The top investment banks have been saying loud and clear that the trading risks they're taking on these days stem from agency trades not so much proprietary trades. But a Reuters columnists thinks the issue ought to be cleared up and wants people to understand that even agency trades require lots of risks to be borne by the bank. In the end, risk is risk.

Here's his example: Let's say a hedge fund wants to buy a large block of shares, but it doesn't want to pay much more than a given sum and intends to finance part of the transaction. "That may force the investment bank to commit some of its own capital to acquire those shares in a series of separate transactions, so as not to create an undue spike in the stock's price. To protect itself from losing money, the investment bank may go out and enter into a number of other trades or derivatives transactions -- all intended to reduce, or lay off, its risk of a loss on the customer transaction. And in all likelihood those follow-on trades will prompt the investment bank to engage in a series of other trades to minimize its exposure to something going array with those hedges."

So does it matter if you label it risk for a customer or risk for itself? 

For more:
- here's the article

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