Have you been planning to set up a stock brokering operation? Here are the steps to take to establish a successful foundation:
- Register with appropriate authorities
Unless you intend only to run business within your state, regulations require you to register your new business with the Securities and Exchange Commission by filing the Application for Broker-Dealer Registration, commonly called Form BD.
You’ll also need to become a member of a self-regulated organization (SRO) such as FINRA (the Financial Industry Regulatory Authority) or a national securities exchange. In most cases, a new broker must also be registered with the Securities Investor Protection Corporation. The SIPC insures brokerage clients a maximum of $500,000 in a broker liquidation.
- Have all your partners and future employees register with FINRA
In addition to your brokerage business becoming a member of FINRA, anyone you intend to bring onboard that will influence securities transactions must also register with FINRA, by filing form U-4 through the firm. FINRA sets qualification requirements for both you and your associates, including passing some securities examinations.
The comprehensive series 7 for corporate securities trading, for instance, must be taken by all who wish to be registered as general securities representatives.
- Choose the type of broker you want to be
A stock brokerage company can be either a floor broker or a retail broker. Floor brokers are members of a stock exchange and, therefore, have access to trading directly with market makers and specialists. Retail brokers, on the other hand, don’t have direct access and must trade through member firms.
There are typically only a few seats from any stock exchange, which means that to become an exchange member, you’ll either have to wait for a vacant seat to be for sale or lease one from a current owner. Membership will allow you to offer your clients prices that are closer to the best market bid and ask prices.
Nevertheless, many new brokerage firms set off as retail brokers. The NYSE, for example, has 1366 floor brokers that non-members can use when routing their customers’ orders.
- Set up the infrastructure for receiving and routing orders
To get your business off the ground, you’ll need to purchase computer servers, create a website and choose the stock trading software company that will install your trading platform. A merchant account from a specialist provider like eMerchantBroker is also needed to process orders made through credit cards.
Align yourself with the right companies and acquire the right infrastructure, depending on how big and complex you intend your new brokerage firm to become.
