Volcker Rule: Version 2.0, Final Rule Round 1

Author:Mr Satish M. Kini, Gregory J. Lyons, David L. Portilla, Alison M. Hashmall, Andrew Field and Chen Xu
Profession:Debevoise & Plimpton
 
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Key takeaways: Yesterday, the Federal Deposit Insurance Corporation and Comptroller of the Currency approved revisions to the regulations implementing section 13 of the Bank Holding Company Act, referred to as the "Volcker Rule." The final rule—sometimes called Volcker Rule 2.0—deals mostly with proprietary trading, compliance and metrics issues and adopts as proposed covered funds changes for which the agencies had proposed rule text. In general, the final rule reflects the agencies' intent to resolve ambiguity, overbroad application, and unduly complex and inefficient requirements. The agencies anticipate a second round of proposed revisions to deal with a broader set of covered funds issues. Yesterday, the Federal Deposit Insurance Corporation and Comptroller of the Currency approved revisions to the regulations implementing section 13 of the Bank Holding Company Act, referred to as the "Volcker Rule." The final rule—sometimes called Volcker Rule 2.0—deals mostly with proprietary trading, compliance and metrics issues and adopts as proposed covered funds changes for which the agencies had proposed rule text. In general, the final rule reflects the agencies' intent to resolve ambiguity, overbroad application, and unduly complex and inefficient requirements. The agencies anticipate a second round of proposed revisions to deal with a broader set of covered funds issues. Below are our preliminary takeaways on key matters in the final rule.

We anticipate providing a comprehensive summary of the final rule in the future. A redline showing changes to the regulatory text is available here.

PROPRIETARY TRADING

Trading account and trading desk.

MRCR and short-term intent prongs. The accounting prong was not adopted. The final rule retains the short-term intent prong but provides that banking entities subject to the market risk capital rule ("MRCR") prong are not also subject to the short-term intent prong. Banking entities that are not subject to the MRCR may elect to apply this prong instead of the short-term intent prong. The agencies declined to modify the MRCR prong to incorporate foreign market risk capital frameworks. 60-day rebuttable presumption. The final rule reverses the 60-day rebuttable presumption such that financial instruments held for 60 days or longer are presumed not to be within the short-term intent prong, as long as the banking entity does not transfer substantially all of the risk of the financial instrument...

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