Just how tough was the trading environment in the third quarter?

Pretty bleak judging by recent financial disclosures about trading days and profitability. Morgan Stanley suffered trading losses on 31 days in the third quarter, the most since the 2008 crisis. Goldman Sachs lost money on 21 days. Bank of America lost money on 20 days. And JPMorgan lost money on 16 days.

The trading environment, despite a pop in volume due to the European crisis, was punishing to say the least, and the results were reflected in dismal earnings reports for the third quarter. Were it not for some offsets from debit valuation adjustments, the picture would have been even more bleak. The environment remains weak, but perhaps not as bad. One rough indicator is that hedge funds fared better in October, which might translate into better performance and higher volumes at top banks.

You do have to wonder what the near-term future holds. At some point next year, the Volcker Rule will kick into effect, and that might make huge gains on many days in a quarter more rare. The goal of course is to make agency trades the main source of revenue. As things stand now, agency commissions are welcome but the banks are all hoping for big gains on the proprietary positions, apart from hedging and pure market making activity. That will likely reduce profits. But there are a lot of unknowns still as the final rules are hashed out.

For more:
- here's a Crain's article
- Volcker says the rule is too complicated. Article

Related article:
Surprise! Banks have thrived since 2008