The Code of Federal Regulations (12 CFR 248.3) defines proprietary trading as engaging as principal for the trading account of the banking entity in any purchase or sale of one or more financial instruments1. The statutory definition is also trading as principal for the trading account in securities, derivatives, contracts of sale of commodities for future delivery and similar instruments2.
The rule defines the trading account by the purpose of the trade. The typical case is an account used principally for short-term resale or to benefit from short-term price movements3. Trades to meet customer orders or to reduce the risk of a position are handled separately, under the requirements for permitted activities. Market making is also trading for one's own account, but it is a permitted activity if its requirements are met.