Right on cue, with the recent passage by both Houses of Congress of some form of FINREG bill, traders at publicly-held firms are heading for the exits. The exodus was heralded by yesterday's Wall Street Journal's Money & Investing section's lead article, Hotshot Traders Leave Street.
Seasoned traders at several large commercial banks are now leaving to either start their own hedge funds, or take seed capital from established private funds, such as Citadel.
According to the Journal article, several existing hedge funds have created new structures to fund and, thus, capture some of the newly-fleeing talent from the publicly-held banks.
The only comment I would add is that these hotshots are, in reality, something like a third wave of such an exodus. There haven't been that many stellar performers remaining in the publicly-owned finance sector for some years. What we are now seeing is merely the latest purging of top, young talent following a well-worn path to the shadowy world of hedge funds.
This phenomenon ought to give legislators and would-be regulators pause. After all, doesn't that leave commercial bank trading in the hands of lesser talent? And push the better traders into a less-regulated part of the industry, where oversight is far scarcer, and leverage potentially much greater?
Sounds like a recipe for more counterparty risk and heavy sector losses, as the latest batch of smart young things head off to risk other people's money and pay themselves handsomely in the process, doesn't it?
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