How the Volcker Rule could shift prop trading jobs from the U.S. to London

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When it comes to possible job elimination because of the Volcker Rule, Wall Street's loss could be London's gain, according to Douglas Landy, a solicitor at Allen & Overy in New York, who looked at yesterday's draft copy of the Volcker Rule and implied London might be a beneficiary.

Writing in the New York Times, Landy points out that the draft Rule still allows proprietary trading as long as it's "done solely outside of the United States" and doesn't involve a U.S. company or its subsidiaries.

At the same time, Landy points out that the Rule will apply to any trade "directly involving" someone in the U.S. (even if they work for a non-U.S. bank) and that in order for a trade to be exempt, it must also be "executed wholly" outside the U.S. The implication? Non-U.S. banks which still have proprietary trading operations in New York will move both the traders and the back office staff associated with those trades elsewhere. That place could be London. It could also be Asia.

Brad Hintz, Senior Analyst at Bernstein Research, says that if implemented, the Volcker Rule will have a very negative impact on the business models of fixed income trading for Wall Street brokers. Until last week, he says the Street had anticipated that the proprietary trading ban of Volcker would constrain the non-client facing trading businesses but wouldn't impact its core market making activities. Hintz calls the proposal's limitations on market making activities are a surprise.

Hintz notes that the key surprise is that a draft of the Volcker Rule he's seen appear to ban "flow trading" in non-exempt portions of the fixed income trading business.

Meanwhile, according to Bloomberg, the Volcker Rule may cut fixed-income revenue by 25 percent.

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