Starting an Introducing Broker

[azdo]

A friend of mine is thinking of starting up as an introducing broker. We have a friend in common that runs a successful HF, and he wishes to raise funds for this firm, and perhaps a a few other HF managers we know. I may well eventually join him.

Regulations aside, what needs to be done? He is looking to start and grow a business. Does he need to hold clients' funds himself with a prime broker, or can he operate as a middle-man, without holding funds?

Any advice (or questions) would be gratefully received.

 

[Papa Lazarou]

I don't know what trading vehicles these hedge funds are using but from an exchange traded futures background (energy), I'm pretty sure that the norm for introducing brokers is not to hold any funds. The funds are held with an FCM and the broker is just a middle man who gets a percentage of the execution fee (if introducing to an executing broker and then giving up the trades elsewhere i.e. form 2 business), or a percentage of the clearing fees (if the IB manages to get the customer to clear with the firm it is introducing for).

Hope that helps.