WHAT IS A Non-Member Trader

Non-member trader is a person or entity that does not have trading privileges or an exchange membership, but who trades through a current member.

BREAKING DOWN Non-Member Trader

Non-member traders do not have the same rights as member traders, which include the ability to execute trades on an exchange and authorization to have contracts under their name.

Each exchange has its own specific set of requirements potential members must meet. For example, the New York Stock (NYSE) has strict requirements for members, and only allows a limited number of prospective members to buy seats and earn the right to trade. Non-member traders might gain access through current members for speculation purposes or to hedge through derivatives to reduce risk. Some non-member traders could be subject to certain margin requirements when placing trades.

Brokerage firms that allow non-member traders and investors to execute trades at exchanges might also solicit and accept orders to buy or sell futures contracts, options on futures or retail off-exchange forex contracts.

Membership With the New York Stock Exchange

Owning a seat on the New York Stock Exchange enables a person to trade on the floor, either as an agent for someone else, in the case of a floor broker, or for one’s own personal account as a floor trader.

Prices for seats on the exchange are determined by supply and demand, and have varied widely in the past ranging from $4,000 to more than $2,500,000. In addition to being able to afford the seat, a trader or broker must also pass a stringent review process and maintain compliance with the ethics and codes of conduct required by both the NYSE and the governmental regulators that review members.

Membership on the NYSE is available to registered and new U.S. based broker-dealers who obtain membership with a self-regulatory organization (SRO) and have an established connection to a clearing firm. An SRO refers to a non-governmental organization that has the power to create and enforce industry regulations and standards.

Broker-dealers interested in obtaining NYSE membership must complete the American Trading Permit (ATP) Application and Master User Agreement. Trading rights are granted through American Trading Permits (ATPs). These permits entitle holders of ATPs to trade on the trading facilities of the NYSE, including the electronic platform and the physical trading floor. The NYSE American platform provides five types of market participants, including specialists, floor market makers, remote market makers, agency floor brokers, and order flow providers. Individual investors are not eligible for membership on the NYSE.