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Volcker Rule Details Revealed: Compensation For Prop Trading Will Be Barred... Just Not Prop Trading Itself

Tyler Durden's picture


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.


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Mon, 12/09/2013 - 18:06 | Link to Comment Dewey Cheatum Howe
Dewey Cheatum Howe's picture

Person A: Corporations own the government! (Excited, hysterical tone)

Person B: They need to be regulated.

Person A: By whom?

Person B: The government! (Excited, hysterical tone)

Regulation and rules are a fucking joke as long as this is allowed to persist.

Mon, 12/09/2013 - 18:06 | Link to Comment jcaz
jcaz's picture

...And thus- like Volker- is 30 yrs out of date and impotent.....  Perfect.

Mon, 12/09/2013 - 18:44 | Link to Comment YC2
YC2's picture

Wow poor guy has his name on this limp-dicked regulation.  He must be embarrassed. Always seemed like "one of the good ones".


That, said, Id prefer taking away a corporate safety net to any regulatory fix.  A girls gotta dream...

Mon, 12/09/2013 - 19:22 | Link to Comment phoolish
phoolish's picture

Simple.  Rehypothecate the profits through the city and ignore it.


Mon, 12/09/2013 - 18:08 | Link to Comment Rainman
Rainman's picture

Lemme guess.....Banksters will squeal like pigs to demonstrate their outrage < as nothing changes >

Mon, 12/09/2013 - 18:08 | Link to Comment miker
miker's picture

They have to allow foreign sovereign debt to be played; how else are they going to keep this house of cards together?

Mon, 12/09/2013 - 18:08 | Link to Comment zorba THE GREEK
zorba THE GREEK's picture

I'm shocked....I thought it was supposed to protect us from this type of speculation by banks

Mon, 12/09/2013 - 18:10 | Link to Comment buzzsaw99
buzzsaw99's picture

:shocked expression:

Mon, 12/09/2013 - 19:15 | Link to Comment Possible Impact
Possible Impact's picture

Remember: It's not the Volts, it's the Amps that will get you!

Mon, 12/09/2013 - 18:15 | Link to Comment Chupacabra-322
Chupacabra-322's picture

Smoked mirrors, deception & Illusion once again from:

The Global Criminal Oligarch Cabal Bankster Intelligence Crime Syndice.

Mon, 12/09/2013 - 18:18 | Link to Comment CounterPartyVice
CounterPartyVice's picture

It's not prop trading, the computer algorithm did it! I didn't touch anything. It's all these models that are in charge. Who took the blame for 2008, remember?

Mon, 12/09/2013 - 18:19 | Link to Comment Al Huxley
Al Huxley's picture

WOW!  Didn't see that coming!  Who would have expected that the banks would write legislation that impacts them in absolutely no way whatsoever?

Mon, 12/09/2013 - 20:18 | Link to Comment OneTinSoldier66
OneTinSoldier66's picture

We have to pass the Volker rule to, uhh, find out what is in it.

Tue, 12/10/2013 - 04:01 | Link to Comment hidingfromhelis
hidingfromhelis's picture

Wonder how that conversation went.  "Hey, let's write up something that sounds like a rule but doesn't constrain us one damn bit.  Good one!  You do God's work better than anyone else.  It will even make our semi-elected shills look like they're taking a stand in support of the little people."

Mon, 12/09/2013 - 18:25 | Link to Comment ebworthen
ebworthen's picture

No rules or laws shall get in the way of destroying the middle class.

Don't forget to match your 401K every month.

Wall Street thanks you.

Mon, 12/09/2013 - 18:25 | Link to Comment reload
reload's picture

You almost make it sound like the banks just got a green light to ratchet up the looting.

Mon, 12/09/2013 - 18:34 | Link to Comment Bennie Noakes
Bennie Noakes's picture

Bait-and-switch. The toothless SEC and other corrupt government regulatory agencies will implement a toothless rule version of the Volker rule so they can pretend to be protecting the public interest.

Mon, 12/09/2013 - 18:36 | Link to Comment theprofromdover
theprofromdover's picture

Well I hope someone sticks a mike under Mr Volker's nose, and asks him his opinion of the rule which carries his name.

It would be nice to think that he came right out and said what he really thinks -and damn the torpedoes.

Mon, 12/09/2013 - 18:38 | Link to Comment philosophers bone
philosophers bone's picture

Give the fast food workers $15 / hour to do the prop trading.  Expedite the inevitable collapse and make Obama and minimum wage earners happy.

