According to SNL Financial, five of the top 30 banks will feel the greatest regulatory effects of the recently released Volcker Rule, which governs proprietary trading at depository institutions.
Goldman Sachs (GS), Morgan Stanley (MS), JPMorgan Chase (JPM) and First Horizon National (FHN) each derive more than 24% of their total revenues from trading sales, the research firm says, as of Sept. 30. Goldman Sachs tops the list at 62%, followed by Morgan Stanley at 36.5%.
In terms of the quantity of trading assets, Goldman, Morgan Stanley, JPMorgan, Bank of America (BAC) and Citigroup (C) have more than $260 billion each in total trading assets. First Horizon has about $1.5 billion.
Charles Schwab (SCHW) has $3.1 billion of total trading assets and gets just 0.02% of its total revenues for trading sales. Wells Fargo (WFC), which has $60 billion of trading assets, derives 3.4% of total sales from trading.
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The Volcker Rule goes into full effect on July 21, 2015.
“The final version of the rule spans nearly 800 pages and introduces a vast new compliance regime for documenting market-making and other activities allowed under the rule,” said SNL analysts Robb Soukup and Sam Carrin their report. “Among the prohibitions under the rule is broad portfolio hedging, and regulators across the board acknowledged the broader rulemaking process as among the most complex in which they had ever taken part.”
In terms of exemptions to the Volcker Rule, proprietary trading of certain U.S. government-related instruments — including U.S. Treasury securities and other government agency and entity related debt — is allowed.
Analysts with Keefe Bruyette & Woods point out that it’s not only the biggest banks that will be affected by the new regulatory regime, since the rules also govern those with assets of $10 billion to $50 billion.