At a public meeting on January 11, the Commodity Futures Trading Commission, by a 3-2 vote (Commissioners O’Malia and Sommers, dissenting), voted to propose regulations to implement the provisions of Section 619 of the Dodd-Frank Act, commonly known as the “Volcker Rule.” Among other things, the Volcker Rule generally prohibits federally insured depository institutions, bank holding companies, and their subsidiaries and affiliates (collectively, banking entities) from engaging in short-term proprietary trading and owning, sponsoring or having certain other relationships with hedge funds or private equity funds, in each case, subject to various exceptions.
The CFTC’s proposed regulations are modeled after the joint rule proposal issued in October 2011 by the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Securities and Exchange Commission to implement the Volcker Rule. The proposal outlines several exemptions from the Volcker Rule’s prohibition on proprietary trading, including certain government securities trading, market making and underwriting activities and risk-mitigating hedging. The proposal also includes exemptions that would permit a banking entity to organize and offer hedge funds and private equity funds (subject to certain conditions, including limitations on the amount invested by the banking entity in such funds) and make investments in certain non-U.S. funds. Under the proposal, banking entities would be required to establish internal compliance programs to monitor compliance with the Volcker Rule and associated regulations, which would be subject to oversight by the banking entity’s board of directors and the appropriate federal supervisory agency.
The comment period for the CFTC proposed regulations will expire 60 days after their publication in the Federal Register. A copy of the proposed regulations may be found here.