Will I need a license??

Discussion in 'Professional Trading' started by Chinookie, Dec 11, 2006.

  1. My partner and I are starting a business that will do some trading and investing in stocks/options. If we are trading our own capital and not any outsiders, do we still need a series 7 or other license??
  2. No.

    You do not need any registration... unless you plan to do business with the public.
  3. Do you need license for prop trading?
  4. Sure you need at least Series 7 or equivalent.

    You then have legal status and responsibilities as a "Registered Person"...
    Entering into some kind of Partnership Agreement with a US Broker-Dealer...
    In order to evade the protections afforded Customers under Regulation T...
    So that you can get special treatment like leverage.

    A US Broker-Dealer can ONLY do business with another Registered Person or Entity...
    Or deal with the public ONLY as Customers.

    The Securities Industry is meant to be a Closed System.
  5. lescor


    There are many firms offering prop trading without requiring any licensing. Look up 'retail LLC'. There's dozens of them.
  6. "or equivalent"? can you specify?
  7. For the most part, yes. There are some firms who have been formed without actually joining an "SRO" (exchange, nasd, or similar), who may let you daytrade with some leverage, but I suggest caution. Some "sub-llc's" may fit in here as well, again I suggest caution.

    There have been a couple firms associated with an exchange that have allowed their traders to be unlicensed, but very few any longer. All this is being changed at year end, I'm told...so my guess is that the licensing will be mandatory. (I've been wrong before, but we prefer to be on the safe side).

  8. Lescor, I sent you a PM- when you get a chance.


  9. lescor


    My comment was referring to the retail LLC arrangement whereby a few partners pool money, get a clearing arrangement together and let their traders open retail accounts, but extend them intra-day leverage from the LLC's funds. Some hedgefunds do this too.

    I know you look down on this arrangement and I'll say without hesitation that there are charlatans who can set up shop under this arrangement and operate in a less than upfront manner. Because they are not regulated like an SRO-member firm is they can set up quickly, with less cash and possibly get away with more. However, there are also very well run, well capitalized groups that operate under this arrangement too. You cannot paint them all with the same brush.

    If you are going to go into business with someone (and by trading prop, that's essentially what you are doing) you should do the due diligence first. This means getting to know the principals involved, checking their reputations, talk to former and current traders, etc. Whether or not licensing is required to open an account is one, but not the only, thing to consider.

    I have traded with nasd, phlx and non-member firms and have had good experiences with them all. The overriding factor for me is the firm's and it's principal's reputation in the industry. I currently keep a six figure account at one of these big bad retail LLC's and have no qualm's whatsoever about the safety of my capital.

    Industry regulation is definitely one of the risks that's out there though. We've woken up to a whole new paradigm on more than one issue.
  10. I concur with you, as I usually do.

    A group of traders pooling money is obviously a bit more risky, since one of 10 guys could blow the thing up. And, usually, these groups don't have $millions available to each trader, which can be a bit limiting.

    Since we don't "pool" our traders money, and assume the risk and "RegT" requirements ourselves, the risk to the trader is obviously just the amount they put up.

    When all is said and done, as you said, do the due diligence, build up a comfort level, and focus on trading.

    All the best,

    #10     Dec 12, 2006