Excellent Commentary All ....................................................................................... Innovation has only just begun..... Only months from now....there will be more opportunities and not less.... This goes for all account sizes and objectives..... Watch what happens....
If all these anticipated changes do in fact take place it will adversely impact liquidity in the equity markets. The houses who already have an outrageously unfair advantage over the daytrader will have had their hands strengthened even more and will be licking their chops. An already manipulated industry will end up being even more contrived. A sobering thought to ponder.
There continues to be a lot of bad information spread around about this mess. The issue here folks is not the series 7. IT'S BEING A MEMBER OF AN EXCHANGE! Most exchanges require you to have a series 7, that is why many on this thread think incorrectly that this is a series7 issue. If you are not a member of an exchange, you cannot get around the PDT rule. This is what sub LLC's have been doing. Allowing non members to gain the benefits of being a member of an exchange. I cannot make this any more clear. I have stated several times there that is one exchange that CURRENTLY does not require a 7 and that is the CBOE. This could change in the future, but as of now, they don't. What the SEC wants is for professional traders to be MEMBERS. If you want to get the benefits of membership, you have to be a MEMBER. This surely is not that hard to understand. The reason the SEC wants this is so that they can have regulatory authority over ALL trading activity on the exchanges. This is not a bad thing. If they are going to regulate what Goldman does, shouldn't they also be able to regulate what Don Bright does as well? Now, having said all that, there are several ways firms are flying in under the radar. One, they are not technically leveraging your account. They still take a deposit, but the money does not go into your trading account. You actually trade out of their master account which is funded by the firm. You fund a seperate account (which could be used to offset losses) that is not used for trading. So technically you are not trading your money, you are trading THEIR money. On top of that they do not give you 100% of your profits. They give you 90% or 75% or 50%, etc. Since you are not getting 100% of your profits, this is not a retail account. Now is that all legal? Well, again, if it's done as a BD or as an OSJ yes, if the entity is just a sub-LLC of a BD then probably not. What the SEC is trying to do here guys is have everyone play by the same rules and to have everyone under the scrutiny of some kind of regulatory authority. Everyone should be playing by the same rules. Prop firms are not going to go away. Neither are LLC's. Neither is leveraged trading going away. It's very simple, join a prop firm that is a legit BD and exchange member and become a member of an exchange. If that exchange requires you to get a series 7, then get it. If it does not require you to get a series 7, then you don't need it. Once you are a member of an exchange and you are trading for a firm that is a member, then you are allowed the benefits of exchange membership which includes exchange margins.
Maverick wrote: What the SEC is trying to do here guys is have everyone play by the same rules and to have everyone under the scrutiny of some kind of regulatory authority. Everyone should be playing by the same rules. Excellent commentary Mav and your 100% right. The problem is that this would kill the business as we know it and annihilate volume. Now that not really in the Exchanges best interest is it, since their model is based off of fee's on volume. This is why I think that at the end of the day the industry will be fine.
Hedge funds are the biggest sums of money on Wall Street and are not under all auspices of regulation.... Nor will all auspices of both LLCs and SubLLCs be regulated.... Legal innovation will rule the day.... Watch what happens....
FUTURES ARE REGULATED BY THE CFTC AND NOT THE SEC..SO NO...BUT YOU HAVE VERY DIFFERENT RULES THAT FUTURES GROUPS AND PROP GROUPS HAVE TO ABIDE BY AND THOSE CHANGED ABOUT 1 YEAR AGO WHEN THEY SAID THAT ECM MEMBERS COULD POOL CAPITAL AND HAD TO BE FIRM ONLY CAPITAL. SEC IS BAD NEWS BUT YOU BREAK RULES AND CFTC/NFA WILL BE ON YOUR ASS ALSO.
A question now if of PENSON FINANCIAL. What did they know and when did they know it. Was PENSON aware that Tuco was not registered as a B/D and should have been? However, PENSON FINANCIAL did clear trades and was making money from Tuco. Should clearing firms like PENSON be allowed to clear trades and other back office work if they knew that Tuco was not registered as B/D or not in a âJBOâ agreement. Did PENSON FINANCIAL when finally seeing that Tuco was co-mingling funds then decide to âsnitchâ or report Tuco for possible Fraud violations.
did you even read the summary of the complaint? the SEC is trying to use sect 10b5 and sect 15(a) and 15(b) to go after tuco. these laws are strictly to prevent stock brokers from misleading clients through "inducing" them to buy specific issues through the mail or other devices interstate under fraudulent means. like lying about balance sheets of the corporation's stock they are pitching. or misleading a client as to risk or potential gains from the purchase of specific issues. thats why if you read the actual complaint you will see the SEC use bizarre wording in regards to placement of terms such as "induced" traders and profited from "excessive" trading. they are trying to make their case based on sales infractions which as traders we all know is ridiculous. this is about the law... not what the SEC wants. what the SEC wants is illegal. they do not have jurisdiction in this matter. they also committed perjury with their initial reason to look into Tuco. they did this... because the statute requires that someone, i.e. the public was damaged by the actions of Tuco. so.. the SEC had to make up accounting fraud. if they didn't initiate this.. they couldn't bring up and pursue sect 10b5 and sect 15(a) and 15(b) issues. this is sort of like drunk driving. a cop has to witness some type of infraction... i.e. probable cause. then he can pull someone over for this.. and then investigate to see if there is any alcohol consumption. he can not just randomly pull you over because he has a hunch. it was known in the trading community that the SEC was going to try this. this was known before the alleged accounting fraud they claimed to uncover with Tuco in dec. this case has nothing to do with protecting the public it is about protecting business interest for certain entities. bottom line, the SEC is acting in a rogue manner. every right that they violate will be watched and reported to certain congressmen and senators and State Attorney Generals. this is the only protection we the people have from compromised govt entities that do not serve their public but now serve certain corporations.
Actually, no, it would not kill off volume. I always hear the "it will kill volume" argument a lot and let me respond to that. When bullets went away 6 years ago (which led to the demise of Worldco), all I heard is, the daytraders will leave, volume will dry up. Of course that never happened. It just sent more people over to the futures markets and created one of the biggest explosions in volume the spoos ever saw. Others just found creative ways around it. I heard the same argument with pennies. Once we go to pennies, everyone will stop trading stocks. Didn't happen. In fact stock trading volume went exponentially higher. Then I heard this argument with options. Once options go to penny spreads, market makers won't make markets and liquidity will dry up. Nope, never happened. Option exchanges are setting new volume records every quarter. All that will happen if many of these sub LLC's are shut down is, half the people will move over to futures. The other half will either get a license or go to a firm that does not require a license but are still exchange members. Will it hurt some of the 5k accounts? Sure. But let me be frank with you here, I can assure you the guy with 5k getting 20 to 1 leverage is not driving the volume on the NYSE. The real volume on the exchanges are coming from the growing trend of automated traders and trading algorithms that make 10k transactions a day and other high frequency trading programs.