Let's talk about Goldman's prop-trading That's a typical reaction to this Bloomberg piece on Goldman's "secret" prop-trading team for you. Let's break it down. Goldman has something called a Multi-Strategy Investing (MSI) group, which sits inside the bank's Special Situations Group (SGS). MSI invests the bank's own money in things like, reportedly, a cement company and a mortgage servicer (the latter is interesting given that it's the same mortgage servicer Goldman sold its old servicing biz to). Yes, yes they are banned from trading under the proposed rule. But the definition of trading under Volcker has been so narrowly defined as to leave giant (whale-sized) loopholes. For instance, the ban on prop-trading under the Volcker Rule effectively means a ban on short-term prop trading. Short term is defined as a position held for fewer than 60 days. Yes - as long as it doesn't fall under the definition of a covered fund. Goldman says the MSI makes long-term investments that generally exceed the 60-day limit (think three years as opposed to three days). It's all very merchant bank-ish. Yes, and that's allowed too. Check out this Volcker Rule explainer from law firm Morrison and Foerster: "The trading prohibition rests on the purpose of and intent behind a position, and US regulators may take action on positions that exceed 60 days, if they determine that there is a purpose to trade in the short term. Alternatively, an entity may seek to rebut the presumption, particularly if the entity, for unforeseen reasons, disposes of a long-term position sooner than expected. A bank can exit a "long-term investment" early if it has good reason and can convince regulators that it originally intended to hold the investment for longer than 60 days. What's the alternative? Force banks to hold positions for more than 60 days? What happens if a bank buys a corporate bond and the next day the company announces a life-threatening accounting scandal? Should the bank have to sit on its investment for the next 59 days and have to take larger losses down the road because of that? That's not very prudent either. Yes, yes it does. And it's worth noting that Paul Volcker - the inspiration behind the rule - was no fan of this particular construction. Back in February of last year he said that the ban on short-term trading was "nonsensical" since banks were more likely to be undone by longer-term bets anyway. He wanted banks to have to prove that any trade they hold for more than 60 days isn't prop- trading instead. Either way, though, it looks like regulators are going to have to comb through banks" trades and businesses to discover the real "intent" behind them. Good luck with that. Yes, we are too. So is Goldman, probably. They've got to defend themselves against accusations that they are not complying with the spirit of a law that isn't even finalised. If it's any consolation to everyone involved, MSI has been much reduced anyway. It's gone from about $4bn back in 2006 to $1bn now. And if regulators get sufficiently angry about the business then they can go ahead and define it as prop-trading regardless of its length of investments anyway. Yes, let's. Related link: Secret Goldman team sidesteps Volcker after Blankfein vow - Bloomberg