Citigroup (C) is exploring a variety of options to comply with the Volcker Rule, which on the surface reduces the amount of proprietary investing a bank can do. One possibility, which has been discussed at other firms, calls for prop traders to be set up as hedge fund managers.

As reported by Bloomberg, at Citigroup, traders in the Citi Principal Strategies unit, led by Sutesh Sharma, would be reassigned to Citi Capital Advisors, which mostly manages client funds. The traders would effectively become hedge fund managers of Citi-seeded funds. The bank would eventually raise money from outsiders to redeem its stakes and get under the federal limits on investments in such funds.

Another possibility might be to redistribute prop traders across various agency trading units. This may rankle some traders, who relished the independence of what they do. In any case, this will not likely be resolved soon. The Dodd-Frank reform law gives banks at least four years to bring their proprietary trading operations into compliance, with a possible extension of up to three years.

For more:
- here's the Bloomberg article

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