Morgan Stanley reached an agreement with proprietary-trading chief Peter Muller that will allow his team of traders to form a new firm at the end of 2012, people familiar with the matter said.

The widely anticipated deal is the latest exit by high-profile traders from traditional Wall Street firms because of the Volcker rule, approved as part of last year's Dodd-Frank financial-overhaul law. Under the rule, large US banks and securities firms must shed their proprietary-trading units. The requirement is aimed at making companies such as Morgan Stanley safer and less likely to require government aid, as they did in late 2008.