"Proprietary Trading Restrictions Under the Proposed Regulations"

November 17, 2011 | Insights Special Edition: Dodd-Frank Rulemaking: Volcker Rule and SIFI Proposals | Stacy J. Kanter, Laura A. Kaufmann Belkhayat

Finance industry participants have expressed concern over the burden of complying with the proprietary trading restrictions in the Volcker Rule and the potential effects of those restrictions on the competitiveness of U.S. banks. The proposed regulations impose significant new recordkeeping and reporting requirements to provide data for banking entities and regulators to police the boundaries between prohibited proprietary trading and permitted activities. In the proposed regulations, the agencies have provided exceptions prescribed by statute to the prohibition against proprietary trading, with the objective of allowing banking entities to continue to provide traditional client-oriented financial services, including underwriting, market making and asset management services, and to engage in hedging and liquidity management activities designed to enhance the safety of their operations. Regulators face considerable pressure from the financial services industry to preserve the scope of these activities, which are difficult to distinguish, both in regulatory language and in practice, from the prohibited proprietary trading activities.

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