Simon English: Outlawing proprietary trading is pointless, and will take all the fun out of banking

 

Outlook "Call for UK proprietary trading crackdown", sang the Financial Times headline a few days ago. In its wisdom, the Banking Standards Commission, a parliamentary watchdog set up to investigate what's wrong with those fellows in the City, said it was high time to "bear down" on so-called proprietary trading.

Prop trading is generally regarded as a source of evil. The notion of banks' betting on their own account with their own money just sounds instantly wrong to most observers.

The BSC didn't call for an outright ban on the practice, but thinks there should be much less of it.

From a journalistic perspective, there's reason to hope this call is ignored, even if there are prurient or even moral reasons to want these chaps run out of business.

Prop trading is the fun end of town, where the mischief occurs and the best stories emerge.

Those who say there are no characters in the Square Mile any more only need meet a couple of these lads to stand corrected.

The difference between prop trading and gambling is a matter of semantics only. The bank is taking a punt on the back of a hunch. You could say it's like betting on horses, except horse race experts would insist they are way more scientific.

So why not just ban it?

For one, it hasn't actually been a cause of much misery to anyone other than the traders and the banks that employ them.

When a prop trader goes rogue and racks up billions of losses, it's a source of head-shaking and finger-pointing from folk who just hate the Square Mile in the first place, but it hasn't generally led to bailouts from public funds.

It wasn't traders that exploded HBOS or Bradford & Bingley or Alliance & Leicester, just bad loans and bad business of the most mundane kind.

Another reason not to ban the props is that it is nearly impossible to be sure what qualifies and what does not.

When is a trading desk hedging a position built up by a client and when is it taking a punt?

The difference between my money and your money might be perfectly clear, but at investment banks it is far murkier. The reason why a millionaire hedge fund schemer banks with Goldman Sachs is precisely so that he has access to that firm's balance sheet when he needs it. When the bank places a trade, we have to guess whether it is doing so on its own account or on behalf of a client.

Stymied by regulation and by a culture that has been strongly risk-off for several years, the prop trading desks at many banks have been shut or hacked down in any case.

New rules to keep them in check don't really seem necessary.

In any case, if a clever dealer does come up with a way to make a bank (and himself) lots of money there is zero chance that the bank will refuse this offer once convinced it will work.

Even if officially they don't prop trade, in reality they will just call the new wheeze something else, give the fellow a desk in the "client services" division and let him go merrily about his money-making business. Until he blows up, at which point they'll declare they had no idea – not a clue! – what the chap was up to.

The BSC is well meaning. But the banks will always be ahead of any rule-making it might help to force through.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
News
ebooksNow available in paperback
Life and Style
tech
News
The 67P/CG comet as seen from the Philae lander
scienceThe most important scientific breakthroughs of 2014
Arts and Entertainment
Ian McKellen as Gandalf in The Hobbit: The Battle Of The Five Armies
film
Arts and Entertainment
Sarah Koenig, creator of popular podcast Serial, which is to be broadcast by the BBC
tvReview: The secret to the programme's success is that it allows its audience to play detective
News
Ruby Wax has previously written about her mental health problems in her book Sane New World
people
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Marketing Services Manager - (communications, testing, DM)

£32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...

Guru Careers: Finance Account Manager

£Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...

Ashdown Group: Java Developer - Hertfordshire - £47,000 + bonus + benefits

£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

Ashdown Group: Direct Marketing Manager - B2C, Financial Services - Slough

£45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas