rumours of prop firms and the SEC

Discussion in 'Politics' started by marketsurfer, Feb 16, 2004.

  1. A prop trader at a firm can post a performance bond, albeit GSCO doesnt require it. If a prop trader puts up 10k, that money is not looked upon as leverage by the SEC. It is there to protect the prop firm against losses that may be incurred.

    To make this point, if a prop firm asks you to put up 10k to trade prop and gives you 1 million in buying power.....The SEC doesnt care about that. They are concerned that the prop/firm account doesnt overextend their overall BP intraday which is 15% of what the firm actually has in its account. (like a margin call for the firm)

    As far as that 10k..... I am not responsible for losses nor am I required to make a deposit. But, the firm might also not let me trade their capital. BIG DIFFERENCE !!!! So if they gave me 50-1 on my 10k and I lost 250k in a bad trade, guess what, the firm is out the money ..... Not the trader !!!! The firm will probably keep the 10k to protect itself from the losses incurred, and then the firm can decide if the trader should continue to trade. Who is to say that they wont let him. Maybe the trader lost 50k but generates lots of commission, so the firm eats it or allows him to trade.

    Now we know that if a trader goes red he probably wont be trading at the firm too long, but as you can see prop traders are not customers..... they are employees or sub contractors of the firm who are compensated by the firm with limited risk. If you think 10k is big risk in trading, then you are in the wrong forum !!!

    Banker
     
    #11     Feb 16, 2004
  2. ------------------------------------------------------------------------------------
    i heard an interesting rumour at the expo this year---- i can not nor will not vouch for any truth whatsoever to it--- however --i was advised that----someone who is or was HIGH up in the prop world claimed that the SEC will be putting an end to the prop concept of high leverage very very soon.................... the person this was attributed to--is ( was ) highly respected...... once again--i did not hear this directly but from a third party--strictly rumor at this time.

    who knows ?
    ------------------------------------------------------------------------------------

    could you be more vague 007?...............wishful thinking from the drowning mixed custy/"trader" firms methinks.


    grimer11
     
    #12     Feb 17, 2004
  3. sorry......after reading your clarification, yes, I believe that firms who give 20:1 and 40:1 or whatever to "traders" who put up capital (which really makes them nothing more than ridiculously leveraged "customers" of the firm) will have to redraw their margin requirements for each "customer/trader" to fit the letter of the law......either you are a true prop shop or you are a retail brokerage......I hope this doesnt become the case, but it IS illogical for a guy who sits in a dark, dirty office to have 40:1 leverage simply because he put up 10k and is hiding under the umbrella of a sub-sub LLC........the shop I work for is pure prop..no money is allowed to be put up and, for the time being, I think it is a sound business model for myself, and more importantly the business entity.....the reason I find the latter to be more important is that without my firm I get shit leverage, and more importantly a lack of faith in profits and accruals and work.......many, many times what appears to be LESS IS MORE.


    grimer11
     
    #13     Feb 17, 2004
  4. Exactly.

    I know quite a few very senior desk traders whose compensation is in the upper six figures, but is significantly less than 1% ...
     
    #14     Feb 17, 2004
  5. (I knew I could find some more info on this nonsense here on the board...I can always count on ET)...OK, my friend, let me pass on some information directly from me (once again, no alias, no hiding).

    A person (no "high level" person...although he claimed he was, I checked his CRD records, and he is just a guy who works for a prop firm). I won't mention his name at this point because I don't have the "need" for hatemongering or vicious slander.

    Now to what went on.... This person mentioned to Bob Greene, a CPA and Law Firm rep that we all know from ET and his many writings in our best trade journals, that there was some "illegal activity" going on with some of the bigger firms....I'm told he even mentioned my firm (which got my ire, so I confronted him... he said he never mentioned BT by name, and that he was merely talking about a "rule".

