US regulators are pressing for a strict definition of proprietary trading, which is to be banned by the Dodd-Frank financial reform.

The precise definition of proprietary trading – dealing done by banks with their own funds – is one of the most controversial issues arising from the new legislation and has triggered a wave of lobbying from financial groups and other interested parties.

Banks have warned that a sweeping interpretation of the “Volcker rule” banning prop trading would sharply reduce liquidity in capital markets, harming investors and fund managers. However, proponents of the measure, including its architect Paul Volcker, former chairman of the Federal Reserve, have urged regulators to include as many activities as possible to prevent banks from taking big risks.