Wall Street is being replaced by hedge funds as the place where aspiring traders hope to end their careers because of new federal rules, said Brad Hintz, an analyst at Sanford C. Bernstein & Co.
Financial firms have said that the so-called Volcker rule, which bars banks from proprietary trading, may also limit trading profits, once a prime source of Wall Street revenue and bankers’ pay. The restriction will also force some professionals to change career paths, Hintz said.
“If you are a proprietary trader or have aspirations to be one, you learn Wall Street and then you move elsewhere,” Hintz said in an interview on Bloomberg Television’s “Surveillance Midday” with Tom Keene. “What was at one point the final job has now turned into a way point on the way to the next level.”
The rule, named for former Federal Reserve Chairman Paul Volcker, was included in the Dodd-Frank Act to restrict risky trading at banks that operate with federal guarantees. The regulation goes into effect in July.
Wall Street firms are curbing bonuses and changing compensation formulas to limit expenses as they grapple with lower revenue. Some are giving less cash and more stock, and others are deferring a greater percentage of total pay.
The incentive for risk-taking is unlikely to change, Hintz said. Managing directors at most firms receive about 40 percent of the total bonus pool and generally have short tenures in such senior positions, Hintz said.
“They know they will only be up to bat for a short time,” he said. “There is a tendency to want to swing for the fences.”