Late Friday Bloomberg reported that the Royal Bank of Canada is considering spinning off a part of its U.S. proprietary trading businesss as a way of complying with the so-called Volcker rule.
Royal Bank is said to have been reviewing possibilities for its New York-based trading unit since the U.S. published the latest text of the Volcker Rule. The regulations will restrict the ability of banks to rely on trading on their own book (so-called proprietary trading) for profits. The new rules limit ownership stakes in hedge funds and private-equity funds as a result. As a way of complying with the rule RBC seems likely to spin out its New York trading operation into a stand-alone hedge fund. According to Bloomberg the bank will invest $1 billion in the new entity.
This past winter Royal Bank Chief Executive Officer Gordon Nixon
told the Financial Times that spinning off its proprietary-trading unit into an independent fund was one of the options being considered to comply with the rule. The new firm will be called Taurus, a combination of the Latin words for bull and bear, taurus and ursa.
Nixon has also said the divestment of its proprietary trading arm will be immaterial to the banks earnings. Royal Bank generqates less than 1.5 percent of total revenue from proprietary trading.