U.S. banks would have to change the way they compensate traders involved in market-making activities under one of the proposed restrictions of the so-called Volcker rule, according to a draft circulating among regulators.
The rule, which aims to ban most proprietary trading by banks with federally insured deposits, would exempt trades related to market-making as long as the activity met at least seven standards, or principles. One principle would be that traders get paid from fees and the spread of the transactions rather than the appreciation or profit from their positions, according to a copy of the draft reviewed by Bloomberg News.
The Volcker rule, part of the Dodd-Frank Act, is being written by regulators in five Washington agencies and may be released as early as October, according to three people briefed on the discussions. It aims to reduce the chance that banks will make risky investments with their own capital that put their deposits at risk. A forced change to pay structure “could have the effect of driving people out of the regulated industry to the unregulated industry,” said Douglas Landy, a partner at Allen & Overy LLP who once worked at the Federal Reserve Bank of New York…..
Find out more at http://www.bloomberg.com/news/2011-09-26/trader-pay-may-face-restrictions-under-dodd-frank-s-volcker-rule.html
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