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Volcker rule gets final clearance

Thursday 12 January 2012 - by Karina Whalley

Gary Gensler - photo by CFTC
 Proposals for the controversial Volcker rule have passed the final hurdle and have been voted in by the Commodity Futures Trading Commission.

Commissioners voted 3-2, on Wednesday to put forward a draft of the rule which prohibits swap dealers and other bank entities from engaging in proprietary trading and from investing in hedge funds or private equity funds.

CFTC chairman Gary Gensler said this mirrors the joint rule proposed in October by the other main US regulatory bodies including the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Securities and Exchange Commission.

But commissioner Jill Sommers has hit out at the CFTC for putting itself on a "separate track" from the other agencies by delaying the proposals until January and for creating almost identical rules, despite strong public criticism to the October draft.

She told the panel in Washington: "It seems as if we have put ourselves on a separate track, which I fear will needlessly complicate an already convoluted and likely unworkable set of rules.

"Unfortunately we are proposing rules that are virtually identical to the other agencies' proposed rules, well after they have been widely criticised and after many have called for those agencies to start over, including Paul Volcker."


Commissioner Scott O'Malia also voted against the rule which he said "falls short" of providing an appropriate foundation for a rigorous and reliable rulemaking process.

"It seems inevitable that we and our fellow regulators will have to engage in re-proposals that, at a minimum, reduce the complexity and clarify the regulatory roles for the five regulatory entities involved," O'Malia said.

"By imposing onerous facts-and-circumstances standards on what constitutes market-making, I fear this rule will deter smaller banks from continuing to serve this critical role in the markets while reducing the capacity of large dealers to provide liquidity."

The rule which counts over 300 pages, is overly complex, says O'Malia. However it is not clear where the CFTC's regulatory mandate and enforcement responsibility lies, he argued.


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