The WSJ has revealed the latest developments of tomorrow’s “fluid” Volcker Rule vote on prop trading:
- Volcker Rule Will Bar Compensation Arrangements That Reward Proprietary Trading, Rule Text Says
- Rule Will Exempt Foreign Sovereign Debt From Proprietary Trading Ban, According To Rule Text Reviewed By Wall Street Journal
- Volcker Rule Will Apply To Foreign Banks With Operation In U.S.
- Market Making Language Will Require Banks Provide “Demonstrable” Analysis Of Historical Customer Demand
- Volcker Rule Requires Banks Detail Specific Risk Hedges Designed To Mitigate
- Rule Requires Ongoing Review Of Hedges To Ensure Compliance
- Volcker Rule Will Restrict Banks From Sponsoring Or Making Investments In Most Hedge, Private Equity and Venture Capital Funds
- Rule Considers “Covered Fund” Any Fund That Would Be Investment Company If Not For Investment Company Act Exemptions
Oh, and this pearl:
- VOLCKER RULE TO REQUIRE HEDGES TO “DEMONSTRABLY” REDUCE RISK – risk of lower year end bonuses?
In other words, prop trading itself will not be explicitly barred, just associated compensation (and banks can still buy as much Italian and Spanish bonds for their accounts as they want). Which means banks can engage in as much prop trading as they wish (which courtesy of $2.4 trillion in excess deposits aka excess reserves is a lot) and bang as much VIX closes as they desire, they just need to have trader bonus “arranagements” to be tied to something else. Like make-believe flow trading which can be manipulated to show anything and everything.
Wall Street 1 – Non-FDIC backstopped fair markets 0. Again.