By 2014, traders at US investment banks could have profit eliminated from their pay

What would happen if traders at investment banks weren't paid on the profit generated by their book and paid only according to a) the fees paid by clients and b) the spread they earn from market making?

This is what's currently on the table in a new draft of the Volcker Rule.

Bloomberg reported this week that a draft of the rule currently being circulated among regulators contains the provision that market-making traders will be paid only according to the, "fees and the spread of the transactions rather than the appreciation or profit from their positions."

Douglas Landy, a partner at Allen & Overy in New York, says, if implemented, the new rule would apply worldwide to US banks from around July 2014.

Whether it will be implemented remains questionable, however. "There's furious lobbying going on," says Landy, who points out that traders would probably try moving to hedge funds if the rule went through.

One credit trader in London says the new rules sound crazily unworkable. "This is just daft," he says. "It might work in a very liquid market where you can instantly get out of positions, but in an illiquid market you need to hedge and to manage your holdings. It's crazy to say people can't be rewarded for doing that effectively.

"There's no incentive," he adds. "Banks will withdraw capital and traders will withdraw themselves. Why would you bother if you were just being paid customer fees?"