On Thursday, President Barack Obama proposed new rules to curb a number of Wall Street's risky—and highly profitable—trading activities. One target: The secretive trading operations within banks that use large doses of leverage, or borrowed money, to make huge bets on the market. Wall Street says the regulations are unnecessary, and since the financial crisis struck, most banks have cut back on these trading outfits. But when the downturn first hit in the summer of 2007, several of them were among the first to suffer, and collectively they lost billions over a matter of days.

In...