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.

News
A model of a Neanderthal man on display at the National Museum of Prehistory in Dordogne, France
science
News
Richard Dawkins dedicated his book 'The Greatest Show on Earth' to Josh Timonen
newsThat's Richard Dawkins on babies with Down Syndrome
Arts and Entertainment
Eye of the beholder? 'Concrete lasagne' Preston bus station
architectureWhich monstrosities should be nominated for the Dead Prize?
Extras
indybest
PROMOTED VIDEO
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Travel
Dinosaurs Unleashed at the Eden Project
travel
Arts and Entertainment
music
Sport
football
Life and Style
This month marks the 20th anniversary of the first online sale
techDespite a host of other online auction sites and fierce competition from Amazon, eBay is still the most popular e-commerce site in the UK
News
i100
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

Quantitative Analyst (Financial Services, Graduate, SQL, VBA)

£45000 per annum: Harrington Starr: Quantitative Analyst (Financial Services, ...

Application Support Engineer (C++, .NET, VB, Perl, Bash, SQL)

Negotiable: Harrington Starr: Application Support Engineer (C++, .NET, VB, Per...

AIFMD Business Analyst / Consultant - Investment Management

£450 - £600 per day: Harrington Starr: AIFMD Business Analyst / Consultant - I...

Business Analyst Solvency II SME (Pillar 1, 2 & 3) Insurance

£450 - £600 per day: Harrington Starr: Business Analyst Solvency II SME (Pilla...

Day In a Page

Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

We know all too much about the cruelty of Isis – but all too little about who they are

Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
Neanderthals lived alongside humans for centuries, latest study shows

Final resting place of our Neanderthal neighbours revealed

Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
Scottish independence: The new Scots who hold fate of the UK in their hands

The new Scots who hold fate of the UK in their hands

Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

Blight club: Britain's ugliest buildings

Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape
eBay's enduring appeal: Online auction site is still the UK's most popular e-commerce retailer

eBay's enduring appeal

The online auction site is still the UK's most popular e-commerce site
Culture Minister Ed Vaizey: ‘lack of ethnic minority and black faces on TV is weird’

'Lack of ethnic minority and black faces on TV is weird'

Culture Minister Ed Vaizey calls for immediate action to address the problem
Artist Olafur Eliasson's latest large-scale works are inspired by the paintings of JMW Turner

Magic circles: Artist Olafur Eliasson

Eliasson's works will go alongside a new exhibition of JMW Turner at Tate Britain. He tells Jay Merrick why the paintings of his hero are ripe for reinvention
Josephine Dickinson: 'A cochlear implant helped me to discover a new world of sound'

Josephine Dickinson: 'How I discovered a new world of sound'

After going deaf as a child, musician and poet Josephine Dickinson made do with a hearing aid for five decades. Then she had a cochlear implant - and everything changed
Greggs Google fail: Was the bakery's response to its logo mishap a stroke of marketing genius?

Greggs gives lesson in crisis management

After a mishap with their logo, high street staple Greggs went viral this week. But, as Simon Usborne discovers, their social media response was anything but half baked
Matthew McConaughey has been singing the praises of bumbags (shame he doesn't know how to wear one)

Matthew McConaughey sings the praises of bumbags

Shame he doesn't know how to wear one. Harriet Walker explains the dos and don'ts of fanny packs
7 best quadcopters and drones

Flying fun: 7 best quadcopters and drones

From state of the art devices with stabilised cameras to mini gadgets that can soar around the home, we take some flying objects for a spin
Joey Barton: ‘I’ve been guilty of getting a bit irate’

Joey Barton: ‘I’ve been guilty of getting a bit irate’

The midfielder returned to the Premier League after two years last weekend. The controversial character had much to discuss after his first game back
Andy Murray: I quit while I’m ahead too often

Andy Murray: I quit while I’m ahead too often

British No 1 knows his consistency as well as his fitness needs working on as he prepares for the US Open after a ‘very, very up and down’ year
Ferguson: In the heartlands of America, a descent into madness

A descent into madness in America's heartlands

David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

BBC faces corruption allegation over its Sir Cliff police raid coverage

Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home