Citigroup Inc. may move a team of proprietary traders into its hedge fund unit, one of at least three alternatives the U.S. company is studying to comply with the Dodd-Frank Act, according to people briefed on the matter.

Traders in the Citi Principal Strategies unit, led by Sutesh Sharma, would be reassigned to Citi Capital Advisors, which mostly oversees money for outside investors, said the people, speaking anonymously because the talks are preliminary.

The banking company would set up the traders as hedge fund managers, seed their funds, then raise money from outside investors to redeem its stakes, the people said.

Under another scenario considered by Citigroup, members of the Principal Strategies team would be distributed across the company's main client-facing trading operations based on their specialties, the people said. For example, proprietary traders who specialize in stocks in specific industries would join the single-stock trading team, one of the people said.

Danielle Romero-Apsilos, a Citigroup spokeswoman, declined to comment.

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