Volcker Rule

Paul Volcker has made himself surprisingly relevant recently as an enemy of both (1) inflation/whatever Paul Krugman might be up to and (2) proprietary trading/whatever Kweku Adoboli might be up to. As for the second category, on Friday I guessed that I was not alone in being confused by the Volcker rule, which would ban “proprietary” trading by big banks while still allowing not-“proprietary” (“flow”? “customer facilitation”? “market making”?) trading. So I was pleased to learn today that the regulators designing the Volcker rule seem to be equally confused:
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  • 16 Sep 2011 at 2:59 PM
  • Banks

Let’s Just Go Ahead And Assume That Greek Letters = Evil

The fact that one lovable rogue in London misplaced UBS’s bonus pool for the year has people talking again about the Volcker rule, which would ban proprietary trading at banks. I still don’t really understand that, and I’m not alone. Here is a thing about the Volcker rule and “Delta desks” (what?):

Yet the definition of what constitutes proprietary trading can be fuzzy. Many on Wall Street consider proprietary trading, or prop trading, to involve only trades made by dedicated traders who are using the bank’s capital and do not have access to client information. The trading done on Delta desks, they contend, is done on behalf of clients.

Those boundaries, however, can blur. A bank may buy a derivative or security from a client in order to make a market, then decide it is worth hanging onto, turning it into a proprietary bet.

The Volcker rule of the Dodd-Frank act is named after Paul A. Volcker, the former Federal Reserve chairman who proposed it. It is intended to prevent American banks from taking on too much risk. The fine print, however, has yet to be worked out, and regulators are debating just how comprehensive to make the definition of proprietary.

This is sort of correct but nicely embodies the conceptual confusion that I suspect lies behind the Volcker rule. Let’s spend four hours talking about it, shall we?
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“They’re totally freaked out about Volcker,” said a Goldman lobbyist who declined to speak on the record for fear of losing the contract. “People are working on that a lot, with agency staff, with lawmakers, you name it.”…”Before the crisis, Goldman was basically non-existent in Washington,” said a former Congressional staffer who now works as a policy analyst at a Wall Street bank. “Post-crisis, Goldman is everywhere.” [Reuters]

The rest of the market thought otherwise but Goldman has another interpretation. Read more »

With the passing of the Dodd-Frank Bill, one pesky thing that banks have had to spent a couple hours getting in line with is the Volcker Rule, and what it means for their proprietary trading desks. Whether to spin them off, send the employees to a farm in the country where they can run around, move them to the basement or just rename the group the ‘troprietary prading’ unit, about which no one will be the wiser, the whole thing has been a bit of a headache. One person who hasn’t lost any sleep over the mandate, however, is Vikram Pandit. Because unlike his counterparts at say, Goldman, who’ve clutched their pearls and felt faint at the thought of a world without prop, Vickles got behind the rule before it was even a twinkle in Volcker’s eye. Read more »

  • 21 Oct 2010 at 10:32 AM

Goldman Prop Team Moves In With Henry Kravis

The Principal Strategies group has a new home starting in January. Read more »

  • 03 Sep 2010 at 1:30 PM

Goldman Sachs Winding Down Principal Strategies Unit

The bank plans to hold off on announcing the wind-down while the 65 to 70 members of the global unit seek new jobs, the people said. Some traders and support staff may get roles within the firm. Earlier plans for most members of the Principal Strategies group, led by Hong Kong-based Morgan Sze, to leave together and form a hedge fund were shelved, people with knowledge of the matter said. Now Sze, 44, may set up a fund with a smaller team focused on Asia, they said. Employees in London and New York are considering different options, the people said. The team’s members in New York, led by Bob Howard, are in talks to join another asset-management firm, according to two people. [Bloomberg]

Nothing’s been decided yet but they’re thinking things over at 200 West, lots and lots a things. Maybe they’ll spin the unit into its own hedge fund. Maybe they’ll move the prop team into the basement and keep them locked in there, like the third Olsen sister no one knows about. Eventually people will forget, until they’re discovered, years later, in a raid by the NYPD. Maybe they’ll do nothing (best place to hide is in plain sight). CNBC’s Kate Kelly reports: Read more »