JPMorgan 'to close commodities unit'

1 September 2010

JPMorgan is planning to close its commodities unit in order to comply with new regulations on proprietary trading laid out in the Dodd-Frank Act.

An insider told the Financial Times that the bank is looking to shut down the commodity division which uses JPMorgan's own capital to make trades and has told those employees working for it that their jobs are on the line.

Under the Dodd-Frank Act, US banks are to be banned from proprietary trading, as well as being restricted in the amount of capital they can inject into private equity groups and internal hedge funds.

Financial institutions have been given two years to comply with the proprietary trading clampdown once a detailed definition of precisely what this type of business includes is drawn up by regulators.

That may happen later this year but JPMorgan has reportedly chosen to go ahead with the shutdown of their unit earlier than necessary.

According to the source, a combination of the forthcoming regulation mixed with low appetite for commodities' risk because of troubled markets has led to the decision.

Fewer than 20 traders work in the division, with the majority based in London and one in New York.

It is believed the employees will have the opportunity to apply for vacancies in other JPMorgan operations.

JPMorgan is also believed to be considering whether to close down its equity and fixed-income proprietary trading units early, with other Wall Street firms such as Goldman Sachs and Morgan Stanley reportedly planning to take similar steps.

In July, insider sources told Bloomberg that Citigroup is looking into moving its proprietary traders to its hedge fund unit.

Another potential option that was said to be under discussion is reassigning the traders across the firm's various operations, with the employees transferring to the division that best suits their specialism.

By Tony Aynsley

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