Prop Trading Moves Down the Hall at JPMorgan

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JPMorgan is moving its proprietary trading unit out of its investment banking division and into its asset management division.

The Journal reports on the current state of affairs:

"The move comes as banks adjust to the Volcker Rule, which they will have to comply with by July 2014. It is designed to curb excessive risk-taking at banks and limit their hedge-fund and private-equity investments. J.P. Morgan will look to raise money externally for the hedge fund in order to comply with the Dodd-Frank Act. Banks have taken a variety of approaches to adjust to a new paradigm, post-Volcker, with some shutting down their prop trading businesses altogether, and others choosing to move the teams into their asset management division. A raft of new launches from former prop traders is expected to hit the marketplace this year."

Yesterday, I wrote about the departure of Richard Ruzika—a proprietary trader, of sorts—from Goldman Sachs

I wondered aloud about whether Mr. Ruzika might continue his relationship with Goldman in a new form; and about whether Ruzika's "retirement" might be related to Volcker Rule changes.

While the story at JPMorgan is a different one—an organizational restructuring rather than a departure—the same issues seem to be at play.

And, as with Goldman , there are unanswered questions at JPMorgan.

For example, the Journal article reports "Plans have not been formalized but it is expected that the capital will be divided across three areas, emerging markets, credit, and equities, with a separate fund launched for each."

And who will lead those funds?

According to the article "...Fahad Roumani, a managing director in credit proprietary trading, will run credit and Deepak Gulati, head of global equity proprietary trading, will be in charge of equities."

So prop traders will just get shifted—with the same leadership—to the asset management side of the shop.

Critically, The Wall Street Journal article does not directly address what percentage of firm capital will be at risk during the fund's ongoing operations, after the initial transition is complete —but it does state that the funds are 'expected to be seeded with about $2 billion' of JP Morgan capital.

The spirit of the Volcker Rule is broader and more radical than the redrawing of boxes on an org chart.

Meaningful improvements in risk management—such as changes to transparency, leverage ratios, and hedging requirements—are harder to implement than moving desks from one floor of an office building to another.


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