New York Partner Kay Gordon and Associate Carey Bell recently wrote an article for The Investment Lawyer titled, “High Hopes: Measuring the Volcker Rule Proprietary Trading Provisions Against FSOC and Other Recommendations.” In the article, Kay and Carey discuss concerns with the Final Rule that was adopted to implement the general prohibition of proprietary trading by banking entities contained in the Dodd-Frank Act’s Volcker Rule. The Dodd-Frank Act had called on the Financial Stability Oversight Council (FSOC) to conduct a study and provide recommendations for a final rule implementing the Volcker Rule’s limits on proprietary trading. The authors note that the Final Rule veers from the FSOC recommendations in several respects and could bring about a number of unintended consequences.
Kay and Carey argue that the Final Rule’s presumption that financial instruments held for less than 60 days are being used for impermissible proprietary trading lacks the flexibility called for in the FSOC recommendations.
The authors also note that the lack of an express exclusion for asset-liability management (ALM) activities in the Final Rule runs counter to the FSOC recommendations and creates the potential to make banking entities more prone to risk.
Kay and Carey write that these “shortcomings could have the perverse effect of actually increasing volatility in the global financial markets, rather than decreasing overall systemic risks.”