Help me understand licensing

Discussion in 'Prop Firms' started by rogerwilcom, Aug 29, 2012.

  1. I have a few questions if anyone has the time to help me out.

    1) If I understand things correctly, if I trade with a US based prop firm that is a broker/dealer, I am required to get a Series 56. Is this correct?

    2) If I trade with a US firm that is NOT a broker/dealer, what sort of licensing would I be required to get? Would I need to be an Investment Adviser?

    3) If I am trading through an LLC with another trader or two. Are the individuals that make up the LLC required to get a series 56 or become investment advisers? Or can the LLC be licensed and that would cover whoever worked or was a partner in the LLC?

    Thank you for your time.

  2. you are required to get a series 56 if you trade with a CBSX firm. The exchange that oversees the firm is regulated and has these requirements. It is different for companies outside the US but there is less oversight. The big US exchanges usually require a license like 7 or 56 in the case of the cbsx.

    Overseas firms have less requirements but less oversight as well. they seem to go hand-in-hand these days.
  3. EvOTrader,

    Thank you for the response. Do you know what would happen in this scenario?

    There is a broker/dealer that would like me to trade their money (I am not putting up a risk deposit). Initially, they asked me whether I had any licensing (i.e. a series 7). I do not. So, they structured me under one of their other companies that is not a broker/dealer. The reason for this was so that it would't be necessary for me to have a series 7 or 56. However, this opened another can of worms.

    I'm now wondering and trying to find out if I would have to be a Registered Investment Advisor to trade that companies money. Do you know one way or another? Signs are pointing that way. However, I cannot find an answer. Even when asking the State.

    Thanks again.

  4. Hi Roger, sounds pretty fishy to me. why not study and pass the series 56 or the series 7 and do it right with a reputable firm? don't go with some one who is bending the rules. if they will bend the rules, they may also bend the rules when dealing fairly with you .
  5. I plan on getting the 56 or 7 eventually. Although I have no idea which one at this point. Naturally I want to get the one that would work in more firms.

    You are right, this firm may be bending things a bit. However, I really think it is because they want me in there without causing me headaches. (Since I'm not putting a deposit down, the worst that can happen is they short me in the payout. Which I would promptly use as a reason to leave.)

    Right now, I'm just concerned whether I need to be a RIA with them or not in this situation. That answer seems to be hard to find. If I do need to be a RIA, I would opt for the 7 or 56 instead.

    Thanks everyone.
  6. Aaggh, yep, what is said above, the fishy part. Way too much stuff coming down from the Regulators to even consider a non registered firm....UNLESS, you're hired with a salary, W2 type income.

  7. VinMan


    Don what is the risk to the trader of the non registered firm as far as regulators are concerned? Wouldnt they be a "customer"?

    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?
  8. That is a good question. If a trader is not licensed, would only the firm get hammered? Or would the trader get punished as well?