Defining proprietary trading is extremely difficult because it's almost impossible to distinguish from making markets.
Watchdogs will also have the task of defining proprietary trading (as opposed to hedging or marketmaking)—which many view as impossible.
The administration seems to define proprietary trading narrowly, as the stand-alone "prop desks" most banks have for betting their own money (anything broader would be unworkable).
So long as Congress can adequately define proprietary trading — which will take a little work, but is not as hard as Wall Street has suggested — some version of the rule seems like a sensible part of re-regulation.
As proposed by the Treasury Department, the Volcker Rule would define proprietary trading as the purchase and sale of stocks, bonds, commodities and derivatives for the institution's or company's own trading book, and not on behalf of a customer.
NEW YORK TIMES The Volcker Rule's 'Glaring Flaw' | The language of the proposed Volcker Rule is flawed, contends the Economics of Contempt blog, because by not defining proprietary trading "it put the regulators in the position of having to define every form of legitimate trading that banks do".
"Some banks recommended consultants and law firms," they write, "... to help clients write letters arguing that the proposed language defines proprietary trading too broadly.
As for Wall Street mega-bank reform, Congress seems disinclined to break up our Too-Big-To-Fail banks, define proprietary trading, or sever Goldman Sachs, Morgan Stanley, and proprietary trading at large banks from the Federal Reserve's, i.e., taxpayers' heavy subsidies.
De facto standards are usually defined by proprietary products rather than public specifications.
The hedge fund manager Paul Singer said defining proprietary trading — a major task of the Dodd-Frank law — was a "metaphysical exercise," according to Lauren Tara LaCapra of Reuters.
