Federal Regulators Issue Final "Volcker Rule"
The Federal Reserve Board and other financial regulators on December 10 issued a final rule implementing section 16 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Commonly called the "Volcker Rule," the regulation prohibits insured depository institutions and their affiliates from proprietary trading and from owning and sponsoring hedge funds or private equity funds. Certain activities such as market making, risk-mitigating hedging, and trading in certain government securities are excluded from the rule, and banks are still permitted to act as agents, brokers, or custodians.
Compliance programs called for
Defining the line between proprietary trading and market-making and hedging is a key challenge associated with the new rule, noted Fed Governor Daniel Tarullo, head of the Board's bank supervision and regulation committee. "The difficulty in doing so inheres in the fact that a specific trade may be either permissible or impermissible depending on the context and circumstances within which that trade is made," he explained.
A lengthy path to fruition
The Federal Reserve requires banks to be fully compliant with Volcker Rule by July 21, 2015.
December 23, 2013