Legal Requirements for Trading Other People's Brokerage Accounts: A Comprehensive Guide
The legality of trading other people's brokerage accounts depends on the laws of your country. Therefore, it is essential to consult an attorney in your jurisdiction to fully understand the legal requirements and risks involved.
General Principles and Regulations
Trading other people's brokerage accounts without their consent is generally illegal and can lead to legal consequences. In many countries, including the United States, you must have explicit, written permission from the account holder to manage their account.
For instance, in the United States, you would need written permission from the other person before trading. This permission is often essential even when you know the account holder or if you have a familial or close friendship relationship with them.
To operate as a professional trader handling others' brokerage accounts, you may have to meet additional requirements such as registration as an investment advisor or broker. This step involves passing a series of exams and meeting minimum qualifications.
Legal Requirements for Non-Compensated Trading
If you plan to trade other people's brokerage accounts without any compensation (e.g., for family members or close friends), you would typically need to set up a limited power of attorney. This provides you with the legal authority to trade within their account. A limited power of attorney can be established through a legal agreement or a specific account designation.
Legal Requirements for Compensated Trading
Trading others' brokerage accounts as a compensated professional is a more complex process. This involves becoming an investment professional by meeting minimum qualifications and registering with regulatory bodies such as the Securities and Exchange Commission (SEC).
Minimum Qualifications for Becoming an Investment Professional
To qualify as an investment professional, you must:
Have a professional qualification or a post-graduate degree or diploma in finance, accountancy, business management, commerce, economics, capital markets, banking, insurance, or actuarial science. Hold a certification in financial planning, fund management, asset management, or investment advisory services from a recognized institution such as NISM, FPSB, or a recognized stock exchange in India. Meet net tangible asset requirements: Rs. 1 lakh for individuals and partnership firms; Rs. 25 lakhs for other entities.Alternatively, you can pass the Certified Financial Planner (CFP) examination provided by the Financial Planning Standards Board India (FPSB).
Necessary Government Registries and Examinations
Investment professionals must register with the Securities and Exchange Board of India (SEBI) and pass the following examinations from the National Institute of Securities Markets (NISM):
NISM – Series X-A: Investment Adviser Level-1 Certification Examination NISM – Series X-B: Investment Adviser Level-2 Certification Examination CFP examination of FPSB (Financial Planning Standards Board India)Registration and Application Fees:
Individuals and partnership firms: Apply for the SEBI registration and pay an application fee of Rs. 5000/-. Individuals and partnership firms: Once approved, pay a registration fee of Rs. 10000. Other entities: Apply for the SEBI registration and pay an application fee of Rs. 25000. Once approved, pay a registration fee of Rs. 5 lakhs.For more detailed information, visit the official National Institute of Securities Markets (NISM) website:
Conclusion
Trading other people's brokerage accounts legally and professionally requires adherence to strict regulations and obtaining appropriate certifications. It is crucial to consult an attorney and follow the detailed governmental guidelines to avoid any legal troubles.
Understanding the legal landscape and regulatory requirements can help you navigate the complexities and ensure that you meet all the necessary qualifications and registrations to trade other people's brokerage accounts safely and legally.