US regulators approved the general framework for the Volcker rule, with the intention of limiting excessive risk-taking at financial institutions. The Volcker rule has been in the works since 2010, and many banks have already shut down their prop trading desks. So without the risk from prop trading, what else does the Volcker rule control? For one, market making will be more closely supervised to ensure it doesn't just become another forum for prop trading. The same concept applies to hedging. Hedges will need to be justified to a supervisor and must be used against specific risks. The idea is to avoid a London Whale situation (supposedly a hedge which lost JPM $6.2 billion). One exception to prop trading restrictions will be in sovereign debt securities (where liquidity is very important). (VIEW LINK)
Financial institutions are trying to understand the details from the over 1,000 page Volcker Rule Guide. But, they should also have been prepared for this day. One thing is for certain, speculating on risk will be frowned upon by regulators.