Volcker Rule - CFTC - Comment Letters

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Dodd-Frank Timeline, "Volcker Rule," CFTC
Proposal Date Comment Deadline Final Rule Released
February 14, 2012 April 16, 2012 December 10, 2013

Comment letters on the CFTC Proposed Rule: Regarding Prohibitions and Restrictions on Proprietary Trading (Volcker Rule).

The comment deadline for this rule was April 16, 2012. Letters will be added periodically as they are submitted to the CFTC. Many of the letters submitted to the CFTC are resubmissions of letters to the Securities and Exchange Commission and other Prudential Regulators on their Volcker Rule proposal. Those letters can be viewed HERE.

Sheila Bair - May 31, 2012[edit]

CFTC Volcker Rule Roundtable CFTC
May 31, 2012

On May 31, 2012, the CFTC held a staff roundtable on the Volcker Rule. As a participant in the session, former FDIC Chair Sheila Bair submitted her comments in a letter to the commission.

From the comments:

“Ideally, insured banks would be restricted to traditional commercial banking activities such as deposit-taking, lending, payments processing, and wealth management. These are activities with clear economic value and there is a longstanding public policy interest in having insured deposits support them. This is not to say they cannot also be susceptible to excess risk taking, but they are well understood by management, investors, and bank examiners.”

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BlackRock - February 13, 2012[edit]

Volcker Rule - CFTC
February 13, 2012

From the comment letter:

“The statutory provision is expansive in its potential reach, however, and should be implemented carefully with appropriate consideration of congressional intent and the potential impact of the rule on U.S. financial markets and all of its participants. To the extent the Volcker Rule constrains asset management and trading activities of U.S. banks and their affiliates without any commensurate benefit to taxpayers and to the economy, it will limit U.S. banks’ competitiveness and ultimately weaken the very system it was designed to protect. As drafted, we believe the Proposed Rule will lead to a number of significant adverse impacts and unintended consequences that should be resolved in the final rule.”

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Institute of International Bankers - February 13, 2012[edit]

Volcker Rule - CFTC
February 13, 2012

IIB urges the Agencies to “issue a new proposed rule after considering comments on this proposal, and to revise the conformance rules to provide adequate time after issuance of a Final Rule for banks to conform their activities in an orderly manner, minimizing negative impacts on customers, the markets and banking entities.” In particular, IIB comments on the following:

  • Activities Conducted “Solely Outside of the United States”
  • Implementation of a Final Rule and the Statutory Conformance Period
  • The Non-U.S. Fund Provisions’ Prohibition on Sales to U.S. Investors
  • Exclusion of Regulated Foreign Investment Companies and Mutual Funds
  • Securitization Vehicles
  • Limiting the Application of the 23A Prohibition Outside the United States
  • Exemption for Trading in Non-U.S. Government Securities
  • Exclusion of Controlled Funds from the Definition of “Banking Entity”
  • Compliance Program/Reporting Requirements and the Prudential Backstops
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UBS Americas - February 17, 2012[edit]

Volcker Rule - CFTC
February 17, 2012

In their comment letter, UBS Americas explains that “as currently constructed, the rule could create a number of unintended consequences that hurt investors and companies. Our comments focus on some of the practical problems our bank already sees coming with such a broad-ranging prohibition. Some are impacts on the financial services industry, but in the end the impacts will also be felt by individual investors. In particular, the rule has the potential to make it harder for American businesses and municipalities to raise capital and have access to credit. As the U.S. continues its long recovery from the financial crisis, I hope you will keep this in mind. We expect that there are a number of consequences we cannot currently foresee. The regulatory benefits should not be outweighed by the burden on capital formation and investor choice.”

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Futures Industry Association - April 16, 2012[edit]

Volcker Rule - CFTC
April 16, 2012

In their comment letter to the CFTC, FIA recommends the following:

  • exclude forwards and contracts and other physically settled contracts from the definition of covered financial position;
  • exclude foreign exchange forwards and swaps from the definition of derivative;
  • include in the scope of permissible government obligation activities transactions in futures and swaps on U.S. government obligations;
  • include in the scope of permissible government obligation activities transactions in foreign sovereign debt and in futures and swaps on those obligations; and
  • include only those commodity pools and foreign funds in the definition of “similar funds” that are, in fact, similar to hedge funds or private equity funds
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British Bankers Association - February 13, 2012[edit]

Volcker Rule - CFTC
February 13, 2012

From the comment letter:

“We are concerned that the Volcker Rule, as currently drafted, would have a very negative impact on liquidity, price and volatility that will be felt broadly throughout the global financial markets. The international application proposed in the draft regulations subjects banks that operate in the US to the Volcker Rule compliance in all jurisdictions. We believe that the proposed regulations would restrict the ability of financial institution intermediaries with US operations to make markets in fixed income and commodities instruments by effectively prohibiting warehousing acquired positions by market makers.”

