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Don't know if this questions belongs here but I'd figure this place is the closest in relevance.

Basically, I want to build an investing application that is open for the public to use. Many brokerages offer APIs that allow you to build software applications that can trade through their system. I want to setup an account with one of these brokers, and use that account to execute trades for people that signup and use my app.

Is this legal? Obviously the broker will have their own rules and regulations, but from an SEC compliance stand point, can I have people signup, deposit money with me, and purchase stocks through my account with a broker?

Thanks

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    Why wouldn't they go directly to the broker? – Pete B. Jun 6 at 14:31
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    Why would anyone with an ounce of sense deposit money with you? At best, if any of this is legit and you had appropriate licenses, you could have discretionary approval to make trades in their account(s). – Bob Baerker Jun 6 at 14:46
  • The application wouldn't make any trades for users without them explicitly selecting which securities they want to buy. So I'm assuming since the application won't be making any financial decisions on behave of the users I wouldn't need any licenses like a CFA or something right? There are features I'm building into the application that would make it different from directly dealing with a broker. – bobbbbby Jun 6 at 14:57
  • I think you would be better served implementing an MVP, and pitching it to various brokers. Most brokers have all kinds of add on features and use those features to capture users from other brokers. If it is truly innovative, this could be an easy sell. – Pete B. Jun 6 at 16:06
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Re: "can I have people signup, deposit money with me, and purchase stocks through my account ... ?"

Short answer: No, that wouldn't be legal.

Disclaimer: IANAL.

But anyway, perhaps refer to SEC.gov - Guide to Broker-Dealer Registration. Section II A defines a broker as "any person engaged in the business of effecting transactions in securities for the account of others". In your idea, as it is stated, you would be a broker and would need to register as a broker. I don't think passing through to a broker would get around that.

But let's say you do register as a broker. The next problem with what you've laid out is that you can't purchase stocks for other people through your account. See, for instance, SEC.gov - Investor Bulletin: Custody of Your Investment Assets. Here's a relevant part, with my emphasis:

First, with certain limited exceptions, an investment adviser is required to maintain client funds and securities with a “qualified custodian.” Qualified custodians can be banks, registered broker-dealers, futures commission merchants, or certain foreign entities. A qualified custodian either maintains client funds and securities in a separate account for each client under that client’s name, or in accounts that contain only client funds and securities under the name of the investment adviser as agent or trustee for the clients.

i.e. Wherever you would hold assets on behalf of clients who use your trading/investing app, it couldn't be your account — it would need to be their account, with controls in place to ensure that you couldn't abscond with client funds to a non-extradition destination (tropical or otherwise).

Ultimately you can _kind of_ do what you're asking. Robo-advisors are examples that come to mind: many have apps for clients, and robo-advisors execute trades on behalf of clients. As with those services, you'd need to follow established regulations, and the two examples mentioned above are just the tip of the iceberg. I'd wager that building your app would be the trivial part of any such undertaking. Maybe find a partner who is already a broker with access to custodian accounts? And a good lawyer.

  • Ahh okay yeah that makes sense, thanks for those links outlining the relevant SEC info. Your right the tech is probably the easiest part of this whole thing, navigating the swamp of financial regulations seems like a mountain of a task. I was hoping since the app doesn't buy securities on behalf of a user (the user has to explicitly select which securities they want to buy), then I wouldn't need any special licenses like a CFA. But it seems that dealing with a broker requires a one-to-one mapping of accounts with users. Thanks for clearing that up! – bobbbbby Jun 6 at 16:09
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    The two main entities to deal with are the SEC, and the SRO (Self Regulatory Organization) that the SEC delegates a lot of the work to. Most exchanges are SROs but most brokerage firms are also regulated by FINRA (the SRO of NASDAQ and the NYSE). Some brokers offer 'white-label' services but you still have to be adequately registered and meet the various rules such as net-capital requirements. A lawyer familiar with broker dealer operations should be able to help you. – xirt Jun 6 at 17:28

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