Finding Volcker rule metrics will be tough, dealers warn

To make the Volcker rule work, regulators will need to be able to spot proprietary trading. But although a range of indicators has been suggested, finding a way to catch prop trading without also catching some market-making and hedging activity won’t be easy, especially when it comes to derivatives. Mark Pengelly reports

Alan Turing's famous test of machine intelligence asks a questioner to tell computer from human by the answers each provides. The assumption is that these outputs can be used to conclude something about what’s going on inside each of the respondents. US regulators now need to come up with a similar test, or series of tests, to tell the difference between market-making, hedging and proprietary trading, the last of which is outlawed by the so-called Volcker rule – part of the Dodd-Frank Act.

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