Government issued licenses for trading securities are available in a number of offshore jurisdictions. With proper research and selection an individual or corporation can set up a securities trading business in a tax advantaged jurisdiction. With proper planning and advice it is possible to take advantage of the jurisdiction’s asset and privacy protection laws as well.
As with all government issued licenses there are rules and regulations. Although these will vary from location to location here is an overview of the limits and restrictions of an offshore government issued securities trading license.
Limits Regarding the Host Country
A universal limiting factor or doing business offshore is that you may not do business with residents of the host country. Thus you may not engage in securities transactions with or for any resident of the host country although you may be able, with special permission, to do business with banks in the country and with the government itself. Very commonly you will not be allowed to do business in the currency of the host jurisdiction.
Standard Business Procedures and Reporting Requirements
An individual or corporation engaged in a securities business in an offshore jurisdiction will need to follow standard business procedures which may or may not be detailed by pertinent law. For example, the company will need to provide customers with monthly statements.
Typically the company must have and be able to demonstrate financial reserves sufficient to close all customer accounts and pay in full all monies owed. Companies will need to segregate customer funds, physically hold and possess or control excess margin securities carried for customers.
Companies will be restricted from unnecessarily suggesting practices leading to excessive trading or “churning” of customer trading accounts. An addition virtually all government issued offshore securities licenses expressly prohibit a number of practices to include the following:
- Executing unrequested transactions with customers’ funds
- Theft of customers’ funds
- Borrowing of customers’ funds
- Pledging of customers’ funds
Those with offshore securities licenses will be required to disclose all charges to customers for all securities transactions and other services and will not be allowed to discriminate between one client and another.
As with all such operation in all jurisdictions the management will be obliged to report cases of alleged or suspected forgery, fraud, theft, misappropriation of funds and securities or any other questionable action to the proper authorities. The time limit for such reports is typically five business days. Similarly, if the business or any of its employees is named a defendant or respondent in any criminal or regulatory proceeding, or civil action in excess of $25,000, either in the host jurisdiction or elsewhere it must report said information immediately.
Margin Trading Requirements
Any and all margin trading will require a written margin agreement in virtually any offshore government licensed securities business. The company will need to be in physical possession of the signed agreement. A typical minimum margin deposit is $2,000 US.
Markets Allowed and Excluded for License
A government issued offshore securities license will all the individual or company to trade in both organized and over the counter exchanges world wide. Most typically trading in the cash/parallel market will be prohibited. As noted above trading must take place denominated in currency other than that of the host nation.
Trading Practices and Complaint Resolution
In order to maintain an offshore securities license the licensee will need to give precedence to customers’ orders in trading and be able to demonstrate that he or she does so. What this basically means is that all orders and instructions must be transmitted in order of receipt.
Any and all complaints by customers must be addressed promptly and records should be kept as to complaint resolution should any matter come to the attention of the appropriate authorities in the jurisdiction in question.
The company will need to demonstrate on a monthly basis that it is solvent and operating with sufficient capital to satisfy any and all capital requirements. Reports will typically be faxed to the appropriate authority and will include statement of paid up and unimpaired capital, compliance with margin requirements as of the last day of the prior month and a listing of the number, volume, and monetary value of all trades.
In the Event of Insolvency
If the company is unable to pay debts, in bankruptcy proceedings, or is in receivership in the host nation or elsewhere it will automatically be required to cease trading and notify the appropriate authorities.
In the Event of Non Compliance with Rules and Regulations
If an offshore securities company does not provide reports as required by the jurisdiction it will typically lose its license.
Changes in the Nature or Ownership of the Securities Business
Virtually all offshore jurisdictions will require written notice to the proper governing authority of intent to merge or consolidate, transfer assets or liabilities to another party, change name or address, change shareholders, or change its articles of association. Typically offshore authorities will reserve the right to re-evaluate the company’s license in the event of a substantial change in ownership, capital, or rules of incorporation.
Yearly Review and Nature of Products
In most jurisdictions the principles of the offshore securities company will need to meet with governing authorities to review matters pertinent to continued licensing.
In general the expectation in granting a government sponsored license to trade securities is that the products offered by the company will be consistent with products offered by reputable licensed brokers throughout the world. Most commonly such a business may not engage in banking or any business resembling banking with the government licensed securities business. This will include not accepting deposits into accounts from which monies may be withdrawn by check and then using that money to extend loans, make credit extensions, or make investments.
Awareness of Money Laundering and Large Accounts
In virtually all jurisdictions the company will be urged to pay special attention to cash deposits in excess of $10,000 and will not be allowed to have any single account whose value exceeds twenty-five percent of total unimpaired and paid up capital.
Most jurisdictions will discourage the company from issuing bearer shares and will require written company procedures for prevention of money laundering.
In short an individual or corporation set up a securities business in a number of offshore jurisdictions where the operation may well be lower than in their home country. The jurisdiction may well offer tax advantages over the home country. Such a business will have no restriction in the country of jurisdiction from trading in exchanges throughout the world.