Dodd-Frank Volcker Rule

The Volcker Rule

The objective of the Volcker Rule is to stop all proprietary trading (which is defined quite broadly) by commercial banks (such as HSBC) i.e. to cease any risky trading by banking institutions that has no benefit to its customers. It also seeks to prevent the requirements being by-passed by ownership/investment in hedge funds or private equity funds.

The Volcker Rule ("The Rule") is section 619 of the Dodd-Frank Act (DFA) and the implementing regulations that imposes a number of restrictions on banking entities, most notably the prohibition of proprietary trading. The Rule is required to be implemented by 21 July 2015.

What are the key aspects of the Volcker Rule requirements?

The final rules broadly prohibit banking entities from:

  • Engaging in short-term proprietary trading of specific financial instruments for their own account.
  • Owning, sponsoring, or having certain relationships with hedge funds or private equity funds, and certain other investment vehicles "Covered Funds".

Timeline

  • The final rules became effective on 1 April 2014 but with an implementation time period. Between 30 June 2014 and 31 December 2016, banking entities with consolidated trading assets and liabilities of their US operations ranging from USD 10bn upwards will be required to report quantitative measurements. Reporting will be phased in with the first wave reporters beginning in September 2014. HSBC will begin reporting in April 2016.
  • Beginning 30 September 2015, regulators will review metrics and refine the strategy.

Exemptions

As required by section 619 of the Dodd-Frank Act, the final rules, adopted under the Bank Holding Company Act, provide exemptions for certain activities, which include, market making, underwriting, hedging, trading in certain government obligations and organising and offering a hedge fund or private equity fund.

Further Volcker information can be found on the Federal Reserve website


Last updated: 20 May 2014