Mon, 12/09/2013 - 18:41 | Link to Comment moneybots
moneybots's picture

So in other words, the Volker Rule is just another financial fraud?

Mon, 12/09/2013 - 19:01 | Link to Comment Papasmurf
Papasmurf's picture

If Volker is still alive, he can find his testicles in his purse.

Mon, 12/09/2013 - 18:41 | Link to Comment 0b1knob
0b1knob's picture

"Rule Will Exempt Foreign Sovereign Debt From Proprietary..."

Wasn't it the foreign sovereign debt positions that brought down MF Global?

Mon, 12/09/2013 - 18:47 | Link to Comment YC2
YC2's picture

Yes (in case that wasnt rhetorical)


I wonder if prop desks can go both ways legally, or if its long-only exposure.  Shorts only in a spread?

Mon, 12/09/2013 - 18:43 | Link to Comment Papasmurf
Papasmurf's picture

It's good to see they are finally reining in these banks.  /s

Mon, 12/09/2013 - 18:49 | Link to Comment y3maxx
y3maxx's picture

...As President, I'm here to tell my fellow Americans, "As Prop Trading Has Crossed the Red Line, I will be sending in Our Armed Forces, just like I did when Syria Crossed the Red Line a few months back".

Mon, 12/09/2013 - 19:00 | Link to Comment RaceToTheBottom
RaceToTheBottom's picture

So as long as you don't get paid for committing a crime there is no crime....

Mon, 12/09/2013 - 19:27 | Link to Comment Catullus
Catullus's picture

Is anyone going to ever get into this demonstrable argument? Like the SEC is going to say it doesn't and then what? You appeal to an administrative law judge who doesn't know his ass from his elbow. The judge is going to look at this and roll their eyes and kick it back to the SEC and say "you need to give more guidance" and then everyone will claim the questionable prop trades were done before the new guidance. All is forgiven. Then claim the new guidance is not clear.

Mon, 12/09/2013 - 20:54 | Link to Comment Clowns on Acid
Clowns on Acid's picture

They named it the "Volcker Rule" to lend credibility to the rule. Of course it was / is written to allow "prop" trading.

Funny how before Clinton / Rubin / Weill conspired to repeal Glass Steagal, banks were prop trading already. It's just that with the repeal of Glass Steagal they could re-hypothecate more, and they takelarer and larger positions across more asset classes.

So, the issue is NOT about prop trading it is about the use of customer deposits to rehypothcate into larger positions and more asset groups. 

Bring back Glass Steagal - but of course Obumble would never do that regardless of how many Indian headresses and artifacts Elizabeth Warren gives him.

Mon, 12/09/2013 - 22:15 | Link to Comment Doubleth1nker
Doubleth1nker's picture

I doubt the SEC will even bother to enforce this emasculated Volker rule anyway.  They don't prosecute anyone anymore - they just collect their government checks while surfing porn and playing CoD until they can get their own cushy wall street "job"

Mon, 12/09/2013 - 23:25 | Link to Comment arrogantchef
arrogantchef's picture

Volker, Greenspan, Bernanke, Yellen.... is it just me or is there a pattern here?


Tue, 12/10/2013 - 02:56 | Link to Comment YHC-FTSE
YHC-FTSE's picture

So, nothing has changed then. I thought they'd just change the lingo and voil√†!  They have.

"Demonstrable analysis and detail specific risk hedges". Easily covered with an unreadable 1000 page report with lots of graphs penned (cut and pasted) by a back office nerd. 

"Bar compensation arrangements that reward proprietary trading" . Arguments ensue that it isn't compensation but profit as a consequence of trade, it isn't an arrangement but a procedure,  it isn't reward per se, but leftovers from the prop trade. 

If I can think of ways to get around the new wording in the Volker rule in less than 5mins,  the armies of lawyers and bankers are going to have no problems with it. It's a joke. 

Tue, 12/10/2013 - 05:47 | Link to Comment falak pema
falak pema's picture

Now we know for sure that the AMerican "market" economy has more in common with that of China than just buying cheap stuff. It goes deep the similarity. 

The age of neo feudal city "republics" is upon us : islands of wealth in a nation of misery. 

Welcome to the new age of neofeudalism that Rockafella dreamt of. 

"Our money controls all and we buy your labour for nothing. And you should thank us for carrying that torch!"

Tue, 12/10/2013 - 06:53 | Link to Comment justsayin2u
justsayin2u's picture

So how does all this end TBTF?  Of all the crony-capitalist bananna republics out there only the UK would appear to beat us.  The Obamanation beat goes on...

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