JPMorgan Exits Proprietary Trading

JPMorgan will leave the proprietary-trading business, a lucrative practice of using the firm's capital to trade for its own account. It's a sign that Washington's influence on Wall Street is being felt.

Proprietary trading reshaped Wall Street in recent years, eclipsing the more traditional investment banking business as a source of profits and leadership. Goldman Sachs CEO Lloyd Blankfein, for example, rose through the firm's trading ranks. Goldman also is cutting back on some businesses such as private equity.

Wall Street is changing once again, thanks to the passage of the Dodd-Frank financial reform law, which would isolate prop trading in separate units. But that would require firms to raise additional capital, which can be expensive. In general, the compliance issues are bound to be complex and full of uncertainty. So a clean break may be best in the view of JPMorgan CEO Jamie Dimon, a relatively cautious CEO with a background in financial services.

The withdrawal from prop trading will begin with a London-based commodities desk with 20 traders, including one in New York, according to Bloomberg, citing an unnamed source. The trades may be offered other jobs in the company. Equity and fixed-income trading desks will be closed at later times, according to Bloomberg.

The exit from prop trading may reduce profits for JPMorgan and other Wall Street firms that follow in its path. But the extent to which that is the case depends upon a host of details, such as the timing of the change, exceptions to the rule, and the way various trading operations are defined.