week, that trader's money can't be retrieved from the firm for a year? And what would happen should the trader decide to contribute additional capital to the account, is that money also locked up for a year from the day it was put in the account?
I know plenty of people that were not licensed and traded a 4 to 1 account as a recognized professional trader, meaning required to keep 25K min in the account at all times, that were able to take every penny out of their account if they wanted. When you say subject to a 1 year hold does that mean it's mandatory or it's at the b/d's discretion?
It would depend on whats agreed upon between the bd and the trader. I imagine a lot of it would depend on the amount of bp that the trader was using. Any capital that isnt locked up and therefore cant be used for bp purposes by the firm needs to be supported for that trader by the firm. I'm sure some firms wouldnt require all the capital to be locked up or would at the very least give a certain period before subjecting it to a lock up but in those cases in your example of the 100k, if there was 2mm in bp given out on that and the firm wasnt locking any of it up then they would be putting up somewhere in the 300k area for that one traders bp, I guess in that case it would depend on what the volume, % split etc would be for the firm to decide if that made sense for them from a return on capital standpoint. I also think that any capital contributed is potentially subject to this lockup.
and to answer your previous post, in that situation it is a retail account with regular 4-1 leverage so no capital is subject to a lock up. The lockup is only for proprietary.
Thanks alot for the in depth explanation. So what you're saying is that the B/D is allowed to lock up the initial deposit for up to a year but in the end it's their choice whether to do so or not. And that the CBSX actually has nothing to do with this decision, but the prop firm is solely able to determine what amount to lock up if any? I know that shops can hold back a deposit, I'm just wondering if it's their choice or they're forced to by the governing exchange.
NP, If I'm not mistaken it is an SEC rule and not an SRO ie:finra or cbsx etc rule. I know that firms like assent do lock up any capital contributed in most cases when you trade in their prop account. I am not 100% sure of how the capital is classified when it isnt locked up exactly and I'm definitely not a compliance officer or anything, but I do believe that the firm has some discretion on whether they require the lock up, but the way I understand it, that is an exception of not locking up the capital and not the rule in those situations.
We don't lock up initial deposits. We also don't need to use traders capital for net capital requitements. Don
Don..... I thought that you guys have a 25K minimum, how is that not using the traders deposit? Can a trader deposit an amount less than that?