[Federal Register Volume 75, Number 193 (Wednesday, October 6, 2010)]
[Notices]
[Pages 61758-61760]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-25320]
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FINANCIAL STABILITY OVERSIGHT COUNCIL
Public Input for the Study Regarding the Implementation of the
Prohibitions on Proprietary Trading and Certain Relationships With
Hedge Funds and Private Equity Funds
AGENCY: Financial Stability Oversight Council.
ACTION: Notice and request for information.
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SUMMARY: The Dodd-Frank Wall Street Reform and Consumer Protection Act
(the ``Dodd-Frank Act'') prohibits banking entities from engaging in
proprietary trading and from maintaining certain relationships with
hedge funds and private equity funds. These prohibitions, commonly
known as the ``Volcker Rule,'' are contained in Section 619 of the
Dodd-Frank Act. Section 619 of the Dodd-Frank Act requires the
Financial Stability Oversight Council (``FSOC'') to study and make
recommendations on implementing the Volcker Rule. Under Section 619,
the Office of the Comptroller of the Currency (``OCC''), the Federal
Deposit Insurance Corporation (``FDIC''), the Board of Governors of the
Federal Reserve System (``Board''), the Securities and Exchange
Commission (``SEC'') and the Commodity Futures Trading Commission
(``CFTC'') must consider the recommendations of the FSOC study in
developing and adopting regulations to implement the Volcker Rule. To
assist the FSOC in conducting the study and formulating its
recommendations, the FSOC is issuing this request for information
through public comment.
DATES: Comment Due Date: November 5, 2010.
ADDRESSES: Interested persons are invited to submit comments regarding
this notice according to the instructions for ``Electronic Submission
of Comments'' below. All submissions must refer to the document title
and one of the above docket numbers. The FSOC encourages the early
submission of comments.
Electronic Submission of Comments. Interested persons must submit
comments electronically through the Federal eRulemaking Portal at
http://www.regulations.gov. Electronic submission of comments allows
the commenter maximum time to prepare and submit a comment, ensures
timely receipt, and enables the FSOC to make them available to the
public. Comments submitted electronically through the http://www.regulations.gov Web site can be viewed by other commenters and
interested members of the public. Commenters should follow the
instructions provided on that site to submit comments electronically.
Note: To receive consideration as public comments, comments
must be submitted through the method specified above. Again, all
submissions must refer to the docket number and title of the notice.
Public Inspection of Public Comments. All properly submitted
comments will be available for
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inspection and downloading at http://www.regulations.gov.
Additional Instructions. Please note the number of the question to
which you are responding at the top of each response. Though the
responses will be screened for obscenities and appropriateness, in
general comments received, including attachments and other supporting
materials, are part of the public record and are immediately available
to the public. Do not enclose any information in your comment or
supporting materials that you consider confidential or inappropriate
for public disclosure.
FOR FURTHER INFORMATION CONTACT: For further information regarding this
interim final rule contact the Office of Domestic Finance, Treasury, at
(202) 622-1703. All responses to this Notice and Request for
Information should be submitted via http://www.regulations.gov to
ensure consideration.
SUPPLEMENTARY INFORMATION:
I. Background
The Dodd-Frank Act was enacted on July 21, 2010.\1\ Under section
619 of the Dodd-Frank Act, banking entities \2\ are prohibited from
engaging in proprietary trading and from maintaining certain
relationships with hedge funds and private equity funds. These
prohibitions and other provisions of section 619 are commonly known,
and referred to herein, as the ``Volcker Rule.'' Section 619 of the
Dodd-Frank Act requires the FSOC to study and make recommendations on
implementing the Volcker Rule. Under Section 619, the OCC, the Board,
the FDIC, the SEC and the CFTC must consider the findings of the FSOC
study in developing and adopting regulations to carry out the Volcker
Rule.
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\1\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
Public Law No. 111-203, 124 Stat. 1376 (2010).
\2\ The term ``banking entity'' is defined in section 13(h)(1)
of the Bank Holding Company Act, as amended by section 619 of the
Dodd-Frank Act. The term generally means any insured depository
institution, any company that controls an insured depository
institution, any company that is treated as a bank holding company
for the purposes of section 8 of the International Banking Act of
1978, and any affiliate or subsidiary of any such entity.
