Citi has confirmed that its Principal Strategies proprietary equity trading division will close in a week as a result of the impending introduction of the Volcker rule.
Derek Bandeen, global head of equities, told Citi employees in a memo obtained by theTRADEnews.com that 6 February would be the last day of operation for the Principal Strategies group, adding that the unit’s staff had been winding down positions over the last few months.
In its Q3 2011 earnings call, Citi had announced that the closure of the group – which is the firm’s only principal trading business – was two-thirds complete.
Sources suggest that Sutesh Sharma, who led the proprietary trading unit, will be setting up a hedge fund following his departure from Citi.
Citi joins the likes of J.P.Morgan, Goldman Sachs and Morgan Stanley in closing or divesting proprietary businesses in light of the Volcker rule.
Introduced as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Volcker rule will prohibit the ability of US deposit-taking institutions to engage in proprietary trading and limit their investment in hedge funds and other private equity vehicles.
A draft Volcker rule proposed by the Federal Deposit Insurance Corporation, Federal Reserve, Office of the Comptroller of the Currency and the Securities and Exchange Commission is currently out for industry comment until 13 February. Derivatives watchdog the Commodity Futures Trading Commission proposed its version of Volcker on 12 January.
Each US authority must provide a version of the Volcker rule that will be enforced for those firms it regulates. Currently, Dodd-Frank has set a 21 July effective day for the Volcker rule.