Opening up a firm this way

Discussion in 'Prop Firms' started by Sky123987, Apr 1, 2010.

  1. Say you have a retail account and would like to hire traders.

    You will accept no capital contributions from the traders
    You will NOT mark up commissions
    You take a certain percentage of profits.

    This would be considered legal in the eyes of the SEC correct?
  2. Are you training them?

    "You take a certain percentage of profits." --> somewhat optimistic, given the likely future performance of most people walking in the door...
  3. t0pd0g



    The structure you describe is pretty much the ONLY acceptable structure that doesn't need to be registered with the SEC, according to my conversations with the SEC. Which firms/people allow this??

  4. cstfx


    Yes, perfectly legal. See Green Trader Tax for discussions on this topic.
  5. Just wondering. Not any firms I know of.

    So this would be not allowed and must be registered w/ the sec etc.... Correct?

    No capital Contribution
    % payout
    Markup on commission
  6. t0pd0g


    Again, simply call the SEC and explain what the firm is doing and ask them if its legal. "transaction based compensation" is only allowed for registered broker dealers. This is pretty black and white:

    Section 3(a)(4) of the Exchange Act defines a “broker” as a person, including a company,6 engaged in the business of effecting transactions in securities for the account of others. A person acts as a broker if it regularly “participates in securities transactions at key points in the chain
    of distribution.”7 Actions indicating that a person is “effecting” securities transactions include soliciting investors; handling customer funds and securities; participating in the order-taking or order-
    routing process; and extending or arranging for the extension of credit in connection with a securities transaction. A key factor indicating that a person is “engaged in the business” is the receipt of transaction-based compensation.