Now Comes The Regulatory Backlash After UBS $2.3 Billion Rogue Trading Loss


In the wake of the unexpected $2.3 billion loss at UBS believed to be caused by a lone rogue trader, regulatory backlash against the Swiss bank and other overseas banks could be coming soon.

Regulators who are constraining U.S. bank’s proprietary trading are now considering extending the rules to apply to overseas firms that have operations in the U.S., Bloomberg reported.

From Bloomberg:

Regulators next month will issue a proposal to carry out provisions of the so-called Volcker Rule, part of the Dodd-Frank financial-regulation law, that will clarify the types of offshore trading allowed under the rule, the people said.

Named for former Federal Reserve Chairman, Paul Volcker, the rule limits banks ability to trade on their own account.

As a proponent of the Volcker rule, many U.S. banks have spun off their proprietary trading desk operations in order to comply with the Dodd-Frank financial reform bill.

However, the rule currently exempts proprietary trading conducted “solely” outside the U.S. 

Overseas banks say that if there’s “a strict interpretation of the rule may also force them to fire or relocate U.S. employees who are involved in prop trading, even in no American money is at risk.”

Still, the proposal would have to be approved by five different regulators including the Fed, the Office of the Comptroller of the Currency and the Securities and Exchange Commission, so it’s likely it will change.