Has Goldman Sachs found a loophole to Volcker Rule?
We've said all along that there's a fine line between proprietary trading (proprietary trading news) and market making, and therein lies the making of a loophole in the Volcker Rule. According to Fox Business, Goldman Sachs(NYSE: GS) has already moved about half of its proprietary stock-trading operations into its asset management division, where these traders can talk to Goldman clients and then place their own bets with house money. These bets, as long as they are labeled customer-related, are not classified as proprietary.
"By having the traders work in asset management, where they will take market positions while dealing with clients, Goldman believes it can meet the rule's mandates, avoid large-scale layoffs and preserve some of the same risk taking that has earned it enormous profits. This will likely be disconcerting to some regulators.
It's not a perfect loophole to be sure. One issue is whether this arrangement will sit well with prop traders themselves, a rascally bunch. How will they take having to live a sham? And would it be wise for Goldman to subject clients to sham discussions with prop traders? Would clients feel good knowing that anything of value they say might be used immediately by a Goldman prop trader?
There could really be an appearance of front-running. So I am not exactly sure how it will work. But you can bet Goldman Sachs and other firms are doing everything they can to find ways to retain prop trading. Some traders, if they can handle it, just might end up at internal hedge funds.
- here's the article