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Abstract
Financial institutions' headlong retreat from proprietary trading continues. Swedish bank Handelsbanken shut down its fixed-income and FX prop trading desks in New York. PMorgan Chase consolidated its standalone prop desk into its other proprietary trading operations. Deutsche Bank has cut the number of its proprietary traders. Credit Suisse has reportedly culled its proprietary trading operations. And now Morgan Stanley is rumoured to be looking to spin off its proprietary trading operation, Process Driven Trading. Regulation could also put pressure on banks to curtail proprietary trading. One market participant in Toronto says it is partly because banks speculate that Canadian regulator Osfi might substantially increase capital requirements for those banks with prop trading desks. Whether or not the US Federal Reserve will enforce new regulation is unknown. For those who have braved prop trading, the timing could not be better. The cost of risk has dramatically fallen relative to returns that can be made and opportunities to make money are higher - stocks are less expensive, and capital requirements are therefore lower.