RBC Says Still Weighing Plans for Prop-Trading Business

Royal Bank of Canada, the country’s second-largest lender, said it’s still considering alternatives for its U.S. proprietary-trading business as its seeks to comply with Volcker Rule restrictions.

Royal Bank has been reviewing possibilities for its New York-based global arbitrage and trading business since U.S. regulators released a final version of the rule in December, limiting banks’ ability to trade with their own money.

“We intend to fully comply with the Volcker Rule and we continue to look at all of our options,” Kevin Foster, a spokesman for the firm, said today in an e-mailed statement, referring to a provision of the 2010 Dodd-Frank Act.

The Wall Street Journal reported today that the Toronto-based lender will close its proprietary-trading desk on Wall Street and spin it off into a hedge fund as soon as this year, citing people familiar with the matter whom it didn’t name. Richard Tavoso, who runs the trading desk, and Mark Standish, the former New York-based co-head of RBC Capital Markets, who announced in December he would be leaving the firm, are among those who will join the hedge-fund spinout, the report said.

Foster declined to comment on the Wall Street Journal story. Tavoso didn’t respond to a telephone message left with an assistant.


Royal Bank Chief Executive Officer Gordon Nixon said in a December interview with the Financial Times that one option would be to spin out the business and set it up independently.

The Volcker Rule, named after former Federal Reserve Chairman Paul A. Volcker, was designed to curb the ability of banks to make risky bets with their own money. It limits ownership stakes in hedge funds and private-equity funds to 3 percent.

Royal Bank gets less than 1.5 percent of total revenue from proprietary trading, a “fairly small” amount and not material, Nixon said during a Jan. 14 presentation. The lender had total revenue of C$30.7 billion ($28 billion) in the year ended Oct. 31, according to financial statements.

Royal Bank has become the standard-bearer for a revolt among investors against so-called predatory high-frequency trading practices that were described in “Flash Boys,” author Michael Lewis’s book exposing the U.S. market’s obsession with trading speed.

The bank’s capital-markets unit spent years supporting Brad Katsuyama, the protagonist in “Flash Boys,” in his quest to understand the effects of high-frequency trading on Wall Street. Katsuyama left the “RBC Nice” culture, as Lewis described the bank, to start IEX Group Inc., an alternative stock market in the U.S. that Royal Bank has publicly supported.

Royal Bank rose 7 cents to C$72.91 at 4 p.m. in Toronto. The shares have gained 2.1 percent this year, compared with the 1.9 percent return of the eight-company Standard & Poor’s/TSX Commercial Banks Index.

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