The so-called Volcker rule, passed last year as part of the financial regulatory overhaul, has forced hundreds of traders from Wall Street’s biggest banks to launch their own funds or join smaller, boutique investment firms.
These smaller, mostly private firms, don’t present the same risk to the overall financial system, and therefore have more freedom to make riskier trades than the big banks.
Just last Wednesday, the boutique investment firm First New York Securities announced it has hired traders from Bank of America, Morgan Stanley, and Credit Suisse. Four of the hires came from the trading desk at Bank of America led by fixed-income specialist David Sobotka. He runs a $3 billion proprietary trading desk for the bank, one of the largest that has yet to be spun off.
“We are getting a big influx of traders coming out of banks, primarily because of the Volcker rule,” said Joseph Schenk, who runs First New York. His trading firm has increased its headcount by roughly 20% in the last year.
Bank of America must still decide what to do with David Sobotka’s trading desk, which it inherited when it purchased Merrill Lynch during the financial crisis. It is reportedly considering an outright sale of the business, or reassigning some of the 60 traders that work at the desk to other parts of its business. Sobotka himself has been put in charge of the bank’s commodities division on top of his trading responsibilities.
What’s your take? How much longer will the exodus of traders from big banks continue? And will this be a good development for hedge fund jobs and the industry? Add your comments below.