In a previous thread, “Frequent Questions”, I asked Matthew and others what they thought of this SEC publication: http://www.sec.gov/investor/pubs/autotrading.htm. In that thread, it was agreed that what C2 provides may be in a ‘grey’ area of the definition of auto-trading. Matthew did provide a publication from the CFTC which provided a little information, but that only applies to futures.
I decided to contact the SEC about this. I spoke with a rep from the SEC today. In summary, here is what system providers, Matthew included, should know: IF YOU PROVIDE STOCK AND/OR OPTION TRADING RECOMMENDATIONS AND CAN BE AUTO-TRADED, YOU MUST BE REGISTERED WITH THE SEC AS AN ‘INVESTMENT ADVISOR’. There is no grey area here folks.
And now with C2’s “Broker-Assist” trading, aka auto-trading, there is no grey area.
Keep in mind that the SEC only governs stocks and options, futures and forex are separate and not necessarily subjected to this SEC publication.
I am sure some members here may not be thrilled with this information, but now that you have this information, you have an obligation to fulfill.
-Jim
??? My earlier reply disappeared again ???
Jim,
I’m not happy with you awakening the ‘dog’. In that other thread I didn’t agree with Chris, but now I believe that your motivation is indeed to cause trouble. Why?
In your post I see not indication that you told the SEC that the word ‘autotrade’ is used here in a different meaning. This was something that all of us agreed with, while the ‘grey area’ suggestion was something that only some of us agreed with.
Furthermore, the fact that ‘some’ SEC rep says this doesn’t convince me at all. For all I know this might have been the cleaning girl.
Jules
I agree with Jules … and you don’t seem to understand what “autotrading” really means in either context (C2 or SEC).
WHILE THE USE OF CAPITAL LETTERS AND BOLD FONT CERTAINLY SEEMS AUTHORITATIVE, I MUST SIMPLY DISAGREE WITH YOU.
Again, I think we are using different definitions of the term “AutoTrade.” The SEC seems to define it as, essentially, your opening an account at a broker in which a third party (system vendor) has trading authority. That is not the case here.
Please understand. No regulation prevents people from offering non-personalized advice to people. That is called publishing. It is protected by the First Amendment. Period. Since the vendors here are – by the very nature of this platform – forced to offer standardized, non-personal advice; and since the vendors do not place trades in broker accounts (the actual trading instructions come from the owner of the broker account), and since – indeed – system vendors don’t even know who is trading their advice and who is not, it is really a stretch to say otherwise.
I am not posting this Jules and Randy simply to be a pain. I am trying to explain that while Matthew believes what C2 is providing is not the SEC’s definition of auto-trading, as your other post stated Jules, the SEC is out to protect you and all the other potential subscribers here.
As for who I spoke with, her name is Linda Schneider of the Office of Chief Counsel, Division of Investment Management. You can confirm this by contacting the SEC yourself. She is not the cleaning lady. How funny.
Again, contact the SEC yourself.
Wouldn’t it be best to be safe than sorry? Especially if you are a system provider…
Please understand. No regulation prevents people from offering non-personalized advice to people. That is called publishing. It is protected by the First Amendment. Period. Since the vendors here are – by the very nature of this platform – forced to offer standardized, non-personal advice; and since the vendors do not place trades in broker accounts (the actual trading instructions come from the owner of the broker account), and since – indeed – system vendors don’t even know who is trading their advice and who is not, it is really a stretch to say otherwise.
Matthew - I am not arguing that providing non-personalized advice is not ok. What I am trying to illustrate here is that once you allow that advice to be auto-traded, you are no longer simply protected by the First Ammendment. You are no longer, by SEC definitions, just providing non-personalized advice. By SEC definition, you are now an investment advisor/manager. If you don’t believe me, just contact the SEC and they will inform you of this.
Your definition of being protected by the first ammendment is correct if all you do is provide this non-personalized advice. Once the ‘broker assist’ or ‘auto-trading’ platform is used, you are now over that line.
I can understand now why laywers make such a good living in the US and why people sue McDonalds for coffee being too warm. There will always be people like Jim who is looking for any excuse to start a lawsuit.
Jim, this is obvious the only reason you are here is to start some kind of lawsuit. Please just start it so that we can get this over and done with and you can move on to your next lawsuit against something else.
Based on your previous posts, you clearly just picked the parts from the document which prove your point and ignore the rest that doesn’t. I would not be surprised if you worded the question to the SEC in such a way that you would get the answer you are looking for.
Matthew, I am not a lawyer and in no position to give you advise, but I think you should just ignore Jim and not reply. He is obviously just gathering information for his lawsuit against C2 and anything you post on here will be used in the case.
Chris
But Jim, you’re missing the point. The SEC has its own definition of what autotrading is. They even posted a description on their Web site. They said, essentially, this is what we call “autotrading.” And in order to do autotrading, you need to be regulated by us.
And then you, Jim, called them up on the phone and said: “SEC, I’m interested in the term called ‘autotrading.’ Let me ask you a question. Do you need to be registered to do do autotrading?” And lo and behold, they said yes.
But what is going on here at C2 is not the “autotrading” defined on the SEC Web site. Go look at the site. No one here is providing that service (which they call “autotrading”). No one here has any trading authority over any customer brokerage accounts.
The service here is different. C2 is a publishing platform. Computer software, which is owned and installed by the end user, might ultimately “read” advice that is published, and place trades on a user’s behalf, in the user’s own account. But that is optional, and, if done, is done by the user.
Note: no one but the user can touch that brokerage account. No one but the user has legal trading authority over that account. No one but the user is even aware that anything is actually being traded. No one is being compensated per commission dollar. That is very different then what the SEC thinks of as autotrading.
I think you are conflating two very dissimilar ideas that happen to have similar names.
As MK said some time back, the differenece is, auto-trading by yourself and auto-trading by your broker. If auto-trading Futures and Stocks/Options is done by your broker (with his assistance), then the broker must be registered with CFTC and SEC respectively, who have the authority to revoke the auto-trading arrangement in case of mal practices (and ban the broker for life in auto-trading), because the brokers bread and butter are the commissions (they dont know a damn about the markets) while for system vendors, trading/investing/managing/advising/publishing may be their profession (not auto-trading) protected by first amendment rights and any mal practices in their case might be the equivalent of p,g in their own soup. This is just common sense.
In either case, no auto-trading is ever done by the system vendor. Auto-trading is only done by the end user or his own broker. All the system vendors do is publishing our Model Positions ie., representative positions that put our best economic forecasts to work. They are not personalized investment advise tailored to the risk tolerance of each and every subscriber/viewer nor are they recommendations to buy or sell specific instruments.
They cannot prevent auto-trading by yourself either because again it is protected by the first amendment.
I think, a sensible alternative to auto-trading is a managed account, either with your system vendor or with your broker. Of course, the manager of the account should not be negligent, should be professionally competent and should consider his investors welfare as his top priority.
ps: still, if auto-trading is done by yourself, you may want to register yourself and complain to SEC and CFTC in case of any mistakes done by yourself, so that they can prevent you from auto-trading your own account, in case you destroy it, to prevent medical costs (in countries where there is socialized medicine 
being passed on to the public for treatment costs (for mental distress and emotional hardship caused due to auto-trading How funny. If one cannot understand this, they are not even fit to be a cleaning lady.
Jim, I have only one question: When you contacted the SEC did you explain in complete detail how autotrading works at C2?
As someone else has said, if you did not explain how “autotrading” via C2 works then Linda’s opinion of C2 is worthless because its based on a flawed premise. Please answer the question.
Re: "In either case, no auto-trading is ever done by the system vendor. Auto-trading is only done by the end user or his own broker."
I disagree. The end-user configures auto-trading (TB) but the end-user does not autotrade. TB places traders as a direct result of orders sent by C2 which are a direct result of system vendors entering orders into C2. Once autotrading is configured & enabled (by the client) then a system vendor does actually control trades being placed in the subscribers account without any client intervention. I don’t think its is equivalent to a managed account but its damn close (e.g. the act of giving power of attorney to someone managing an account for you is similar to the act of configuring autotrading and setting up the trading permissions on C2/TB) In both cases the ability of the system vendor to trade on your behalf can be revoked at any time.
Re: "All the system vendors do is publishing our Model Positions ie., representative positions that put our best economic forecasts to work"
That is also false. System vendors publish specific trades, not “model positions”. I have no idea what the stuff about “best economic forecasts” means, sounds like more mumbo jumbo Pal-speak.
OK, enough with the arguing about what autotrading is. Let’s get practical about this.
Has any system vendor been contacted by the SEC telling them they must register as an investment advisor?
Has Collective2 been contacted by the SEC telling them they must shut down their service if all system vendors who publish security-related signals are not registered with the SEC?
As with all rules and regulations, the interpretation is defined by the actions of the regulatory authorities, not what anyone thinks the wording means (in the same way as the law is defined by actual court case precendent not what you think it means).
