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A member firm is a brokerage firm with at least one officer who holds membership in a major stock exchange or clearing house. They have broader trading powers and can execute orders for clients and their own personal investment portfolio. Becoming a member requires purchasing a seat on the trading floor, costing over US$1 million. Allied members have a connection through another officer and enjoy benefits depending on exchange regulations.
Also known as a clearing member, a member firm is a brokerage firm that has at least one officer who holds membership in a major stock exchange, such as the New York Stock Exchange (NYSE). This status is also granted to any broker or intermediary where one of the company’s officers is a member of a clearing house or some other type of business that conducts business on a stock exchange and is classified as self-regulatory. Typically, a member firm has broader trading powers on the trading floor than other agents, making it easier to execute orders on behalf of clients.
Within the structure of a member firm, some individuals may also be considered allied members. This designation is extended to company officers who do not have direct membership in a major stock exchange, but have a connection through the courtesy of another officer who is a member of the stock exchange. Allied Members also enjoy a number of benefits associated with this designation, including the opportunity to handle certain types of transactions on behalf of clients and the firm. The exact scope of permission provided to an allied member depends on the guidelines and regulations put in place by the exchange in question.
Becoming a member of the company requires a significant level of commitment to the exchange. Typically, you need to purchase what is called a seat on the trading floor. The cost of the purchase will vary from exchange to exchange, generally requiring more than US$1 million. For larger companies, this cost is usually offset by the ability to conduct real-time floor trades, which in turn increases the fees and commissions charged to customers.
The officer of a member firm who holds that stock on the exchange will often use privileges to execute orders for clients, but he also has the ability to use that presence as a means to execute orders for his own individual investment account. Most exchanges place some limits on trading for a personal account, which in turn helps minimize the possibility of inside trading occurring. As long as trading is conducted in accordance with current government trading regulations and stock exchange standards, the member firm officer can execute orders for both clients and their own personal investment portfolio.
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