J.P. Morgan Shutters Prop Trading: Much Ado About Not Much

Yesterday the news hit that JPM would be closing down its proprietary trading operations, including the proprietary commodities trading operations, in order to comply the "Volcker Rule" provisions of the new FinReg legislation.  Before everyone in the gold and silver world gives each other high-five's, let's take apart what is really going on here.

According to the WSJ, JP Morgan hasn't really focused on proprietary trading.  Specifically with respect to commodities, the decision affects 20 employees, one in the U.S. and the rest in London. 

However, I believe this WILL NOT AFFECT the gold and silver trading operations, including all derivatives-based precious metals trading.  Why?  Here's the language from Section 716 of the legislation:

Under the agreement banks would only spin off their riskiest derivatives trades. Banks get to keep some of their lucrative business based on trades in derivatives related to interest rates, foreign changes, gold and silver. They could even arrange credit default swaps, the notorious instruments blamed for the meltdown, as long as they were traded through clearing houses. Banks also would be allowed to trade in derivatives with their own money to hedge against market fluctuations.  (source link:  LINK)

Just to be clear, here is the direct language from the legislation, which I sourced from seekingalpha.com:

To exercise by its board of directors or duly authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the business of banking; by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; by receiving deposits; by buying and selling exchange, coin, and bullion; (here's the link:  LINK)

Does it get any more clear than that?  What this tells me is that JP Morgan is shutting down a smallish operation that makes money some quarters and loses money some quarters and affects in total something like 50-70 traders globally and only 20 with respect to commodities.

This is not really big news other than the noise being reverberated across the internet about the evil Voclker Rule.  In fact, if you read this analysis from Reuters, banks with much larger proprietary trading/investing operations are going to find some ways to work around the legislation - and if they choose to completely comply, they have three years in which to do so - Impact of Volcker Rule?

So there you have it.  Do not expect that this move by JP Morgan will have much, if any, affect on JP Morgan's ability to manipulate the precious metals market using derivatives (both Comex and OTC).  Anyone who thinks it will is not paying attention to the Truth.