CBSX Registration for Firm or Trader?

Discussion in 'Prop Firms' started by VinMan, Sep 5, 2012.

  1. 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?
  2. 1245


    You have to know the people you're dealing with in either case. If you join a non-BD LLC that are a group of professional traders where the managing members are offering you leverage for a % income with your first loss capital, you might be OK. If that non-BD LLC marks up commissions or gives the impression they are acting as a Non-registered BD, your money can be in danger.

    They are not allowed to make money from commissions or rebates. Beware of any of these firms that offer high payouts.
  3. 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.
  4. hitnrun


    If you need leverage then the smart move is to get a license

    your choice of the 56 for cbsx or the series 7 for other exchanges

    at the end of the day its the only way to get peace of mind & some safety of funds for leverage

    there are very few choices, everything has changed in the past 2 years

    if you don't require the excess leverage , Then a retail account is good
  5. Good posts.

    See FINRA Regulatory Notice 10-18 . FINRA tells clearing firms to be on the look out for sub-LLC prop trading firms, even non-customer broker/dealer prop firms that may have disguised customer accounts. A tell-tale sign is 100% pay-outs.

    Active Trader just published my latest article in the Oct issue on proprietary trading firms; with tax, regulatory, legal and business issues for prop traders. An except is published on our blog at

    The above posts have good additional info on lock ups and capital. My AT article delves into hybrid firms with education and prop trading too.
  6. VinMan


    Great input all.

    It looks like there are very murky waters these days and everyone looking for loopholes.

    It also looks like the real risk for a trader is your risk deposit and how you may or may not be able to treat your expenses. There is no mention of regulatory risk for the trader himself whether he has a retail account, a CBSX account, or non registered account. Looks more like buyer beware (outside SIPC retail).

    You loss is your loss, your profit is your profit (if you can get it) and your expenses are your expenses.
  7. hitnrun



    you got it , the good old days are gone

    the rules are not meant to protect the traders , more hassle & fees for all
  8. VinMan


    Yea, its starting to look like a shady business. You put your money on the line, the prop firms charge you huge fees then leach on you for educational fees...then give you a payout on your money because regulators want that.
  9. I say it's a toss up. The laws aren't meant to protect the traders but to protect the secrecy of the largest government-related financial institutions. It's a load of BS. The CBSX registration was good up until they decided traders are not customers add need to be treated like criminals being fingerprinted, taking licensing exams, paying fees to dozens of agencies off their trades - it's a ponzi scheme.