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The Dodd-Frank Act of 2010 and the "Volker Rule"

Margaret E. Tahyar of Davis Polk & Wardwell LLP has posted a comprehensive summary of the state of the "Volker Rule" in the Dodd-Frank Act of 2010, the compromise legislation resulting from the conference committee deal struck last Friday morning.  In short, the version of the Volker Rule that survived:

prohibits any “banking entity” from engaging in proprietary trading, or sponsoring or investing in a hedge fund or private equity fund. It also requires systemically important nonbank financial companies to carry additional capital and comply with certain other quantitative limits on such activities, although it does not expressly prohibit them.

The Volker Rule, if enacted, will add new Section 13 to the Bank Holding Company Act of 1956 and new Section 27B to the Securities Act of 1933. The Volker rule in its current form prohibits covered banks and financial entities from proprietary trading and sponsoring and investing in private equity or hedge funds, and limits their relationships with hedge funds and private equity funds. The new rule also imposes additional capital and other quantitative limits on any proprietary trading and hedge fund and equity fund activities not prohibited by the rule. 

These restrictions on proprietary trading and hedge fund and private equity investments also apply to certain "systematically important nonbank financial institutions" supervised by the Fed.

The new legislation also requires The Financial Stability Oversight Council created by the legislation to conduct a study and issue recommendations on implementation of the Volcker Rule’s provisions within 6 months of enactment, and grants rulemaking authority to the Federal Reserve, FDIC, OCC, OTS, SEC, and CFTC for the entities over which each has primary responsibilities. 

The full text of the Davis Polk summary of the Volker Rule is available at:  http://blogs.law.harvard.edu/corpgov/2010/06/27/senate-house-conference-agrees-on-final-volcker-rule/

The House Financial Services Committee's summary of the Dodd-Frank Wall Street Reform and Consumer Protection Act is available at:  http://www.house.gov/apps/list/press/financialsvcs_dem/prfinal_062610.shtml