Direct account with Clearing firm

Discussion in 'Professional Trading' started by tradepro, Feb 14, 2004.

  1. tradepro


    I want to start my own Trading Firm, out of tax reasons and with an eye to growing a small capital trading business, and am looking to set up a direct account with a clearing firm.

    I will not have any retail customers, only capital trading.

    I have a couple of questions which I would like to put out to you, since I do not have any answers:

    1) Do I have to become a B/D in order to hold a clearing account directly?

    2) How much money does one normally need to keep with the clearing firm? Account size - minimum

    3) What kind of leverage does one get on that money from the clearing firm? 1:4; 1:10; 1:50 ??

    4) What kind of trading fees can I expect when I start out. I am doing about 2 mil shares per month, and about 2000 rt on the e-minis.

    I intent to trade about 10 mil shares and about 5000 rt/minis within 12 months.

    I have been in contact with a couple of clearing firms, but the fees I have been given, where higher than the best retail deals, or remote prop deals available.

    I don't want to pay more then 1.50 per ticket for unlimited shares, and 1.50 rt for the e-minis on the CME.

    4) How is the billing different for listed stocks from OTC/ECN's. How do I get the rebates? Do Listed cost more than OTC. Any explaination on how the fees are different, and how this is handled?

    Any general advise on setting up your own trading firm would be welcome as well.

  2. Banjo


  3. tradepro


    Thanks I have seen that transcript! This becomes interesting when I'll do more then 2000 rt/pm.
  4. just curious,

    are you known by anyother names / monikers on ET?

    why would you want to become, say a GM Dealer for say Cadillac instead of jus t buying the specific model car that you want?

    Is this long way around posting well over $2million performance bond, which will not be trading capital with a Clearing Agent an attempt at getting rock bottom prices?

    What does the example of the Specialist firms, which were all family partnerships previously, having sold their stakes to major corporate players or reconstituting themselves into publically traded firms tell you? IOW, they found that their previous business model was no longer tennable, tell you?

    Have you asked those questions instead of this misdirected question that should have been directed to say SLK or other major clearing firms instead of to us traders?
  5. tradepro


    Thanks AOL 9.0 Man for your reply.

    You are right, the intention is to get the most competitive prices, as well as more favorable tax treatment.

    Clearing firms do not have retail customers since they would then compete with the B/D.
    This is basically fine with me, but if you run a business you don't go to the retail grocery store to buy your stuff, but to the wholesaler.
    Therefore, I want to go to the clearing firm, a trend I believe which will establish itself with high volume traders. B/D's will still have enough customer potential. But as with every business, operating cost should be as low as you can get them.
  6. in addition to the questions tradepro order to do business directly with a clearing firm, you have to register as a BD, and with an SRO(NASD or an exchange). if one decides to register with an exchange like the Philadelphia Stock Exchange, does that mean that to become member I have to buy/lease a seat even though I'll do my 100% of my trading off-floor??

    thanks in advance
  7. tradepro


    Thanks for your reply Manhattan Trader. No you do not have to be a member of an Exhcnange to hold an account with a clearing firm. You do need to be a member of an SRO and/or B/D.

    Since I trader mainly e-minis, bonds, forex I have noted a posting on the CME site.

    I believe, it will become very competitive with Eurex US. The better for us traders.

  8. I see........on the SEC website it says that a BD has to become a member of an SRO before it begins business. an SRO can be NASD or an exchange. it doesn't say that you can just be a member of another BD. thanks for the link though

  9. I have 2 prime brokerage accounts with SLK. One for my S-Corp and one for my Pension Plan. You do not need to be a broker or even pay professional fee's to clear directly. You are just a regular guy with an account. This is how all the hedge funds do it. Now if you want more than standard Reg T leverage you either have to be a broker, or there are a few firms (SLK is one of them) that have access to offshore leveraged products. The offshore stuff is basically a sweep of your account each night into a Goldman account that is in the UK where they don't have such restrictive leverage rules. So if you become a broker and establish a joint back office (JBO) with your clearing firm I think you get 10 to 1 day and 4 to 1 overnight and with the offshore products you can get even more. Hedge funds all use the offshore products since they are not brokers. I know you can get up to 6 to 1 overnight and I think the inter-day is quite negotiable depending on your trading strategy and the risk involved (I know they go at least 20 to 1). You will have to talk with them about fee's.

    At SLK, the limits are (last time I checked, always increasing though);

    100K to open a stock only trading account
    250K to open a stock, options, and futures trading account
    1.5M to open a Prime brokerage
    5M to open an offshore leveraged account
    50M to open an offshore leveraged pension account.

    Now I have some more useful information for you. First of all, there are no ticket charges for any trade you make with the SLK/Goldman family (domestically anyhow). You pay a ticket charge when you trade away which means if you place a trade with Merrill, then I pay a ticket charge of XXX to SLK for the clearing and I pay the trading commish to Merrill and your happy ass is smoking crack if you think that ticket charge is going to be anywhere near $1.50. Billing for shares is on a per broker basis.

    The reason you open a prime brokerage account is that it gives you flexibility to trade with any broker anywhere in the world and keep your account maintained in one place. I can go long Jap stock and short Jap bonds with the Jap broker of my choice and clear the trades through SLK. Don't forget to figure in the expense of T-1 line, bloomberg, etc. The shit adds up fast!
    #10     Feb 29, 2004