I’ve seen some people under the global credit trading desks whose roles are portfolio manager and principal/proprietary trader of single name HY/IG corporate bonds and CDS. Are these true prop desks? I haven’t seen any other trading desks refer to themselves as such. I thought all these died out after Volcker and got spun out into hedge funds?
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Prop trading got replaced as "market making" and the timeline of how long a desk can hold positions before getting hurt from capital charges is tied to how liquid the product is. Different banks put themselves out there in different ways (how aggressively they position) and in which product they extend themselves.
So I don't know what you mean by pure prop trading desk. I'm gonna assume you're talking about pre-2008 financial crisis prop desk. Short answer. No. There is no desk that is dedicated to pure prop trading. BUT that doesn't mean there aren't desk at banks take that's view. When I was on the rates desk, there was a guy who came from a notable hedge fund who was putting up some seriously size on eurodollar contracts (To me, it was seriously size because I came from a significantly smaller firm, not a bank, but to him and the bank, it wasn't?). I asked him what he was doing and he said he was making bets because he was new to the desk and wasn't market making yet and wanted to produce PnL. This was like 4 years ago. So yeah, traders can bet. Obviously you have a risk limit and VaR for a reason. In reality, when you provide liquidity, nothing will be perfectly hedged 100%. You will have some residuals that will either work in your favor or trade against you and that's your job to either take the risk off the books, or somehow hedge it to work in your favor or just keep on the trade because you think who ever you just traded against is wrong.
I understand desks warehouse risk because of illiquidity. It seems like the people on these desk specifically say they are prop and principal trading credit products and CDS indices - like all the people on the desk say that on their LinkedIn profiles. The MD of the desk’s role description says “managing a proprietary corporate bond and credit derivative portfolio”. It doesn’t seem like their mandate is market making but pure prop trading of the bank’s balance sheet which is thought wasn’t allowed.
I recall one guy who was a credit trader on the floor for a long ass time. I talked to him very briefly when I first joined the bank, again four years ago, and I asked him if he prop traded and he said did. So I guess that answers your question. I don't really have answer beyond that as I'm not familiar with credit trading.
Which bank? The credit indices/macro credit desk are still market makers first and foremost; however, they trade some extremely illiquid products (Credit ETF options, Off the run CDX, and CDX tranches), so they inevitably take on more prop views than other desks. XVA desk is another one that can express more prop views.
Not a BB, but TD Securities. I was thinking that since they may deal with market making highly illiquid credit products that they can’t offload their job is more involved in managing a credit portfolio using CDS and IR swaps and stuff rather than more flow driven market making. Hence their job is much more prop trading/portfolio management and they can express views on the counterparties and decide to hedge or not.
There are proper traditional tradings desks still yes, depends on the internal mandate. Some are flow based servicing other areas of the bank, ie syndicate, wealth mgmt, etc etc.
What is the % of prop in commods?
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