Goldman Sachs (GS) is considering spinning off its proprietary trading group due to concerns over compliance with the Volcker rule contained in financial reform legislation approved last month, according to a report by CNBC on Wednesday.
The Volcker rule limits commercial banking institutions and their subsidiaries from engaging in speculative trading activities unrelated to customer needs, as well as prohibits investing in and sponsoring hedge funds or private equity funds. Goldman's move comes following reports on Monday that Morgan Stanley (MS) would spin off its hedge fund, FrontPoint Partners, in order to comply with the rule.
With two of the market leaders reacting to the new regulations by shaking up their business structures, some are wondering if this is the first step in a re-shaping of Wall Street. It remains to be seen if other large banks will also spin off units that may be affected by the legislation.
So far, the markets have reacted well to the news. Shares of Goldman were priced at $158.38, up $3.19 or 2.08% in afternoon trading. Shares of Morgan Stanley traded at $27.79, up $0.30 or 1.02%.
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