Another Volcker Rule effect

March 17, 2010 | By Jim Kim

We've noted the view that the Volcker Rule, which is still just a proposal, may already be having an effect. Mainly, the "effect" was on possible asset sales. Citigroup (NYSE: C) was thought to be considering a sale of its $10 billion private-equity unit (private equity news). Morgan Stanley (NYSE: MS) was mulling its stakes in FrontPoint Partners and other hedge funds (hedge fund news).

Business Week/Bloomberg offers another example of how the proposed rule may be exerting influence: Citigroup is grappling with the defection of 8 out of 22 employees in a proprietary trading group. The bank is talking about taking steps to acquire more prop traders, such as increasing trading limits and capital.

Citigroup would like to keep the unit producing, as it generated $100 million of annual revenue last year. But you would think the uncertainty over the fate of prop trading units at banks would be a powerful recruiting tool from banks and funds that are not affected. They may sense a recruiting opportunity. Should exchanges fear the Volcker rule?

For more:
- here's the article