Wall Street’s fixed-income desks could suffer a 25% decline in revenue under a Volcker rule proposal that may outlaw so-called flow trading, according to brokerage analyst Brad Hintz. The draft proposal, written by regulators including the Board of Governors of the Federal Reserve System and the FDIC, forbids market-makers who trade debt securities for customers from amassing positions “in expectation of future price appreciation,” Hintz, of Sanford C. Bernstein & Co., wrote in a note to investors. “Thus flow trading may be prohibited.” Fixed-income traders have become more reliant on reaping revenue from price moves in the market because the profit margins from buying and selling to clients, known as the bid- offer spread, have shrunk in recent decades. Hintz estimated that clamping down on flow trading would cut fixed-income revenue by 25% and reduce profit margins by 18%.Goldman Sachs and Morgan Stanley would be the most negatively affected if the rules were adopted because they are most dependent on fixed-income revenue. The Volcker rule draft, also written by the Office of the Comptroller of the Currency and the SEC, was leaked last week. The proposal as it stands would be more damaging to fixed-income trading units than to equities businesses, which make a larger portion of their money from client commissions. [Bloomberg, 10/10/11]