Pay Practices Could Define Market Making Under Dodd-Frank

Law360, New York (May 31, 2012, 4:33 PM EDT) -- Financial reform advocates said Thursday that regulators should use trader compensation as a key metric for defining the market-making exemption under the Dodd-Frank Act's proprietary trading ban.

At a roundtable discussion held by the U.S. Commodity Futures Trading Commission on the implementation of the so-called Volcker rule, advocates said that the Volcker rule should make the compensation structure for traders involved in market making based solely on the services rendered, not any profits that the services provide for the bank.

Compensation for those bankers should be based entirely on "fees, commissions and observable bid-ask spreads," said Marc Jarsulic, the chief economist...

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