    The "rule" applies to firms that have "customers" (Bright has no "customers" only LLC members, so even if this old rule were to apply, it would not apply to us)....and has to do with payouts (the reason that some firms have lower payouts (supposedly).

    Mr. Greene was pretty shocked by this outrageous comments, and is seeking legal advice from his contacts within the industry.

    Again, BT has nothing to do with this, and we were asked by the Regulators a few years back to change from and "Inc." to an "LLC" so that our traders would be LLC members. As always, we work really hard to follow all the rules and to keep our traders on the "straight and narrow."

    The funny twist to this little encounter was that this gentleman then questioned my brother "why would have this business model, there is so little profit margin to your Firm." This implies that his traders must really be paying higher fees, and that his Firm keeps much more of the trader's money than we do (which I assume is true, judging by his statement).

    Anyway, much to do about nothing....at least so far. I will have my people contact the head of the firm who has this gentleman on their License, and ask that he try to keep the useless mud-slinging down a bit. We encounter enough of this from the smaller, more desperate firms, I don't expect a long time and very respectable Firm to condone such actions.

    Since this is considered a Public Record (at least by my Regulator's), and for the common good and peace within our industry, I will not "name names" or anything...so please don't ask, let's just get on with our trading.

    Good Trading...

    Don
     
    #15     Feb 17, 2004
  6. shaq48

    shaq48

    surely the SEC could spend its time better than worrying about the handful of prop firms that are left and the amount of leverage they provide
     
    #16     Feb 17, 2004
  7. Surely the government could put $50 Billion/year to better use than the 'war on drugs'?
    The government is no longer about doing what is best for the people, but doing whatever best gets off the power-junky politicians.

    From 1984:

    'You understand well enough ~how~ the party maintains
    itself in power. Now tell me ~why~ we cling to power. What
    is our motive? Why should we want power? Go on, speak,' he
    added as Winston remained silent.
    [...]
    Nevertheless Winston did not speak for another moment or
    two.
    [...]
    'You are ruling over us for our own good,' he said
    feebly. 'You believe that human beings are not fit to govern
    themselves, and therefore -

    He started and almost cried out. A pang of pain had shot
    through his body. O'Brien had pushed the lever of the dial
    up to thirty-five.

    'That was stupid, Winston, stupid!' he said. 'You should
    know better than to say a thing like that.'

    He pulled the lever back and continued:

    'Now I will tell you the answer to my question. It is
    this. <b>The Party seeks power entirely for its own sake. We
    are not interested in the good of others; we are interested
    solely in power. Not wealth or luxury or long life or
    happiness: only power, pure power.</b> What pure power means you
    will understand presently. We are different from the
    oligarchies of the past, in that we know what we are doing.
    All the others, even those who resembled ourselves, were
    cowards and hypocrites. The German Nazis and the Russian
    Communists came very close to us in their methods, but they
    never had the courage to recognize their own motives. They
    pretended, perhaps they even believed, that they had seized
    power unwillingly and for a limited time, and that just
    round the corner there lay a paradise where human beings
    would be free and equal. We are not like that. We know that
    no one seizes power with the intention of relinquishing it.
    Power is not a means, it is an end. One does not establish a
    dictatorship in order to safeguard a revolution; one makes
    the revolution in order to establish the dictatorship. The
    object of persecution is persecution. <b>The object of torture
    is torture. The object of power is power. Now do you begin
    to understand me?'</b>
     
    #17     Feb 17, 2004
  8. the way i understand the rumor is that a propstar--not a regular joe made the claims at the expo--and he was quite adamant. don may be refering to another incident.

    JACk
     
    #18     Feb 17, 2004
  9. why don't they just go ahead and get it over with. instead of all the new rules, i.e pattern daytrader, decimals, no bullets, no more prop leverage... just make it illegal to profit from buying and selling stocks; unless of course you are a specialist.
     
    #19     Feb 17, 2004
  10. That's the direction it seems to be going in sometimes.
     
    #20     Feb 17, 2004