The Financial Crisis Inquiry Commission cited a plethora of causes for the financial crisis. Proprietary trading, however, was not one of them. Notwithstanding the FCIC’s findings—or lack thereof—the Federal Reserve, FDIC, OCC and SEC recently issued the long-awaited proposed rule implementing the Volcker Rule of the Dodd-Frank Act.
The Proposed Rule, which closely follows the language and presumptions spelled out in the Act, constructs the most far-reaching regulatory prohibition in US financial history by prohibiting proprietary trading not only in FDIC-insured institutions, but also in any affiliate thereof—irrespective of its business or geographic location. In a surprise to many foreign banks, the Proposed Rule not only applies to their US branches and agencies (insured or uninsured) and their US affiliates, but it would also draw in their businesses located outside of the US to the extent that they engage in transactions which have a US nexus, defined very broadly. This A Closer Look focuses primarily on the proprietary trading aspects of the Proposed Rule—we will cover the fund aspects of the Proposed Rule in a future A Closer Look. Our objective here is not to provide a detailed analysis of the Proposed Rule, but rather to try and help answer the broader question - "what should I do now?"