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Financial Regulators Propose Changes to Volcker Rule

On May 30, the five Federal regulators responsible for the Volcker Rule approved the publication for comment of numerous proposed changes to the rule. The notice of proposed rulemaking, entitled Proposed Revisions to Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds, was jointly developed by the Federal Reserve Board, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission. The proposed changes are intended to streamline the rule by eliminating or modifying requirements that are not necessary to effectively implement the statute, without diminishing the safety and soundness of banking entities.

As summarized by the Federal Reserve Board, the proposed changes would:

  • Tailor the rule’s compliance requirements based on the size of a firm’s trading assets and liabilities, with the most stringent requirements applied to firms with the most trading activity;

  • Provide more clarity by revising the definition of “trading account” in the rule, in part by relying on commonly used accounting definitions;

  • Clarify that firms that trade within appropriately developed internal risk limits are engaged in permissible market making or underwriting activity;

  • Streamline the criteria that apply when a banking entity seeks to rely on the hedging exemption from the proprietary trading prohibition;

  • Limit the impact of the Volcker Rule on the foreign activity of foreign banks; and

  • Simplify the trading activity information that banking entities are required to provide to the agencies.

The comment period will be open for 60 days after publication of the notice in the Federal register.

The text of the 373-page notice is available here.

©2019 Katten Muchin Rosenman LLP

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About this Author

Guy Dempsey Jr., Bank Regulations Legal Specialist, Katten Muchin
Partner

Guy C. Dempsey Jr. concentrates his practice on derivatives and structured products and on bank regulation. He advises clients on derivatives transactions of all types across all asset classes, as well as on the corporate governance, regulatory, collateral, compliance, insolvency and litigation issues associated with such products.

Much of Guy’s work involves helping bank and non-bank clients analyze the details and impact of the Dodd-Frank Act. He maintains deep knowledge of the banking laws and regulations relating to capital markets activities....

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