Trading LLC and its affiliates

Discussion in 'Prop Firms' started by felichka, Jan 13, 2002.

  1. Tell me please if you know.
    When the trading company let's say Main Trading LLC has two subsidiaries Sub Main A and Sub Main B. Suppose Sub Main A due to the poor risk management looses all the money. Is it possible that that Sub Main A goes chapter 11 and the Main Trading LLC is not liable for the losses ? What kind of structure is this when under the wing of Main LLC there are affiliates LLC under different names ? I do not understand why subsidiaries of the same company exist under different name?

    Thank you .
  2. felichka,

    It's very hard to comment on specific issues of individual firms
    unless you could see the firms L.L.C. agreement and funding arrangement. L.L.C.'s are similiar to partnerships in that funds
    are pooled and the class "B"L.L.C. (trading members) are trading
    partners of the firm. This arrangement was looked at by the SEC
    when Arthur Levitt was chairman and the only change that was made was to require L.L.C. members to pass a minimum of a Series 7 exam to trade firm capital.
    L.L.C.'s are not SIPC insured and the firms individual risk management,capital and clearing firm are an important factor in selecting a trading L.L.C. How long is the firm in business? Who
    is the L.L.C.'s managers? What kind of experience do they have?
    Does the firm carry alot of overnight postions(unhedged)? Ask
    the managing members and other traders before joining. See the
    firm ratings on boards like elitetrader. Be aware that some of the reviews are "sour grapes" responses from traders who are not making a living trading.
    Be aware that size of an L.L.C. and capital alone may not make an L.L.C. more stable than a smaller L.L.C. If a L.L.C. has 10 million in firm capital and carries 60 million in risk arb or matched pair positions , this firm may have alot of market risk or more market risk than a smaller L.L.C. that has 2 million in firm capital
    and no(or vary few) overnight positions positions .

    Gene Weissman
    Lieber & Weissman Sec., L.L.C.
  3. Gene,
    Thank you very much for your answer.
    I do understand that without seeing the firms L.L.C. agreement and funding arrangement it is hard to comment. I just wanted to make sure that is it possible (legal) to arrange agreement between the Company (LLC) and its Subsidiary (LLC) so that the Company (LLC) is not liable for the Subsidiary (LLC) losses. In that case these questions: "How long is the firm in business? Who is the L.L.C.'s managers? What kind of experience do they have? Does the firm carry a lot of overnight positions(unhedged)? " , would not protect you because the Subsidiary (LLC) just a different entity under the umbrella of the Company (LLC) . If it is completely impossible for the Company to have affiliates without being financially liable for them, then an affiliate is just a branch of the main Company.
    For example in case of Bright Trading all its branches are Bright Trading, it is all clear. When I look at let's say Brookstone Trading, they say: "Brookstone Trading Corp offers securities through Andover Brokerage LLC". Then if you open an account with them, who are you dealing with ?
  4. felichka,

    I would suggest you call the compliance dept. of Brookstone and ask about Brookstone's arrangement with Andover. On
    Brookstone's website , they say that they are NASD members
    and are probably subject to NASD rules and regulations for customer accounts. Brookstone does not appear to be an L.L.C. trading firm. Be aware that you can have an NASD firm set up as an L.L.C.(for tax purposes), but the firm is a regular NASD member
    that carries customer accounts and is SIPC insured. I believe
    that Brookstone is an NASD member firm and is subject to NASD rules & regulations for customer accounts and is not a "Trading
    L.L.C." like Bright, LWS & Echo. Call Brookstone for more information.

    Gene Weissman
    Lieber & Weissman Sec., L.L.C.