The financials are reeling Thursday after President Obama announced plans to limit the scope and size of banks. While still preliminary in nature, the greatest implications appear to be for banks with proprietary trading and investing branches because a key element of the proposal is that no bank (or institution that contains a bank) will also participate in a hedge fund, private equity fund, or proprietary trading operation.

It will force financial services firms to make hard decisions regarding the future direction of their business. On its post earnings call, for example, Goldman said it is too early to comment, but said giving up bank holding company status is out of the question. Investors don’t like the news, as it suggests greater regulatory scrutiny and probably a more difficult operating environment for the nation’s biggest financial institutions. In addition, as the banks separate traditional banking from Wall Street, the notion of “too big too fail” will likely fall to the way-side. Future bailouts become less likely.

In the options, trading is brisk in a number of names:

Goldman Sachs (GS) tumbled $8.77 to $159 and options volume is 3X the average daily, with 147,000 calls and 138,000 puts traded.

JP Morgan (JPM) lost $2.55 to $40.85 and options volume is 2X the average daily, with 143,000 calls and 128,000 puts traded.

Morgan Stanley (MS) is off $1.64 to $28.99 and options volume is 2X the average daily, with 54,000 calls and 66,000 puts changed hands.