But JPMorgan's trading businesses won't be dramatically affected by the change, according to someone familiar with the situation, since it's only getting rid of a handful of people who take capital from the bank's balance sheet and use it expressly for profiting. The bulk of its trading operation, which delivered about $22 billion in revenue last year, will remain in tact.
On Tuesday, word quickly spread through the market that JPMorgan would shut down its prop-trading operations, following a Bloomberg report in the late afternoon. JPMorgan's storied investment banking division will begin by winding down commodities trading, the smallest of its three prop-trading operations. It will later shut down the fixed-income and equities trading divisions, which are larger and deliver more revenue.
A spokeswoman declined to comment.JPMorgan has kept its prop trading relatively small. The bulk of its trading operation comes from what is known as "flow" -- providing liquidity for client trades. The news that the prop-trading operations would be shut down wasn't surprising, since big banks must divest their proprietary trading divisions and much of their hedge-fund and private-equity assets to comply with financial reform. The so-called Volcker rule has led Bank of America (BAC - Get Report), Goldman Sachs (GS - Get Report) and Citigroup (C - Get Report) to begin the process of divesting or winding down affected businesses. Banks affected by the change, including Morgan Stanley (MS - Get Report), are also reportedly trying to move proprietary traders into asset-management roles instead. Perhaps more importantly, big banks are also searching for new ways to make up for lost revenue. Goldman, for instance, has moved into derivatives clearing and market-making. But it's unclear how far banks can go in using balance-sheet funds for businesses that can technically be defined as proprietary trading - whether market-making or purchasing hard assets to hold in inventory for clients. There stands to be some uncertainty until regulators outline a precise definition of