Volcker Rule and market making
Volcker Rule aims to ban proprietary trading at banks but they can still do market making. However, market making is a form of prop trading. Does that mean it's not really banning prop trading?
Yes, they make a profit through market making, and one could say that this is a form of prop trading in that they take positions to profit themselves, but I think the distinction that will be drawn if the rule sticks around is that a position has to have some sort of intent to close to serve the solicited need of a counterparty, versus the investment bank initiating and closing a position independently from that process.
I think it'll have to come down to intent, ultimately, which always leaves some wriggle room.
^spot on. It amazing how many ppl on this forum think that a trading position at a bank has to be prop trading...my interpretation of the volcker rule is that you cant have mini buy-side hedge funds acting on the behalf of the bank (this is what a prop trader is).
First of all, there is no Volcker Rule yet. It's just a proposal. (An aside: I'd be surprised if anything with bite actually ends up as law.)
Prop trading is distinct from market making, though they are both forms of risk taking.
Prop trading is not distinct from market making in most product areas, take OTC options for example... it's basically impossible to differentiate. Not to say that they won't try...
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