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The Impact of Proposed Changes to the Volcker Rule

By Joseph Pickel, SVP Sales Enablement, IPC

The Federal Reserve Bank recently agreed to vote on proposed changes to the Volcker rule, the regulation instituted in 2010 that prohibits Federal Deposit Insurance Corporation (FDIC) backed banks from participating in activities deemed “risky,” including proprietary trading and ownership, partnership, or investments in hedge funds and private equity funds. While advocates say the rule helps separate commercial from investment banking and protects consumers, financial executives argue that it’s overly complex, making it difficult and too costly to comply.

The intended revisions, dubbed Volcker 2.0, aim to simplify basic tenets, including:

  • Customizing compliance requirements according to the scope of a firm’s trading assets and activities,
  • Clarifying guidelines for banks to trade within appropriate risk limits,
  • Streamlining criteria that would allow proprietary trading, and
  • Simplifying regulatory reporting requirements.

The changes, now before the Federal Reserve, have a great amount of credence, as they were designed by the very agencies responsible for administering the Volcker mandates, namely the Federal Reserve System, the Commodity Futures Trading Commission (CFTC), the FDIC, the Office of the Comptroller of the Currency (OCC), and the Securities and Exchange Commission (SEC). These regulators have been vocal about their desire to stay true to the spirit of the Volcker rule but also recognize the need to remove unnecessary complexities and inefficiencies in the compliance and reporting requirements.

Although the process by which the Federal Reserve gathers comments and identifies an approval process for Volcker 2.0 may be lengthy, IPC is closely monitoring the situation and is actively involved in industry committees that provide guidance.

By giving banks more trading and market making latitude, Volcker 2.0 should allow banks to better profit from volatile, faster-moving markets with the added benefit of much-needed liquidity across asset classes. Combining this with a measure of relief from overly stringent regulations could grant banks the time to focus more on managing their business while still mitigating risk.

Should regulatory pressures on U.S. proprietary trading ease, IPC can immediately enable across asset class proprietary trading through its ready-made direct market access ecosystem of liquidity venues. All the while, providing secure low and high touch access to a global financial markets community of over 6,600 trade life-cycle participants.

For over 45 years, IPC has been dedicated to helping clients anticipate change and solve problems, and monitoring Volcker 2.0 is a prime example of how we help uphold the standards that support our clients and our industry through a changing environment.

© 2018 IPC Systems, Inc. All Rights Reserved. The contents of this publication are intended for general information purposes only and should not be construed as legal or regulatory advice.