Volcker Rule Portends Heightened Oversight of Trades

Paul Dykewicz

[Marriner S. Eccles Federal Reserve Board Building]

Volcker Rule Portends Heightened Oversight of Trades  (Bloomberg)

Wall Street faces more intensive government scrutiny of trading after U.S. regulators issued the much-awaited Volcker rule today that is aimed at preventing financial blowups but still leaves many details unclear. The Federal Reserve and Federal Deposit Insurance Corp. (FDIC) voted unanimously to adopt the proprietary trading ban and three other agencies were to complete their approvals by the end of the day. The rule has been contested by JPMorgan Chase & Co., Goldman Sachs Group Inc. and their industry allies for more than three years. Wall Street’s lobbying helped to ease some provisions of the rule, with regulators granting a broader exemption for banks’ market-making desks, on the condition that traders aren’t paid in a way that rewards proprietary trading. The regulation also exempts some securities tied to foreign sovereign debt. But regulators said the final version imposed stricter restrictions on hedging, providing banks less leeway for classifying bets as broad hedges for other risks. To pursue a hedge, banks would need to provide detailed and updated information for review by on-site bank supervisors.

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