Volcker rule most likely will be effective before 2015 - top regulator

December 10
10:16 AM 2013

Commodity Futures Trading Commission member Bart Chilton said his agency will most likely adopt the Volcker rule behind closed doors on Tuesday, according to a report by Reuters. A government shutdown in Washington was expected because of a snowstorm threat. Moreover, Chilton reportedly said that the US government will not put the proprietary trading ban rule in effect fore 2015. The news agency noted that this was a widely-accepted move as regulators have struggled to agree on the ban for years.

Chilton also disclosed that the final rule, which will include parameters of the proprietary trading ban, will allow banks continue with their proprietary hedging so long as there is a close correlation between the underlying risk and a hedge. Details of the final rule will be released on late Tuesday.

Reuters said in a separate report that Wall Street banks will need to provide proof to regulators that the proprietary trades they have and will undertook are on behalf of their clients or done in order to protect them against risks in the market, and insist that they are not speculative to acquire additional profit. The Volcker rule seeks to crack down sharply on so-called proprietary trading, and may also disappoint banks who are hoping for more legroom.

The proprietary trading ban was named after after former Federal Reserve Chairman Paul Volcker, who was the primary advocate of the reform. The rule, the news agency explained, will ban banks from placing bets on financial markets using their own money. Volcker insisted that speculative betting played a key role in the 2008 financial crisis.

In a statement, Federal Deposit Insurance Corp head Martin Gruenberg said, "The rule would prohibit so-called 'macro-hedging' that has caused large speculative losses at institutions in the past."

The provision was reportedly designed to avoid a repeat of trading scandals like JPMorgan's USD6 billion trading loss in 2012, which was dubbed as the "London Whale" due to the massive positions JPMorgan took in credit markets.

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