Possible Volcker Rule repeal and the future of trading?

What do you think will happen if most or all of Volcker Rule is repealed as hinted at by the Trump administration? There are already some prominent traders moving back to large banks after leaving hedge funds amidst rumors about Volcker rule either being re-written or repealed. If banks are allowed to bring prop trading back into full swing, would trading be a good industry to get into again? Or would it still be run by quants, programmers and algorithms albeit more of them? Would love to hear some thoughts on this, thanks.

 

I don't think this was a primary talking point throughout his campaign...

To my understanding, the following are issues he NEEDS to deliver on to satisfy his base for reelection (no particular order): 1. immigration 2. healthcare 3. trade agreements

not sure trump republicans give much thought to Dodd Frank and Volcker rule

 

For the most part imo, the binding regulatory constraint post Volcker 2.0 (and assumption of compliance) isn't the Volcker rule anymore. Within reason, traders can take some prop risk, as long as its mixed into a market making operation (or is in a Volcker exempt product). The real problem are that compared with precrisis, capital requirements are much higher, so the minimum return threshold for prop trading (or even holding inventory as part of market making) to make sense from a roe perspective is much higher. As a result, corporate bond inventories are nowhere like they used to be, and during 2020, until SLR was temporarily waived, banks were limited in their capacity to expand their balance sheet when buying bonds was a license to print money. This is especially punitive for stuff like investment grade cash bonds, which is much more balance sheet intensive in a way that really punishes holding inventory, resulting in more inventory being held by nonbanks, while banks move risktaking to stuff with better regulatory treatment (derivatives, etfs, rates, mortgages, etc.) or stuff like high yield/distressed where the profits are high enough that you can get a decent ROE.

 

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