Not too long ago, Goldman Sachs CEO Lloyd Blankfein said he was quite sure that customers of big investment banks would rise up and vociferously oppose the Volcker Rule, joining with the banks themselves in an effort to modify the controversial rule. That is now coming to pass.

The final rule set has not yet been published, and there are still 2 months remaining in the public comment period. The 300-page proposal due to take effect next year was released last month by the Federal Deposit Insurance Corp and other federal regulators.  The most controversy now stems from proprietary trading as the practice relates to hedging and market making, which will still be legal under the new rule.

Obviously, it can be difficult to delineate in real time whether a position is best classified as a hedge, a market-making trade or a proprietary trade. The rule offers an array of new metrics to guide the big dealers, the likes of Goldman Sachs and Morgan Stanley. Still, the net result may be that legitimate marking activity is crimped, as the rule tries wring the proprietary component out of the process and banks are forced to hold less inventory.

One analyst, noted by Reuters, estimates that sell-side fixed-income trading desks could lose as much as 25 percent in revenue. As for sell-side clients, they are raising fears about what this will do to liquidity in the fixed-income market especially. If market makers are constrained, it will likely raise costs and require more in collateral. The buy-side, including powerful firms like BlackRock, are making their voices heard. They will likely step up their opposition as the final rules are set.

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