The heads of the top U.S. stock exchanges have poured cold water on the Obama administration's plan to bar banks from proprietary trading.
The chief executive of NYSE Euronext said on Tuesday the president's plan falls short of targeting what caused the financial crisis, while his counterpart at Nasdaq OMX Group Inc., the day before, said the plan would probably have to be changed.
Obama last month surprised Wall Street with the ambitious proposal to limit risky trading by banks.
Dubbed the "Volcker rule" after Paul Volcker, the White House economics adviser, it would bar banks from proprietary trading, or placing bets on markets with their own money.
The proposal jolted markets. The shares of the New York Stock Exchange parent fell 3.8 percent, while those of the Nasdaq Stock Market parent tumbled 4.8 percent, on concerns the Volcker rule would reduce liquidity and trading volumes.
On a conference call with analysts and media, Niederauer said it would prove difficult to separate "the small fraction of equity volume that these banks do for their own account.
"I don't really think that had anything to do with the crisis that we just lived through," said the former Goldman Sachs Group Inc. trading head, adding he would encourage policymakers "to focus on solutions that get at the root cause of the crisis and I just don't think this is one of them."
Robert Greifeld, CEO of Nasdaq OMX, said on Monday it is impossible to know how much bank trading volume is proprietary versus nonproprietary because it is not identified on arrival at the exchange.
"In a sense that shows you the difficulty the legislators would have prescribing anti-prop trading," he said on a conference call Monday.
"It's a hard job for them to do because once you get into what's prop, what's customer facilitation, what's a riskless principal, it gets impossible.
"So I think they would have to find a different path to go."
The Volcker rule gained some support among European lawmakers, who are also considering new rules to avoid a repetition of the mortgage market-inspired crisis of 2008 that spawned a global recession.
Banks have criticized the plan. It also faced resistance last week from U.S. senators, who looked increasingly likely to adopt, at best, only a watered-down version.
Niederauer and Greifeld played down the impact the Volcker rule would have on volumes, which drive the exchange operators' revenue.
Morgan Stanley analysts estimated the plan would shave NYSE Euronext's 2010 earnings by 2 percent and shave Nasdaq OMX's earnings 3 percent — assuming all U.S. and non-U.S. bank proprietary trading disappeared and flowed directly to the exchange operators' bottom lines.
"The impact will ultimately be far less onerous than it appeared at first blush," the analysts said in a Jan. 27 note, adding futures-based exchanges CME Group Inc. and IntercontinentalExchange Inc. would be hit harder than the more diversified cash equities exchanges.
© 2022 Thomson/Reuters. All rights reserved.