Investment Banks Move Prop Traders to New Desks to Dodge Regulations (GS, C, MS)

As the financial regulation bill nears its final Senate vote, large banks are scrambling to redefine their proprietary traders, according to the WSJ.

The Volcker rule, named for former Fed chief Paul Volcker, was passed by the House last week as a part of the bill. The rule bans proprietary trading at banks "unless the trades are meant to serve near-term client demand or reduce risk."

Large banks, including Citi (NYSE: C) are moving their prop traders to client desks, where they will trade with clients' money instead of house money. Or pretend to, at least. It's unclear which kinds of trades fall under the exemptions.

Many firms have already downsized their prop trading divisions., but Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS) still have sizable prop trading desks that must be divested or discontinued under the Volcker rule.

Hedge funds started by former bank employees are also affected by the new regulations. The bill limits the investment a bank can make in a spin-out fund.

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