We’ve been hearing whispers of this for a while, but today two sources confirm that Goldman Sachs is disbanding their prop trading unit, Principal Strategies, to Bloomberg.
Goldman Sachs is shutting its principal-strategies business, a group that makes bets with the firm’s own capital, to comply with new U.S. rules aimed at curbing risk, two people with knowledge of the decision said.
The bank plans to hold off on announcing the wind-down while the 65 to 70 members of the global unit seek new jobs.
Apparently the traders are floating a couple of options – support roles within the firm and putting a team in Asia to raise money for a hedge fund, possibly run by Morgan Sze, who now runs the unit.
Ed Canaday, a spokesman for New York-based Goldman Sachs, said he couldn’t comment.
Earlier this week, we found out JPMorgan has plans to shut down all of its prop trading units, starting with a commodities trading unit in London.
Banks right now are changing the roles of their prop traders because of new regulations imposed on them by the FinReg bill.
But other banks – like Citi and Bank of America – have already made moves to change the roles of their prop traders.
The announcement about JPMorgan is different because they apparently plan to shut down ALL prop trading desks. News has only emerged about one or a number of prop trading desks closing at other banks.
But shutting down prop trading desks actually might resemble just changing the name of prop trading, not the practice. Prop traders are no longer “prop traders,” and many have been moved to client-based desks.
(For a prime example of how the role of prop traders is changing, look how Citi changed one of their star prop traders’s, Sutesh Sharma’s, role at the firm.)
Proprietary trading can easily become related to client operations and very closely resemble the prop trading done on strictly defined “prop trading” desks.
Thanks to a line in the Volcker Rule which specifies trading “operations unrelated to customer operations,” as long as the “prop trading” is done for client-related purposes, it’s OK.
From economic burn:
This just out.. Goldman’s stock has been up quite a bit today.. Where are the traders going to go? Speculation is they are heading to another firm.