Volcker rule - Will it apply to prop shops and HF?
will the rule apply to prop shops and hedge funds
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The point of the Volcker Rule is that it prevents banks from participating in prop trading, and from creating subsidiaries to do as much.
The SEC doesn't care if you give your money to a HF or Prop shop; it is not the activity of trading that is problematic. The rule is supposed to prevent banks from effectively gambling with depositor's money, or, more relevantly, borrowing money to speculate in the markets.
The Volcker Rule applies to any entity that has FDIC insurance. It doesn't really have much to say in reference to Hedgefunds and the like. The Private Fund Investment Advisers Registration Act of 2010 is what deals with the area in question. It pretty much forces HF's to disclose the secret sauce formula. If a fund doesn't qualify as a "Family Fund", which is what George Soros is now, or managing under $150m in assets...You have to disclose investor names, significant market positions, submit to often and random audits, and much more. Like mentioned, Soros gave all the money in his fund back to investors outside of his family so he wouldn't have to register and disclose what he was doing.
There has been a lot of chatter about HF's use of derivatives and other products. I don't think any solid legislative pieces are drafted as of yet, but I would be willing to bet there will be as more ex-bank traders leave and setup shop as a HF. We all remember LTCM I am sure....
then non banks will have a huge advantage. Time for an independent BB.
Naw. Foreign banks operating outside of US are not subject to Volcker rule, such as UBS HK, DB London.
OP, the rule does not apply to prop shop or hedge funds.
Not true.
That actually is true. If you are operating out of a foreign entity AND are not a subsidiary of a US company AND the trade party is not resident to the US, then are exempt from the regulation.
So for simplified example: JPM NYC, HK, LON - Volcker Rule Applies DB NYC - Volcker Rule Applies DB LON, HK - Not applicable
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