Who regulates Prop Firms? NASD?

Discussion in 'Prop Firms' started by xyannix, Jun 23, 2006.

  1. xyannix


    I looked on the NASD ( http://pdpi.nasdr.com/PDPI/ ) for prop firms Echotrade & Bright but neither came up with anything.

    What the these companies licensed as and where would i find info on them?

    Thank you
  2. A lot of them are private LLC's
  3. xyannix


    So then how does a trader know if they are legit?

    If they sponsor your series 7 and you trade with them if something goes wrong are you responsible?
  4. cashonly

    cashonly Bright Trading, LLC

    We're not NASD members, we're with the Chicago Stock Exchange. Many firms are like this. It's just a matter of preference as to who a firm has as their SRO.

  5. 7-2os


    No one ...it's not needed....

    On clients/customers just "professional" traders
  6. We are exchange members, so there is no need to pay extra dues to the nasd. Our members are Series 7 licensed with the NASD however, as per regulations.

    We are subject to SEC rules and reg's, and we are audited by the SEC, the exchange, and the various State securities agencies. We file "FOCUS" reports, just like any broker dealer.

    I suggest that you "run not walk" away from any "trading firm" that is not regulated.,...and the "sub-llc's" and anyone who does not give you a line of recourse...and (you knew it was coming).."check the balance sheets" - I smile at all this, but it is a very serious business, and everyone shoud perform due diligence, know who in the heck they're dealing with. Check everything with any type trading firm.

    I'm proud to say the Bright's have been exchange members since the 1970's and that we have had the same clearing firm since 1978 (SLK/GS/FOC).

    I see firm's where the owners have been expelled from NASD and other regulatory agencies....and still in business...

    If you want more information regarding our legal status, PM me and I'll put you in contact with our Compliance Officer.]/b]

    All you need do is call us.


    (Now this is the kind of thread that can really help others, thanks)
  7. xyannix


    I now understand that prop firms don't need NASD membership because they aren't dealing with retail clients.

    Below is wording from EchoTrades Risk Disclosure page.

    Is a sub account the same as a sub llc???

