OK, you can't take deposits and give leverage. You can't allow a trader to daytrade with less than 25k on deposit. But what, say, if you have a retail account (llc, corp, partnership) with your monies and don't require or accept a deposit from anyone. You "hire" these people to trade your funds. The main account (which all trades are executed thru) does not exceed Reg T or Portfolio Margin rules. You are not acting like a B/D because you are not accepting deposits. How then can Assent or Genesis say to you that how you trade your funds is right or wrong? In this example, is this not a private agreement between the entity (you) and the person you authorize to trade your funds? And before you mention Tuco, look at all the facts and accusations: 1. They took deposits 2. they extended leverage on these deposits 3. they were non-licensed and was run by a licensed individual 4. they were using other trader's deposits to pay another (take from peter to pay paul) 5. and the override, charging a commission on top of your commission I can see the first 4, and why the SEC went after them and the speed with which they settled, but the fifth I don't get. It is an agreement between 2 parties outside the NASD or the SEC, especially taken in context with my example above
yes i believe you could have 1 big account and have 10 power of attorneys to let each person trade it. but can one still get a sub contract under your account with no deposit and trade it? problem again is you would set them up with a higher commish so you can overide it which is a no no. ASK YOURSELF WHO THE HECK IS GOING TO TAKE NO MONEY DOWN AND NO COMMISSION OVERIDE AND LET SOMEONE TRADE YOUR ACCOUNT?as to safety of funds thats a real problem. you can take out a treasury every 30 days which then secures your account to the 500k sipc because a treasury is considered a security. you can borrow 90% against it to day trade.but that hits the nail on the head. its very hard to put a ton of money with any broker after all the crap thats going on.
Yes, but the problem with Tuco and many other LLC's was that they were charging traders commission override to trade their own funds, which is the purview of b/d's. How then is it an issue of the SEC or the NASD to stop me to charge someone to trade my funds in exchange for a portion of the gains?
Is their any issue with firms that require no up front cash and provide all the capital for you? What about them with all this stuff going on?
You nailed it! There lies the rub. Yes, you can setup an LLC to act like a private fund and not take any deposits. But you cannot charge any commisions!!! Not just over-rides, but zero commisions. Who the f*ck is going to do that? You think I'm going to let anyone trade my money with zero commision and expose all my capital to risk? No f*cking way. Once you remove the incentive for guys to setup sub-LLC's, the supply will be gone. The whole idea behind the sub-LLC was for a trader to break off on his own under a prop firm and rape newbies on over-rides while at the same time lowering his commisions from the bulk rate. If he can't do that anymore, no reason to have sub-LLC's. This business is not about charity. It's about making money. You remove the profit incentive, you remove the business.
A hedge fund manager can make an "override" on his hedge funds trading. It is called commission recapturing. He has an agreement with his Prime Brokerage for 5 cents per share for the hedge fund, but he has the Prime Brokerage charge the fund 10 cents a share and the Prime Brokerage gives the manager the 5 cent difference. However the hedge fund manager has to have this arrangement written in the hedge fund charter for the investors to see.
No, that's called a soft dollar agreement. Not the same thing. If you come into my LLC and use my funds to trade and I charge you on your transactions, that makes me a BROKER. If I act like a BROKER without being registered as one, I am violating the law. A soft dollar agreement is not the same thing as charging someone for making transactions. However one could start a fund, bring in a trader, don't charge him anything and take a cut of his profits. But why I am doing that again?