Jean,
First and foremost: ask yourself if the timing is right for such a venture. Talk to branch office managers, not traders or daytrading firm owners. With decimalization, regulatory measures, and new market structure initiatives about to arrive, it may be the end of that particular embodiment of the daytrading industry; on the other hand, with a more informed public, only the strongest, best traders surviving the last year, and - again, a new market structure around the corner - this might be the time to do it.
I'm not saying go or no-go: just give it a lot of thought. A lot of thought.
If you decide that such a venture is prudent, the best bet is to simply call those firms which open branch offices, first see what their interest level is, and then for those which are interested, compare their competing office-opening deals.
A major factor on their end, over and above their comfort level with you (specifically, your brokerage/marketing experience and any local traders you already know) and their current state of business, of course, will be the presence of existing branch offices of said firms in your area and the demographics of your area. If you're in Smalltown, MT, you're obviously likely to find far less interest than if you're in any of the 5 or so major undeveloped markets in the US. Inversely, NYC, Chicago, and a host of other areas are already largely saturated, of course.
There will, of course, be a trade-off between small firms looking to grow and large, established firms. While the large firms have infrastructure and subscriptions which can make your venture highly-marketable, they're also risk-averse and have strict bottom-line expectations. Small firms may price their deals aggressively and be willing to open offices anywhere, but be in a bad position (or no position, realistically) to compete on a service, marketing, or bells n' whistles basis.
The management of many large, on-site daytrading firms will view densely populated areas in divergent ways, typically either as opportunities to reach a heavily populated area or - as has been told to me - as a bad business deal, effectively cultivating an area (if there is no daytrading presence at the time) for competitors to come in once you've done lots of marketing and established price structures and plunder your entire office. After all: being first, you will have both vindicated the viability of, and perhaps even primed, said market for a daytrading office presence.
Call/email all the firms you're interested in, express interest, and ask for copies of all the branch management agreements that they require executed. These - far more than any punchlist that you request - will cite all of the various charges (some will be negotiable) and obligations that you and your associated persons - many, with the exception of a tech, who'll have to be registered, incidentally - will be held to.
If they refuse to provide you with such a contract, you have every right to question why and raise your suspicion level. When the rubber meets the road, it's the branch management contract, and not any hastily generated list that will designate what your overhead and bottom line looks like at the end of the month, so, go to the heart of the matter from the start.
Ah - and to hell with pro forma analyses. If they offer you a pro forma detailing how great you'll be doing a year from now with 50 traders doing 100 tickets/150K shares/day...ask them to prepare one if in a year you've got two traders doing 20 tickets/25,000 shares/day with all conceivable fixed and variable expenses hitting you simultaneously.
Now; some firms will require an initial confidentiality agreement to enter into negotiations and/or see their branch management contract. That - at least to me - is fair, but you have you make your own decision, of course.
Then: set up an Excel spreadsheet [Lotus 1-2-3, if you're nostalgic :) ] and list the varying attributes, costs, and obligations - both of you, and the parent firm - as required and alluded to in the branch management agreement of each firm.
Some of these will include: clearing/ticket charges, ticket vs. per-share charges, franchise vs. management owned branch deals, other fees (a major item you'll want to nail down), marketing/advertising support, terms, indemnity, referral bonuses, training arrangements, etc.
Does the firm expect a minimum ticket volume per day (read: scalpers) or are swing trading strategies, from a cost/revenue expectation standpoint, acceptable? Do you need to be an OSJ, or are branch or remote office acceptable? Do you have a Right of First Refusal to your geographic area, or can another office of the same firm open up three blocks away? Can you contact the clearing firm directly to deal with/solve breaks, dupes, etc. - or do you need to go through the parent firm's Operations "department"? Ad infinitum.
Software considerations? Jeez. This could be a whole spreadsheet in itself. Pricing, availability via the internet, (big one: who "owns" internet traders that trade from home via your branch office?), what platform, upgrades, where are servers hosted, etc.
(While I'm not in the daytrading industry, I can make you a list of these, if you'd like - as I have many, many friends in and around this niche area of the securities industry.)
Anyway - be sure to let each firm you speak to know that you're shopping around, too - but don't tell them who (what specific firms) you're talking to, lest some of your leverage be lost. When you compare these items, you'll have a good basis for boiling down your choices to two or three finalists, saving the tough "what-if" questions and hardnosed negotiating for them. These are also the ones you'll probably want to meet with face-to-face, kick the tires, take a look around, visit a few existing branches, etc.
(Final note: When you're down to three finalists, it's time also to get the names and CRD numbers of the firm principals and spend an afternoon on the phone with NASDR researching both the individuals and the firms for regulatory histories and the like. Very, very important.)
Best of luck -
LPS5 |
