Proprietary raiding

US President Obama in January unveiled a proposal to prevent banks from owning, investing in or sponsoring hedge funds, private equity funds or proprietary trading operations for their own profit. What do authorities mean by ‘prop trading’ and how important is this business line for banks?


Regulators and politicians in the US have been busily formulating new legislation to strengthen the financial system since August last year. The House of Representatives passed a bill in December that, among other things, would require standardised over-the-counter derivatives contracts to be cleared through registered clearing organisations, while the Senate is working to finalise its own draft legislation, which it hopes to complete in the next few months (Risk February 2010, pages 61–64)

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