Proprietary trading requires the analysis of complex market conditions coupled with prompt action. Many of the strategies used by proprietary trading firms leave no room for delay, so having a solid understanding of what you’re doing is absolutely vital to your success.

Recent and upcoming changes in federal and state regulations add to the complexity of engaging in prop trading. Whether you are structuring a proprietary trading firm or facing a dispute, you need to be sure you are in full compliance with SEC, FINRA, and CFTC regulations. Having the right legal advising, mediation, and representation on your side will help ensure success in your trading endeavors and protect your investments.

Proprietary Trading Strategies

A well-constructed investment portfolio will involve a variety of strategies—and a variety of attendant regulations. Hart & David represents clients who make use of various trading strategies, including:

Arbitrage: This strategy, which includes statistical and index arbitrage, merger arbitrage, and volatility arbitrage, requires swift action on the part of the trader.

Long/short equity: This type of trading can be subject to certain restrictions on how much equity you must maintain on long and short positions.

Global macro trading: Since this strategy frequently involves making investment decisions in various places of the world, knowledge of foreign investment regulations is required.

Fundamental analysis: Analyzing the various factors that may impact a security’s value will require familiarity with market conditions as well as various legal ramifications.

Knowing which strategies to include in your firm’s practices is a matter of both market analysis and legal expertise. Depending on your firm’s structure and place in the market, certain investments may be unadvisable or even illegal, so it is best to have someone on your side who knows the laws surrounding the trading of bonds, equities, stocks, and other financial instruments.

Regulations on Proprietary Trading

A number of different entities are in charge of proprietary trading standards. These include the SEC, FINRA, and the CFTC.

SEC: The Securities and Exchange Commission, or SEC, has the primary role of regulating the documentation and disclosure of securities trades. The purpose of their laws is to promote transparency and prevent fraud. The Final Rule by the SEC prohibits certain types of proprietary trading by banking entities, for example.

FINRA: The Financial Industry Regulatory Authority is an independent organization that writes rules for securities and brokerage. They also examine firms for their compliance with the rules and have played a key role in bringing disciplinary action against many of them.

CFTC: The U.S. Commodity Futures Trading Commission issues regulations on proprietary trading, including the Dodd-Frank Act and the Vlocker Rule.

The purpose of these regulations is ultimately to protect the general interests of the community. Ensuring that your firm flourishes within the boundaries of these regulations is our goal.

Legal Assistance

With our experience in the areas of law surrounding proprietary trading and investment practices, we are highly qualified to provide legal advising and representation with the following:

– Regulatory compliance and investigation
– Due diligence
– Corporate formation and structuring
– Documentation practices
– Tax planning
– Establishment of trading operations
– Program trading and arbitrage issues
– SEC, FINRA, and CFTC compliance

We have served numerous clients throughout the Chicago-Metro area with high degrees of satisfaction. To help ensure the success of your proprietary trading firm and keep your interests secure, contact Hart & David for a free consultation.

Jonathan D. Herpy

Jonathan D. Herpy

Partner
Joel J.H. Funk

Joel J.H. Funk

Partner
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