This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

JPMorgan Prop Shop Getting Chopped

NEW YORK ( TheStreet) - JPMorgan Chase's (JPM - Get Report) trading desk has become the latest victim of prop-shop chopping to comply with financial reform rules.

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 what counts as "proprietary trading."

However, the JPMorgan source says there's little doubt that Volcker only applies to a narrow view of prop trading: "When Volcker said, 'I know it when I see it,' that's what he meant," said the source, who wasn't authorized to speak publicly about the situation.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
BAC $14.80 -1.50%
C $46.74 -1.10%
GS $164.50 -1.40%
JPM $63.63 -0.75%
MS $27.24 -1.10%


Chart of I:DJI
DOW 17,830.76 -210.79 -1.17%
S&P 500 2,076.02 -19.13 -0.91%
NASDAQ 4,805.2910 -57.85 -1.19%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs