Molecule Software Blog

The Molecule Software ETRM/CTRM Blog

Volcker Rule In Full Effect

Deutsche Bank got out of the commodities trading business last week. UBS and Credit Agricole have been out. JP Morgan & Morgan Stanley are in the process of selling, and Barclays has cut its division by 20%. Goldman is firmly stating that it is going to be staying in the business, partly because of some unwavering executives who came from trading coffee and gold, 30 or so years ago. Citigroup and BoA’s Merrill Lynch have not stated their plans, but they have built up people over the last couple of years.

The Volcker Rule, which generally keeps banks from proprietary trading if they take FDIC insured deposits, has caused many banks to close their own internal trading desks. The Volcker Rule's point is to make sure our banks are not taking risks that could destabilize the rest of our financial system. The new rule was just approved last week (December 10, 2013), and we think it’s likely that BoA's Merrill Lynch and Citi will follow suit.

Dodd-Frank is intended to bring a lot of reform to the banking system. It mandates things like swaps repositories, which are supposed to bring financial transparency to opaque & complex markets like commodities and over-the-counter derivatives. So, on one hand we are trying to reduce risk by making things more transparent.

But going this route has actually taken us one more step away from transparency. Most of these banks controlled a large amount of market and OTC volume. Why wouldn't you want them to continue where you can have oversight and keep working towards more market transparency, instead of shifting the market to foreign banks and other less regulated corporations?

Related Post

Massive Change in the ETRM Industry. Then Silence