Prop Trading to Be Spun Off
The is one thing that you can count on almost every time in the United States. It’s when the government tries to regulate or in this case over-regulate an industry, somebody smarter than them will figure a way around it.
The intention of the FinReg bill, which was signed into law last month was to curb speculation among banks. Once the bill was passed, most felt that it was just a matter of time before somebody found a loophole. Well yesterday, Goldman Sachs (NYSE:GS) figured it out.
CNBC’s Kate Kelly broke a story that Goldman Sachs could potentially spin off its proprietary trading unit this month. Shares of GS rallied sharply and mildly lifted the major indexes. The details of the move are still not etched in stone. However, the intention is obviously to separate it’s highly profitable prop trading unit from the bank. This will basically allow traders to exceed the 3% limit on investing tier one capital.
Now how does this impact investors ? It’s pretty obvious that most people would like to invest in a GS unit that is incredibly profitable, and is filled with some of the top minds in the industry. However, the details of the deal are still unknown. If Goldman’s move proves to be successful, other banks will surely follow.
On the other hand the move will probably only effect the OTCBB with positive sentiment. As we have mentioned many times in other blogs, penny stocks are impacted positively when the large caps in favor. The GS spin off could potentially spur a rally in the financials, which would surely lift major market averages. Consequently, some of those profits often find themselves trickling down into microcaps.
However, the OTCBB is an exchange that is skewed towards mining stocks, and biotech. Not financial stocks. Many mining penny stocks are linked to larger NYSE companies with their projects. Many of us have read about these relationships in various PR’s and penny stock newsletters. It is almost unheard of though, to see an OTCBB financial stock releasing news on some contract with a Morgan Stanley (NYSE:MS) or a JP Morgan (NYSE:JPM). With that being said, the prospect for hot penny stocks to develop off of the GS spinoff is slim. But as usual, be ready just in case.
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