The rule contains two primary components:
- prohibition on proprietary trading, with allowances for activities such as market-making, underwriting and the hedging and trading of government securities;
- a prohibition on investing in or sponsoring hedge funds and private equity funds.
The Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the U.S. Securities and Exchange Commission (collectively known as the Agencies) issued the proposed Volcker Rule regulations in a 298-page document in October of 2011. At the same time, the Agencies solicited comments from banks, investors and other interested parties. What followed was a tidal wave of responses – more than 17,000 in all – from a wide range of banking entities, industry associations, investors and consumer advocacy groups.
A Disputed Proposal, provides a synopsis of some of the key issues and themes that have emerged following a detailed examination of the formal responses from a wide range of investment banks, industry associations and other influential players. Some of the recurring themes raised in the responses include:
- The definition of a covered fund is too broad and inhibits asset managers from hedging risks and hampers banks’ ability to provide adequate liquidity to clients
- The regulations, in their current form, would significantly impact market liquidity – possibly to the point of impeding an economic recovery
- The proposed regulations restrict financial institutions’ ability to engage in legitimate asset liability management
- The metrics proposed to help detect proprietary trading have been criticized as overly bureaucratic, costly to implement and, in some cases, ineffective
- The effective date of July 2012 and compliance date of 2014 are simply unachievable, particularly given the scope of the regulations and the significant challenges associated with implementing the necessary measures to comply.
We provide this report in hope it helps you better understand scope of this regulation, its potential impact on your business and what measure may need to be contemplated in order to comply.