Exemptions in the balance as Volcker debate draws to a close

Paul Volcker

For roughly three-and-a-half years, staff at six US regulatory agencies have been trying to define what a market-maker does. Traders offer a quicker answer. “We take and manage basis risk,” says the head of foreign exchange options trading at one European bank. “We do not go out and hedge client trades one-to-one – if we did, the business would not make money. We use simple, liquid products to partially hedge more complex exposures.”

And that, in a nutshell, is the problem. The regulatory

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