CFTC Proposed Rule: Regarding Prohibitions and Restrictions on Proprietary Trading (Volcker Rule)

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Gavel.png FINAL RULE: This page refers to the CFTC's proposed Volcker Rule. For a summary of the joint final rule, click here.
Dodd-Frank Timeline, "Volcker Rule," CFTC
Proposal Date Comment Deadline Final Rule Released
February 14, 2012 April 16, 2012 December 10, 2013

Section 619 of the Dodd-Frank Act, the Volcker Rule will prohibit banking entities from engaging in short term proprietary trading of security, derivative, and certain other financial instruments for its own account. Furthermore, the rule will prohibit banking entities from owning, sponsoring, or having certain relationships with a hedge fund or private equity fund. Finally, the rule will also prohibit such entities from engaging in any activity that would result in a material conflict of interest, expose the entity to high risk, or pose a systemic risk to the financial stability of the United States.

On October 12, 2011, the U.S. Securities and Exchange Commission (SEC), the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board, and the U.S. Department of the Treasury issued its proposed regulation to implement Section 619 of the Dodd-Frank Act, the so-called "Volcker Rule," which would prohibit banking entities from engaging in proprietary trading of derivatives and limit the ownership or sponsorship of hedge funds and other private funds to three percent of Tier 1 capital.

On January 11, 2012, the CFTC approved a proposed complementary rule to the joint rule proposal. The CFTC proposal applies the Volcker Rule to CFTC-registered affiliates and/or subsidiaries of affected banking entities such as:

The CFTC’s authority would include reporting, recordkeeping and reporting of books and records. Additionally, the commission could require violators to terminate the activity and liquidate investments.[2]

George Bollenbacher of Kinetix Trading Solutions & Kim Olson of Deloitte & Touche Discuss the Volcker Rule

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Section 619 of the Dodd-Frank Act, the so-called "Volcker Rule,” would prohibit banking entities from engaging in proprietary trading of and limit the ownership or sponsorship of hedge funds and other private funds, subject to certain narrow exceptions. The statutory effective date is July 21, 2012, followed by a two-year conformance period. There has been much discussion recently on the potential impact of the Volcker Rule and the timing of the statutory effective date. George Bollenbacher of Kinetix Trading Solutions and Deloitte & Touche’s Kim Olson discussed the regulatory response to the 17,000 Volcker Rule comment letters, the key challenges associated with the Volcker Rule, and how banks are preparing for the rule’s implementation. Published April 12, 2012.

Related Documents: Fact Sheet, Federal Register Entry, January 2012

References

  1. Proposed Rule Regarding Prohibitions and Restrictions on Proprietary Trading (Volcker Rule). CFTC. Retrieved on January 19, 2012.
  2. Testimony of Gary Gensler, CFTC, before the U.S. House Financial Services Committee, January 19, 2012. House Committee on Financial Services. Retrieved on January 19, 2012.

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