Friday, June 18, 2010

Prop trading - "Volcker Rules"

Prop trading - "Volcker Rules" - recall that the NYT wrote an article this Tues discussing how banks have all but given up on trying to fight this provision from making it into the final reconciled bill. It seems like the bulk of the "Levin/Merkley" amendment language (this was unveiled months ago but wasn’t actually included in the final Senate bill that passed in May) could make it into the final bill. The main component of the legislation concerns "proprietary trading", although there is still a lot of specifics that needs to be fleshed out. One key part of the "Rules" that has to be resolved concerns banks/brokers and their involvement in hedge funds - banks are pushing to have HF "sponsorships" exempted from the rules (which would permit banks from continuing to remain investors in funds), although B Frank says he isn't necessarily in favor of this. Another piece of the "Volcker Rules" could impact bank consolidation as they prevent any institution from having liabilities that exceed 10% of total US liabilities. Impact on the stocks? Like the Lincoln compromise, it has been in the press now for at least ~1 week that the Levin/Merkley language on "Volcker" could become part of the final bill. For the banks, the biggest impact will prob. be on clarity around the HF/PE issue (i.e. can large banks, like Citi, BoA, etc, "sponsor" hedge or PE funds or will all ties have to be cut).

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