Running your own fund - FSA Regulation

jls483

Active member
173 0
Forgive me if I am being a bit dim wysi - but aren't companies entities that need to be regulated as well? I can see that as an individual I won't need to be regulated but surely the company that I am working for will. Just like Fidelity needs to be.

I find it hard to believe such a simple loophole exists.

John.
 

wysinawyg

Active member
186 1
<i>Forgive me if I am being a bit dim wysi - but aren't companies entities that need to be regulated as well? I can see that as an individual I won't need to be regulated but surely the company that I am working for will. Just like Fidelity needs to be.</i>

Companies do need to be regulated but it depends what they do. In the above scenario nobody is "managing" funds anymore. The investors have just invested money in the company, the company is running a trading business and "John" is just employed by the company to do the trading.

In the case of Unit Trusts you'll have a fund and then a separate management company (i.e. Fidelity) who then manage money on behalf of the fund. I think Investment companies work the same way in that the funds are set up and generate a pool of cash which is then given to a management company to invest (although I'm a little less sure on that one).

Anyway, its not a structure I've set up so I don't know the ins and outs of how it works and quite why it is legal (which is why I keep emphasising you need to get it checked out), I just know that it has been done with blessing from a law firm. To be quite honest for all I know there is a specific paragraph in a piece of legislation somewhere saying that this is okay even though it shouldn't be (like the one that says derivatives trading isn't gambling even though it fulfils all the legal definitions of being gambling).

wysi
 

scrappy

Junior member
41 2
A colleague of mine did the same thing about two years ago. To avoid the FSA thing he set up a "Share Club". Where a few members had put in money and allocated responsability for buying and selling shares on him.

I don't know the full jist of it but I am sure there are a few traders trading this way.

I will give my friend a call and try to get some more details of him.
 

anley

Senior member
2,730 229
Whatever you do if you go down the FSA route or even have a chat with them so they know who you are, you're in trouble. They'll likely put up many road blocks in front of you and cause you to burn through a chequebook.

Another way around it which may have been mentioned is to trade through a company where the investors are shareholders. In this case you don't have to registered either as it is just a simple corporate account.
 

DaxTrader

Active member
229 2
I looked into this a few years ago, and concluded as wysinawyg says that setting up a company was the best route.

Investment clubs are fine, but you are not allowed to be paid for your services.

The other way to do it is what Rezo does - see "January 2004"forex thread, but he may be registered.

Have heard of the "private Unit Trust" which is used by wealthy families - advantages being that gains from stocks sold aren't taxed until units sold. Believe they are expensive to set up, and not sure whether you can trade the full range of instruments.
 

MCGF

Well-known member
339 0
Thanks i can read, i did realise that was the max punishment but u were using that as a reason for not doing it how u wanted to

I think u very warm to the ideal solution but just missed out one small detail

Surely the best way is to set up a company, distribute the shares out as per amount put in, PAY YOURSELF A WAGE from the company because u are putting in most effort and pay the profits out in dividends-problem solved surely?
 

jls483

Active member
173 0
Thanks to all, even MCGF, it does sound as if the corporate solution is the best so far. The only major downside I have discovered so far is that corporation tax for such companies is 30% rather than the usual 20%

John.
 

jls483

Active member
173 0
OK - here is another question - sort of related. If I form a company and the company places a bet either on the horses or a spreadbet - are the profits tax free or will they still be liable to corporation tax? Would any spreadbet companies open a corporate account?

If the company made all of it is profits out of gambling (and they were all tax free) presumably the dividends would still have a tax credit for the shareholders?

Thanks,

John.
 

darrenf

Well-known member
481 3
Would a director of a ltd co be able to legally use company funds to gamble? Could be another sure fire way of getting carted off to the slammer. :eek:
 

darrenf

Well-known member
481 3
I still think there could be something lurking in directors duties and gambling with company funds.

Don't know for definite. just a hunch.
 

Scripophilist

Active member
221 7
Thanks to wysinawyg for his clarity on this thread. The shareholder options seems most sensible.

I don't believe there is any specific rule about gambling with funds. It could be defined as a hedging strategy but would certainly be seen as unusual unless you apply for a betting license etc. etc.

You could always loan money from the company to yourself and then repay it again and redistribute the proceeds as a gift or something?
 

jls483

Active member
173 0
A small request before I put my next question :cool:. What I am about to ask might seem a little odd and from experience I expect one or two might be tempted to ask why on earth I want to work like that - but if you could just humour me as a bit of a nutter and just answer the theoretical question - I would be most grateful.
Thanks.

BTW If you are not interested in companies, dividends and running funds - now might be a good time to leave the thread :cool:.

Ok - let's imagine I've created my new company. I'm trading the FTSE futures using the companies IB account. I've got a strategy (a little unconventional) that sets the base price of my share as:
(5000-ftse)^2 / 1,000,000 e.g. if the ftse is at 4500 then the share is worth 500^2/1000000 = -.25 and if the ftse is at 4000 it is worth -1.00. Each share pays out a dividend of 3p a month.

I need to create a system where my mates can decide how much they want to pay for each share based on how low they think the FTSE might fall. The higher they assume, then the less they need to pay for each share and the better their returns will be.

If for example the FTSE is at 5000 and has a value of zero and they pay £1 a share then they can afford to let the FTSE fall to 4000. If it does fall to 4000 then they can either see their shares liquidated or they can pump in more cash.

That's the scenario I am trying to create - how I do it - I don't mind.

Here is the best idea I have had so far:

I split the shares (on paper - not with companies house) into various flavours each share covers a fall to a certain value e.g. to 90% of 5000, 80%, 70% and so on. The cost of each share is basically equal to:

the price of a fall from 5000 to the bust value plus
the cost of the current fall from 5000 plus
any profits that have built up in the fund and will be paid out as a dividend at the end of the month

So the base price of the 90% fund is 25p. The fund will be worth 25p-0p=25p when the FTSE is at 5000 and 25p-25p=0p at 4500.

The base price of the 80% fund is £1 and the fund will be worth £1-0=£1 at 5000, £1-25p=75p at 4500 and £1-£1=0p at 4000.

The cost of upgrading between the fund flavours is just the difference in the base price of the units, which in the case of the 90% and 80% funds is 75p.

It is a system that would work on paper - I'm just not sure if companies house and the inland revenue are going to be happy that shares come in different flavours and cost different amounts.

Any suggestions - gratefully received.

John.
 
 
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