Friday, January 22, 2010

Bank Reform Part Deux

Buttonwood raises the same question I had:
How would one separate prop trading from business done on behalf of clients? If a big client wants to sell 1m shares in IBM does the bank have to match buyer and seller? If instead the bank takes the position on its book until it finds a buyer, is that prop trading? Will it depend on how long it holds the stake? Or makes a profit? And if the banks do withdraw from trading, what does that do to spreads? The market will be less liquid, raising costs for the rest of us.

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