Worst Fears Avoided with Volcker Rule

Wall Street banks avoided their worst fears of the Volcker rule after regulators crafted the ban on speculative trading to leave market-making operations intact.

Goldman Sachs Group Inc. (GS), which among big U.S. banks gets the largest portion of its revenue from trading, climbed to the highest level in almost three months after five agencies approved the rule yesterday. Changes in the final wording broadened exemptions for banks’ market-making desks, which generate more than $40 billion a year in revenue.

The rulemaking ends three years of uncertainty at banks over which activities would be permitted by the measure named for former Federal Reserve Chairman Paul Volcker. The more-than 900 pages of regulations and preamble leave watchdogs room to interpret wording and decide whether firms are engaging in permitted hedging and market-making as opposed to proprietary trading.


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