PROPRIETARY TRADERS PROPRIETARY TRADERS OVERVIEW October 1, 2006 News Update, by Robert A. Green, CPA & CEO The NASD and Securities and Exchange Commission recently declared some smaller proprietary day-trading firms to be in violation of Regulation T margin rules, which determine the borrowing power a trader has at a given moment. The regulators appear to be selectively forcing targeted firms â on a case-by-case basis rather than through published guidance â to immediately comply. Targeted firms face a stark choice of either quickly restructuring their operations to cure the violation or eliminating their prop trading activity. The NASD and SEC have substantial legal authority and it is unlikely any court will overturn their jurisdiction. Itâs been our opinion for the past several years â while these and other related issues were evident â that the prop trading industry is living on borrowed time from the regulators. In 1998, there were more than 100 prop trading firm broker/dealers, and now there are only a few left. Most have exited the business for a variety of reasons, including regulator actions, connections with hedge fund investments and more. Regulators have indicated they are now applying more stringent rules but, again, thatâs on a case-by-case basis, during audit or enforcement proceeding.