Trading other peoples money – without FSA regulation (is it possible??)

(Last Updated On: December 5, 2011)

Trading other peoples money – without FSA regulation (is it possible??)

I am an algo trader and I want to trade other peoples accounts and take a cut of the profit I make for them, if I dont market or set it up as a company am I allowed to do this?? I am allowed to trade family and friends accounts?? whats the laws on this?

Where does individual ‘Power of Attorney’ accounts traded by an individual fit in the FSA regulations — if at all ?

Can you avoid registration for managing money for friends and family if you charge them a fee?

Do you know anything regarding the exception if you run a ” private investment fund with 50

In the US, regulations differ depending upon the asset class you are trading. Stocks are regulated differently than derivatives, as an example (SEC vs CFTC, or, FINRA vs NFA) What asset classes do you wish to trade?


Fx using dukascopy broker and the algo trader will be based from India all commissions will be paid back to the traders offshore bank account in Dubai but I would have to be fsa regulated to introduce English clients to let him trade their accounts I believe as I would get a

I believe if you are a prop firm you dont need to be regulated by the FSA to trade company capital, does anybody know how you go about setting up a prop firm, is it as simple as registering a limited company in England, opening a company account with a broker and


Under UK / EU Mifid you require to be registered with the FSA which requires a min capital requirements of eur 200k. In the US you would fall under potentially a CFTC 4.7 exemption but you would have to operate within the us and have passed the CF3? exam. Prop business means prop – your own money – no ifs or buts I’m afraid to say.


You might be able to use an FSA umbrella (double check that), that is if you don’t want to fork out roughly 30K for a year.

Plenty of prop shops are not regulated though, few large markets aren’t either. When you think of it, most of those regulatory and rating agencies are useless (ie. FSA letting money disappear in number of high profile cases; or recent S&P release citing Credit Suisse in a good position, clear speculation at best as they are struggling to calculate trivial exposure and VaR on a monthly basis, let alone daily or in realtime). Keep in mind being FSA regulated provides strong protection for the clients and is likely required if you are managing other people’s money.

If you do opt out for it, it is a trivial schema to submit reports to them but the cost is not easily justified. Alternatively, form a company where they have a proportional stake and trade the capital pool. Segment that pool and control into share classes and tailor it to a mutual agreement, this will override a need to regulate but introduces complex structures.

To do it properly, FSA authorisation is necessary, unless you never intend to have third party funds and are content with trading on a personal ‘own account’ basis only and are able to put up significant cash margin with a broker-dealer who is prepared to open your personal trading account. Do not under any circumstances be tempted to co-mingle third party funds with your own personal trading account; this is illegal and you will be in breach of the general prohibition in the Financial Services and Markets Act 2000 and this is a criminal offence. However, if there is a genuine group of people who wish to pool their personal wealth say a total of $5 million or more and who wish to undertake this trading activity, there are a couple of very limited legal and tax structures and would not be FSA authorised, which may work depending on a whole host of very complex issues e.g. onshore or offshore funds, UK domiciled or non-UK-domiciled persons, shareholders’ agreements, etc; if these are properly resolved, their business can then be set up accordingly. The important thing is always to engage professional and experienced advisors who can advise on all aspects of the intended business of which FSA authorisation is only a part thereof. My firm Sigma Partnership specialises in providing such advice and I can be contacted via the Sigma Partnership website.


Is this actually legal?? could I do this without breaking the law…?? have we found the solution??

“Alternatively, form a company where they have a proportional stake and trade the capital pool. Segment that pool and control into share classes and tailor it to a mutual agreement, this will override a need to regulate but introduces complex structures.”


Complex structures require professional legal advice. So it certainly has costs and it depends on your particular circumstances. You are not clear on the subject, inventing your own and crossing fingers is a red zone.

Find a lawyer to advise you or you can drop Joe a line on this subject. He advised us and more and also selflessly provided a favour or two for myself (he helped a friend exit a low-tech mess that was Celeritas).

NOTE I now post my TRADING ALERTS into my personal FACEBOOK ACCOUNT and TWITTER. Don't worry as I don't post stupid cat videos or what I eat!
This entry was posted in Quant Opinion and tagged , , , on by .

About caustic

Hi i there My name is Bryan Downing. I am part of a company called QuantLabs.Net This is specifically a company with a high profile blog about technology, trading, financial, investment, quant, etc. It posts things on how to do job interviews with large companies like Morgan Stanley, Bloomberg, Citibank, and IBM. It also posts different unique tips and tricks on Java, C++, or C programming. It posts about different techniques in learning about Matlab and building models or strategies. There is a lot here if you are into venturing into the financial world like quant or technical analysis. It also discusses the future generation of trading and programming Specialties: C++, Java, C#, Matlab, quant, models, strategies, technical analysis, linux, windows P.S. I have been known to be the worst typist. Do not be offended by it as I like to bang stuff out and put priorty of what I do over typing. Maybe one day I can get a full time copy editor to help out. Do note I prefer videos as they are much easier to produce so check out my many video at youtube.com/quantlabs