By the way, I am a registered investment advisor in the State of Vermont only (i.e. not with the SEC). If the SEC wants me to register with them in order to provide securities signals on C2 I’m sure they’ll let me know.
Paul King
PMKing Trading LLC
www.pmkingtrading.com
Jim,
In that previous thread I talked about the future, not the present. I’ve no problem with the answer of the SEC, but with the fact that you asked this to the SEC. So I will certainly not repeat that myself. Of course it is anyone’s right to ask questions, but then it is my right to let you know that I’m unhappy with it.
You suggest that you did this to protect us, but did we ask you to do so?
Anyway, whathever the SEC thinks, they won’t have the last word on this because there is also a constitutional right involved. But they can cause a lot of trouble and that’s why I’m unhappy with it.
Jules
Jules
"Has any system vendor been contacted by the SEC telling them they must register as an investment advisor?
Has Collective2 been contacted by the SEC telling them they must shut down their service if all system vendors who publish security-related signals are not registered with the SEC?"
I do not believe the SEC has the resources to search for problems, I think they rely on complaints before they investigate so the lack of contact from the SEC really doesn’t prove anything one way or the other.
Right, and that’s why I don’t like people actively calling the SEC while they actually have no complaint. This can easily be misinterpreted.
I agree that if somebody starts giving financial advice without being registered, the SEC can only find out about it (and take some action) when someone complains.
But, the SEC knows about C2 and has taken no action (as far as I know). If the SEC believed that a public, actively advertised web service violated their rules then they would take action regardless of a lack of complaints.
Again, I have to repeat that for information to be classed as financial advice it has to be specific to an individual’s circumstances (i.e. not a standard published signal to everyone), and to qualify as auto-trading the advisor must have power of attorney, or trading authorization over a client’s trading account, or physical custody of the client’s assets.
This is my belief according to my research. legal advice, taking the Series 65, and due dilligence about the applicable rules and regulations that I operate my financial services business under.
You may have a completely different point-of-view about the ‘validity’ of C2 and how it operates within (or violates) any SEC rules, but that’s fine - do your own due dilligence and don’t use the service if you don’t think it’s legitimate.
Paul King
PMKing Trading LLC
www.pmkingtrading.com
"If the SEC believed that a public, actively advertised web service violated their rules then they would take action regardless of a lack of complaints."
I do not believe the SEC has the resources to go after every violation of rules, even if they aware of it. And with all due respect to MK, C2 just isnt that big yet so I doubt it would be a priority for them to investigate (if they had concerns but no complaints) compared to the many other blatant violations that are constantly occurring. You also didn’t mention timeframe. The fact that the SEC hasn’t done something (yet) is not proof of anything.
"to qualify as auto-trading the advisor must have power of attorney, or trading authorization over a client’s trading account"
Quoting the SEC simply dodges the issues. Does the combination of C2/TB effectively give C2 vendors trading authorization over a clients trading account? You need to define “trading authorization”. When enabled, C2/TB gives the system vendor the ability to execute trades in the subscribers account. The fact that there are a couple of layers of technology involved may cloud the issue but I don’t think its a slam dunk either way until the SEC rules on such arrangements.
I don’t have a strong opinion about this (mostly playing devils advocate here) nor do I really care that much because I’m not a system vendor but I hope that the SEC doesn’t get involved in C2 because it would probably spoil a good thing.
Trading authorization is an actual written contract between the client and an advisor that says that the advisor is being given access and permission to trade in a specific funded account (owned by the client) without written permission for each and every trade the advisor does (i.e. the advisor has authorization to trade in the account though they are the client).
I don’t see any such contract in place when a C2 subscriber decides to send signals directly from a system to which they are subscribed to their brokerage account. The client is choosing to send signals to their account - the system vendor has no part/contract in this action and so this has nothing to do with trading authorization.
Paul
Exactly! Autotrading here just facilitates the entry of orders if a subscriber chooses to use the function, rather than choosing to enter the orders manually from identical ITM or email trade notices.
"Trading authorization is an actual written contract between the client and an advisor that says that the advisor is being given access and permission to trade in a specific funded account (owned by the client) without written permission for each and every trade the advisor does (i.e. the advisor has authorization to trade in the account though they are the client). "
Do you have an cite for this definition of “Trading authorization” or is this just your opinion?
IMO a subscriber doesn’t “send” signals - they receive them from the vendor and forward them to their broker via the TB software. For you to say that “the system vendor has no part/contract in this action” when it is the vendor that initiates the trade strikes me as odd.