    <p class="border">A member should only invest risk capital in the firm. No person should fund their contribution to the firm with retirement savings, student loans, second mortgages, emergency funds, funds set aside for purposes such as education or home ownership, or funds required for current income to meet your living expenses.<br />
    A trader that contributes capital to the firm is subject to the risk that his capital may be lost to satisfy a liability of the firm if another member fails to satisfy his obligation to contribute capital to the firm. This situation may arise if a member incurs an unpaid trading debit balance. A trader that contributes capital to the firm is also subject to the risk that he may be liable to contribute additional capital to the firm to eliminate a deficit in his own capital account.
    <p class="border">ECHOtrade's current risk management policies require that a member cease trading if his trading sub-account balance is $5,000 or less; a minimum of $25,000 is needed to trade options on a limited basis. The firm also restricts trading activities of traders with trading sub-account balances that are greater than $5000, but less than the required starting balance. The firm's risk management policies permit the firm to assume control over a member's trading sub-account and to adjust, close-out or liquidate a member's positions. The firm can change its risk management policies and liquidation procedures from time to time and that the firm may use different liquidation procedures in similar circumstances, as the firm's management shall determine is in the best interests of the firm. ECHOtrade is a broker-dealer registered with the Securities and Exchange Commission and is a member of the Philadelphia Stock Exchange. ECHOtrade is a proprietary trading firm. The firm does not have retail customers. ECHOtrade is organized as a limited liability Company. Each trader is admitted to ECHOtrade as a member of the firm and trades a trading sub-account that is designated as a sub-account of the firm's account. As a member of ECHOtrade, a trader will not receive any of the protections generally afforded to customers of a broker-dealer, such as the customer protection rules of the National Association of Securities Dealers Regulation, Inc. and the segregation of customer funds and securities required under the Securities Exchange Act of 1934. The Securities Investor Protection Corporation does not insure members' trading sub-accounts with the firm nor does any other form of insurance cover them. As a member of the firm, a trader's capital is part of the firm's capital and can be used by the firm in the operation of its business. Use by the firm of a member's capital is not limited to the activities of such member.</p>
    <p class="border">There are a number of members (Backed Traders) whose trading activities are and will be backed by other members (Backers). Such arrangements involve the agreement of the Backers to accept responsibility for trading losses of the Backed Traders. The trading profits of the Backed Traders trading sub-accounts are split between the Backed Traders and the Backers. However, the Backers are not required to contribute a specified amount of capital or any capital to the firm to support the trading of the Backed Traders so long as ECHOtrade has sufficient amounts of capital to support all of its trading activities or can borrow from its the capital necessary to support such trading activities. This leverage is available because the capital of all of ECHOtrade's members' constitutes firm capital for regulatory purposes, and the firm, as a registered broker-dealer, is not restricted by the margin regulations as to the amount of funds it can borrow from its clearing firm to support its trading activities. To the extent the trading activities of the Backed Traders are supported by ECHOtrade's capital without any capital contributions being made by any members for a particular Backed Trader, such trading activities may be supported by the capital of the other members. The members, other than the firm's manager and the Backers, have no control over the trading activities of the Backed Traders.</p>
    <p class="border">ECHOtrade, in its sole and absolute discretion, (i) limits the amount of capital available for trading by each member, (ii) shall limits the leverage available to a trader for intra-day and overnight positions, (iii) can change the amount of leverage available to a trader at any time, (iv) may apply different limitations to different members, and (v) may suspend or terminate the trading activities of any member at any time.</p>
    <p class="border">ECHOtrade has absolute authority: (i) to sell any and all securities and other property in any member's trading sub-account, (ii) to buy any or all securities and other property which may be short in such accounts, (iii) to adjust the positions in such accounts, (iv) to implement hedging or offsetting transactions to reduce risk in such accounts, in all such cases without demand for margin or capital or additional margin or capital, notice of sale or purchase, or other notice of any kind to the affected member or members, and (v) to transfer funds from the capital account of a Backer to the trading sub-account of a Backed Trader to cover losses incurred by the Backed Trader, without prior notice to the Backer.</p>
  8. Is a sub account the same as a sub llc???

    No, a sub account is simply how your trades and account balances are kept track of by the trading/clearing firm. Each of our traders has a sub account, just like you would if you were at Schawb or Merrill.

    The "Sub-LLC" is different animal, generally a smaller group in the chain up the Main Broker Dealer/exchange member/or NASD member. Sub-LLC's have been abused over the years by a few trading firms, wherein if the Sub "goes under" or doesn't pay their traders, or walks away from legal obligations, the "Main" LLC can disavow any responsibilty to the creditors.

    It's always better to have your money with the Firm who controls the money at the BD end, not with a smaller group (for obvious reasons).

    This is one of the primary reasons for my harping on "check the balance sheets' of anyone you do business with.

    A quick overview: Most trading LLC's are set up with 2 categories of members, the "A" member (owners, Bright Trading, Inc. in our case), and the "B" members, the traders and their money. If you check the balance sheets (in our case), you'll notice that the "A" members put an additional $10million of their cash into the "B" members side of the partnership, thus protecting the trades and their money. If you don't see something similar, than the traders money is obviously at risk from other traders.

    All the best,

  9. xyannix, when looking at prop firms you should find out:

    If they are a BD (many are not)...if they are they'll have an SRO to go to to get an idea of their regulatory track record.

    If they're not then find out what BD they are trading under and how reputable they are.

    Just like in trading there's risk tolerence that you have to take into account when looking at prop firms. There are many smaller "sub LLC's" that do very well, mentor, pay their traders on time, have reputable owners/track records etc...you just need to ask a lot of questions and figure out when a certain shop seems to risky for you.