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Goldman Sachs - February 13, 2012[edit]

Volcker Rule - CFTC
February 13, 2012

Goldman Sachs addresses the following concerns in their comment letter:

  • the statutory requirements for market making-related, underwriting and hedging activities, as well as the recommendation of the Financial Stability Oversight Council (the “FSOC”), in its study of the Volcker Rule, of a quantitative metrics-based approach to evaluate such activities that would be developed over time and through experience;
  • the Proposed Rule’s approach and the key problems that are likely to arise from language that is too narrowly crafted to allow important permitted activities;
  • the most critical issues in the Proposed Rule that are likely to harm both markets and banking entities‟ customers; and
  • the need for a multi-phase implementation of the proprietary trading prohibition of the Volcker Rule to minimize unintended disruptions to markets and unnecessary costs.
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Deutsche Bank - February 13, 2012[edit]

Volcker Rule - CFTC
February 13, 2012

In their comment letter, Deutsche Bank makes the following arguments with respect to the Proposed Rules:

  • Repackaging is a customer facilitation service involving the transfer of assets to a Repack Vehicle that issues notes secured by such assets to a banking entity’s clients.
  • The overly broad definition of “covered fund” in the Proposed Rules could inadvertently sweep in many Repack Vehicles, thereby subjecting them to the Volcker Rule.
  • Application of the Volcker Rule in the repackaging context would adversely affect the ability of banking entities to arrange transactions for clients to help customize their risk exposure to certain assets.
  • The Agencies should use their rulemaking authority under the Volcker Rule to adopt a definition of “covered fund” that focuses on the characteristics of traditional hedge funds and private equity funds, rather than solely on the Investment Company Act exemption on which the issuer relies, or would rely.
  • This approach ensures that Repack Vehicles, which do not exhibit hedge fund or private equity fund characteristics and do not pose the types of risks that the Volcker Rule was intended to address, would be outside the scope of the Volcker Rule.
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Foreign Bank Group - February 13, 2012[edit]

Volcker Rule - CFTC
February 13, 2012

This letter is intended to focus on three key areas under the Proposed Rule that relate to covered funds restrictions and which are of particular concern to internationally headquartered banks with U.S. banking operations:

  1. The applicability and scope of the foreign funds exemption under the Proposed Rule.
  2. Issues under the Proposed Rule relating to the prohibition on affiliate transactions.
  3. The effects of the Proposed Rule on securitization and other structured products.
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Investment Company Institute - February 13, 2012[edit]

Volcker Rule - CFTC
February 13, 2012

From the comment letter:

"If adopted in its current form, the Proposed Rule would reach much farther than Congress ever intended. For example, the Proposed Rule could treat many registered funds as hedge funds—a result that contradicts the plain language that Congress passed…The Proposed Rule, as currently drafted, also could restrict banks from playing their historic role as market makers buying and selling securities—despite the fact that Congress specifically designated “market making-related activity” as a “permitted activity” for banks under the Volcker Rule. If banks could not provide these services, particularly in the less liquid fixed income and derivatives markets and the less liquid portions of the equity markets, registered funds and other investors likely would face wider bid-ask spreads, higher transaction costs, and diminished returns. The Proposed Rule also could greatly impair the U.S. financial markets by imposing stringent restrictions that go well beyond what is necessary to effectuate Congress’ intent in enacting the Volcker Rule, potentially hurting our broader economy and impacting job creation and investments in U.S. businesses overall."

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Credit Suisse - February 13, 2012[edit]

Volcker Rule - CFTC
February 13, 2012

Credit Suisse believes that the Proposed Rule “goes significantly beyond the text of the Volcker Rule and the intent of Congress, and could have adverse effects on the U.S. economy, U.S. investors, and banking organizations operating in the United States. At the same time, many fundamental questions about the Proposed Rule remain unanswered.” In their comment letter, Credit Suisse addresses their concerns with regard to the following topics:

  • Extraterritorial Application
  • Timing and Conformance Period Issues
  • Extensions to Generally Permit a 3-Year Seeding Period for Sponsored Funds
  • Compliance Program and Reporting Requirements
  • Exclusion of Controlled Funds from the Definition of “Banking Entity”
  • Employee Investments
  • Implications for Securitization Activities
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PNC Bank - February 13, 2012[edit]

Volcker Rule - CFTC
February 13, 2012

From the comment letter:

“We are concerned that the standards included in the Proposed Rules, and the manner in which they may be implemented in practice by the Agencies, would prohibit, or cast substantial doubt on the continued permissibility of, legitimate customer-facing and risk management activities, such as market-making, hedging and other asset-liability management (“ALM”) activities. Because the Proposed Rules fail to clearly protect such bona fide activities, banking organizations like ours will operate in a continuous zone of uncertainty–unclear whether legitimate activities and trades will on a post-hoc basis be determined by an Agency to constitute impermissible proprietary trading. This uncertainty and its consequent effects on the ability and willingness of banking organizations to provide liquidity to customers, or engage in bona fide hedging and ALM activities, could have important negative implications for safety and soundness and the functioning of the financial markets.”

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Fidelity Investments - February 13, 2012[edit]

Volcker Rule - CFTC
February 13, 2012

“In addition to the overarching impact on the liquidity of the financial markets, we are concerned that the Volcker Proposal will have harmful effects, without commensurate benefits, on certain instruments that are critical to the Fidelity Funds and Accounts.” In this letter, Fidelity Investments comments on the following topics with regard to the Proposed Rule:

  • The definition of “municipal securities” should be expanded
  • Covered funds: asset-backed commercial paper and tender option bonds
  • OTC derivatives
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M&T Bank Corporation - February 10, 2012[edit]

Volcker Rule - CFTC
February 10, 2012

From the comment letter:

“Our paramount concern is that the Proposed Rule would require M&T and similar organizations to develop and implement, in extremely short order, compliance, internal controls, record-keeping and reporting regimes simply to “prove a negative”—that we are not engaged in impermissible proprietary trading. Certain aspects of the Proposed Rule, especially those that impose overly burdensome compliance cost structures on regional banks that continue to provide these ancillary services to their commercial loan clients, may inadvertently create incentives to further concentrate hedging activity in a handful of already dominant financial institutions.”

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