March 3, 2014 / 10:27 AM / in 4 years

CORRECTED-UPDATE 1-Nomura sets up new trading group led by ex-Barclays exec

(In third paragraph corrects team name to “Equity Strategic Risk Group” from “Equity Principal Strategies Group”)

By Nishant Kumar

HONG KONG, March 3 (Reuters) - Nomura Holdings Inc has hired former Barclays trader Pradeep Swamy to start a new proprietary trading team in Hong Kong.

The move comes as Wall Street banks retreat from the lucrative proprietary trading business after regulatory changes put in place after 2008 curbed banks from making bets with their own money.

Swamy, a former Hong Kong-based managing director in the equities division of Barclays Plc, joined Nomura last week to lead the new Equity Strategic Risk Group.

Swamy, who earlier also worked for Credit Suisse and hedge fund Och-Ziff Management in London, started at Nomura on Monday. The group will run equity long/short, convertibles and volatility strategies to make money for the bank.

Fred Lam, Swamy’s former colleague at money manager Cheyne Capital, has also joined the team.

A Nomura spokesman confirmed the two appointments.

The move marks a new trend that is making Asian financial institutions from China and Korea to Japan grabbing talent freed from Western banks and strengthening their trading activities.

Proprietary traders made hundreds of millions of dollars in revenues for Wall Street banks through bets similar to those by hedge funds, but have seen their fortunes fade in recent years.

Most of these desks have shut down as the Volcker Rule framed in the United States after 2008 mandated regulation that curbs risky proprietary trading by financial institutions.

The rule also applies to foreign banks with branches in the United States, but provides an overseas exemption. That allows banks like Nomura to use a highly profitable tool to add alternate sources of revenue, a trend likely to catch up in Asia.

“For the non-U.S. banks, the big exemption that they have is that they have the ability to still operate with less restrictions solely from outside of the United States a prop trading desk,” said Paget Dare Bryan, a foreign legal consultant at Clifford Chance in Hong Kong.

However, such trading should not “generally involve parties and transactions with the residents of the United States” and no decision making, execution or financing should take place in the United States, Bryan added.

Proprietary traders draw capital from banks when they see investment opportunities. This flexibility sometimes gives them an edge over hedge funds which must remain invested. (Reporting by Nishant Kumar; Editing by Michael Flaherty, Matt Driskill and David Holmes)

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