Bloomberg News

SEC Proposes Volcker Rule Curbs on Banks’ Proprietary Trades

October 12, 2011

(Updates with Schapiro comments in third paragraph.)

Oct. 12 (Bloomberg) -- The U.S. Securities and Exchange Commission joined three other federal regulators in seeking comment on a rule that would bar banks from making short-term trades for their own accounts and limit their ownership of private-equity and hedge funds.

SEC commissioners voted 4-0 at a meeting in Washington today to release the so-called Volcker rule for public comment through Jan. 13. The proposal -- part of the agencies’ rulemaking under the Dodd-Frank Act -- was released yesterday by the Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency.

“Its implementation would be a step forward in reducing conflicts of interest between the self interests of banking entities and the interests of their customers,” SEC Chairman Mary Schapiro said before the vote. The proposal offers a “balanced approach” that still allows certain market-making activity, hedging and underwriting, said Schapiro, who led the meeting via videoconference from London.

Lawmakers included the rule, named for former Fed Chairman Paul Volcker, in last year’s regulatory overhaul to keep banks from jeopardizing customer deposits after high-risk trading was faulted for contributing to the 2008 credit crisis. The measure covers banks with access to federal deposit insurance and comparatively cheap Fed loans as well as their holding companies and affiliates.

The regulators’ 298-page joint proposal raises nearly 400 questions for response from commenters. The SEC specifically asks about how the rule should define “covered banking entities” and how it will affect the banking industry,

‘Significant Reservations’

Troy Paredes, the commission’s lone Republican, voted to seek comment on the rule while registering “significant reservations,” including what he said was the potential for excessive compliance costs and the possibility that it may put U.S. firms at a disadvantage against international competitors.

Separately, the SEC voted 3-1 today to propose a registration process for security-based swap dealers and major swap participants. The process would require a senior officer to certify a firm’s capabilities for operating a swap business.

Paredes voted against the proposal, calling the senior officer designation a “novel and untested approach.”

The SEC’s December proposal for defining those dealers and participants is still awaiting final adoption. The agency will share oversight of swaps markets with the Commodity Futures Trading Commission.

--Editors: Gregory Mott, Lawrence Roberts

To contact the reporter on this story: Jesse Hamilton in Washington at

To contact the editor responsible for this story: Lawrence Roberts at

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