Financial Reform Bill and S&T

<p>How would the Volcker rule affect s&t? Would it mean fewer trading jobs and a lower salary? Would it hurt all types of trading? Would it hurt trading at non-BBs-like prop shops and other trading firms? Would non-banks start to hire more people to do trading?</p>

<p>Tax on all trades, or proprietary trading?</p>

<p>I believe it would just be prop trading. But doesn’t prop trading involve all types of trading?</p>

<p>Oh yea, proprietary trading. Good! It shouldn’t effect trading jobs. The Hedge fund, private equity, other alternative investment divisions will just be divested. Spun off subsidiaries, or bought by non-commercial banks and other funds.</p>

<ul>
<li>Seriously, there are so many proposals being slung around. I really couldn’t remember what you were talking about.`Tax on trades was a legitimate proposal. For some reason I was thinking about VAT which has nothing to do with trading other than more expensive coffee and Red Bull, or increasing variable costs of trading.</li>
</ul>

<p>Why wouldn’t it affect trading jobs? A lot of capital comes from those parts of banks, so wouldn’t it have some effects on trading? People at WSOasis don’t seem too happy: [Financial</a> reform bill will destroy big banks | WallStreetOasis.com](<a href=“http://www.wallstreetoasis.com/forums/financial-reform-bill-will-destroy-big-banks]Financial”>Financial reform bill will destroy big banks | Wall Street Oasis). Would this not have an effect on something like energy trading?</p>

<p>In Philly there is a sugar tax proposal which will probably negatively effect trading. $.02/oz Caffeine is good for productivity.</p>

<p>Depends on when VAT is collected and what’s being traded ( Commodities or derivatives), and why (speculation, or corporate finance treasury operations).</p>

<p>I suspect VAT is collected on products that are delivered.</p>

<p>I am actually happy about BB banks losing this business. It’s really targeting BB banks with commercial banking operations. Those institutions have a competitive advantage over non commercial banks. That, and commercial banks risk loosing their mandated reserves in risky speculative trading activities. Insurance companies probably should be included in this too.</p>

<p>I won’t effect trading jobs because the traders will work for the companies that buy the divested divisions from the banks. Unless no one wants to buy the divisions. Well in that case those traders were probably going to loose their jobs anyway, Volcker or not. Lack of willing buyers implies lack of value.</p>

<p>I don’t know much about prop trading, but isn’t it their cash cow? Will other firms be able to do prop trading?</p>

<p>Depends on the firm, but what you hear of as S&T won’t be hit as much as the Proprietary Trading Desks (Internal HFs).</p>

<p>I thought Prop desks traded a bit of everything. Am I wrong?</p>

<p>No, you’re not understanding the distinction. S&T means Flow Traders, otherwise known as market makers, who are dealers. They are allowed to take proprietary positions, but they are not what you would consider “Prop Traders.”</p>

<p>Prop traders work at internal hedge funds and have to sit in bubbles because of the conflict of interest with clients of the firm. They might do single asset or multi-asset trading.</p>

<p>As far as I understand, the legislation is almost exclusively targeting Prop traders and not Flow Traders (S&T).</p>

<p>I would imagine the passing of this legislation would cause banks to divest or spin-off their prop desks into separate funds, but its impossible to know the impact until we know what exactly will be passed.</p>

<p>So do flow traders deal with money from customers and prop traders use the bank’s money?</p>

<p>Well, that’s where it’s murky. Prop traders purely trade with the firms capital.</p>

<p>Flow traders really do much of the same because they often keep inventory of assets (ie things they think clients will want). They essentially give clients prices (ie make markets) and act as a counterparty to that transaction. For example, if a client BUYS 500mm EUR/USD, then the desk SELLS 500mm EUR/USD. It is possible that if they don’t have a Long position already that they are essentially Short since they owe it to the client. The traders have discretion as to whether to keep that risk (stay short because they think it will go down) or immediately go into the market and Buy to cover. This is a rather simplistic example, but it gets more interesting when you’re dealing with derivatives, and trader decides whether he wants to keep his delta, vega, gamma, etc. positions or hedge them. In essence, the decision to hedge or not in reality is risking the firms capital.</p>

<p>Flow desks can also decide whether to take outright prop bets (ie they feel something is under/overvalued or put on an arb trade) and they are risking the firms capital with this. </p>

<p>So Flow desks do take Prop positions as part of their business, but Prop desks ONLY take Prop positions.</p>

<p>Thanks. It makes sense now.</p>

<p>No problem, the real question if you are interested in S&T will be whether it impacts Flow Trading’s ability to take proprietary positions… for that I think we will need to wait and see what actually gets passed.</p>

<p>Yeah. How hard is it to get into a prop trading firm out of undergrad?</p>

<p>Prop firm or the prop desk at a bank?</p>

<p>Prop desk is hard. Prop firm depends. The only really hard one I interviewed for was Jane Street. DRW was pretty easy and it’s supposed to be a good one.</p>