RBC Junks Planned Prop. Desk Spin-Off

Oct 2 2014 | 8:15am ET

U.S. regulators have put a stop to Royal Bank of Canada’s plan to spin-off its proprietary-trading operations as a stand-alone hedge fund.

While a number of banks have split off their prop. desks as hedge funds to come into compliance with the U.S. Volcker rule, strictly limiting banks’ alternative investment activities, RBC’s plan ran into opposition for running afoul of one of the rule’s tenets. Under Volcker, banks are restricted from representing more than 3% of any hedge fund’s assets.

RBC’s plan involved investing up to US$1 billion in the proposed Taursa Capital Partners. That provision didn’t pass muster with the Federal Reserve or Securities and Exchange Commission, leading RBC to drop the spin-off.

“We are actively working to restructure our proprietary-trading business to comply with the Volcker rule,” RBC said. “While we are still evaluating various options, and no final determinations have been made, we have concluded that a spin-out of GAT in its current form will not proceed.”

It is unclear what RBC’s options for the unit are: Most of its employees are expected to leave by the end of the year, although the bank could seek to transfer some traders to its Toronto headquarters or elsewhere outside of the U.S. to skirt Volcker. The future of Taursa is also unclear: former RBC Capital Markets co-CEO Mark Standish is reportedly still in talks with potential investors about launching the fund in the future.

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