Renewed Threat of Prop Trading Ban Becomes Recruiting Tool For Non-U.S. Banks

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The Volcker Rule to force banks out of proprietary trading and alternative investments is making fresh career waves on Wall Street, after recent events lifted the proposal out of Washington's recycling bin.

A Citigroup proprietary trader who jumped to Nomura last week blamed the pending measure for his decision, according to BusinessWeek:

(Jay) Glasser told his former bosses at Citigroup, which has lost at least 10 proprietary traders this year, that he quit partly because of concern that President Barack Obama's proposed Volcker rule may force U.S. banks to divest or close proprietary-trading units, people with knowledge of the matter said. As a Japanese securities firm, Nomura wouldn't be subject to the rule.

Nomura has been hiring recently after several managers who'd joined the bank through its 2008 purchase of Lehman Brothers' Asian and European businesses left once their pay guarantees expired.

Citi Won't Replace Glasser

Although based in New York, the 53-year old Glasser's specialty is Japanese interest-rate and currency derivatives. He reportedly generated more than $25 million in trading revenue for Citi in both 2007 and 2008, then lost $20 million in 2009. Citi has no plans to replace him, a spokeswoman told the magazine.

Eight employees of a Citi equity trading unit jumped to hedge fund Moore Capital earlier this year. That group's leader, Matt Carpenter, reportedly cited concern "the bank might have to stop devoting capital to proprietary trading."

The so-called Volcker Rule, named for Reagan-era Fed Chairman Paul Volcker who emerged last year as one of President Obama's top economic advisers, was introduced this Jan. 21 at a White House press conference. After an early flurry of reports of individual traders jumping from bank-owned hedge funds and prop desks to independent shops, predictions of an imminent stampede gave way to perceptions that reform proponents intended the proposed ban as a bargaining chip, to be ditched in return for other provisions.

In recent weeks, however, the idea of a bank trading ban has returned to the forefront, thanks in part to a fresh surge of anti-Wall Street sentiment sparked by the SEC's April 16 fraud lawsuit against Goldman Sachs. Citi's own chief executive Vikram Pandit came close to publicly endorsing the proposal when he wrote in an April 23 letter to Obama that "I believe banks should not speculate with their capital." (The U.S. government still owns 27 percent of Citi's shares as a result of a 2008 bailout.)

Glasser, who tendered his resignation to Citi in February, joined in 2007 from hedge fund Caxton Associates. Citing an unnamed source close to the bank, BusinessWeek says proprietary trading excluding the Phibro commodities business accounted for $1.6 billion or about 2 percent of Citi's overall revenue in 2009.