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Section 619(b) provides certain specific guidance with respect to
the FSOC study and recommendations, stating as follows:
``(1) STUDY.--Not later than 6 months after the date of
enactment of this section, the Financial Stability Oversight Council
shall study and make recommendations on implementing the provisions
of this section so as to--
``(A) promote and enhance the safety and soundness of banking
entities;
``(B) protect taxpayers and consumers and enhance financial
stability by minimizing the risk that insured depository
institutions and the affiliates of insured depository institutions
will engage in unsafe and unsound activities;
``(C) limit the inappropriate transfer of Federal subsidies from
institutions that benefit from deposit insurance and liquidity
facilities of the Federal Government to unregulated entities;
``(D) reduce conflicts of interest between the self-interest of
banking entities and nonbank financial companies supervised by the
Board, and the interests of the customers of such entities and
companies;
``(E) limit activities that have caused undue risk or loss in
banking entities and nonbank financial companies supervised by the
Board, or that might reasonably be expected to create undue risk or
loss in such banking entities and nonbank financial companies
supervised by the Board;
``(F) appropriately accommodate the business of insurance within
an insurance company, subject to regulation in accordance with the
relevant insurance company investment laws, while protecting the
safety and soundness of any banking entity with which such insurance
company is affiliated and of the United States financial system; and
``(G) appropriately time the divestiture of illiquid assets that
are affected by the implementation of the prohibitions under
subsection (a).''
II. Solicitation for Comments on the Volcker Rule Study
To assist the FSOC in conducting the study and formulating its
recommendations concerning the Volcker Rule, the FSOC seeks public
comment on the following questions:
1. Commenters are invited to submit views on ways in which the
implementation of the Volcker Rule can best serve to:
(i) Promote and enhance the safety and soundness of banking
entities;
(ii) Protect taxpayers and consumers and enhance financial
stability by minimizing the risk that insured depository institutions
and the affiliates of insured depository institutions will engage in
unsafe and unsound activities;
(iii) Limit the inappropriate transfer of federal subsidies from
institutions that benefit from deposit insurance and liquidity
facilities of the federal government to unregulated entities;
(iv) Reduce conflicts of interest between the self-interest of
banking entities and nonbank financial companies supervised by the
Board,\3\ and the interests of the customers of such entities and
companies;
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\3\ The term ``nonbank financial companies supervised by the
Board'' refers to those nonbank financial companies that may be
designated by the FSOC under section 113 of the Act to be supervised
by the Board and subject to enhanced prudential standards.
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(v) Limit activities that have caused undue risk or loss in banking
entities and nonbank financial companies supervised by the Board, or
that might reasonably be expected to create undue risk or loss in such
banking entities and nonbank financial companies supervised by the
Board;
(vi) Appropriately accommodate the business of insurance within an
insurance company, subject to regulation in accordance with the
relevant insurance company investment laws, while protecting the safety
and soundness of any banking entity with which such insurance company
is affiliated and of the United States financial system; and
(vii) Appropriately time the divestiture of illiquid assets that
are affected by the implementation of the prohibitions under the
Volcker Rule.
2. What are the key factors and considerations that should be taken
into account in making recommendations on implementing the proprietary
trading provisions of the Volcker Rule?
3. What are the key factors and considerations that should be taken
into account in making recommendations on implementing the provisions
of the Volcker Rule that restrict the ability of banking entities to
invest in, sponsor or have certain other covered relationships with
private equity and hedge funds?
4. With respect to proprietary trading and hedge fund and private
equity fund activities, what factors and considerations should inform
decisions on the definitions of:
(i) ``Banking entity'' [Sec. 619(h)(1)];
(ii) ``Hedge fund'' [Sec. 619(h)(2)];
(iii) ``Private equity fund'' [Sec. 619(h)(2)];
(iv) ``Such similar funds'' [Sec. 619(h)(2)];
(v) ``Proprietary trading'' [Sec. 619(h)(4)];
(vi) ``Sponsor'' [Sec. 619(h)(5)];
(vii) ``Trading account'' [Sec. 619(h)(6)];
(viii) ``Short term'' [Sec. 619(h)(6)];
(ix) ``Illiquid fund'' [Sec. 619(h)(7)];
(x) A transaction ``in connection with underwriting or market
making related activities * * * designed not to exceed the reasonably
expected near-term demands of clients, customers or counterparties''
[Sec. 619(d)(1)(B)];
(xi) ``Risk-mitigating hedging activities'' [Sec. 619(d)(1)(C)];
(xii) ``The purchase, sale, acquisition, disposition of securities
or other instruments `on behalf of customers' '' [Sec. 619(d)(1)(D)];
(xiii) Investments in ``small business investment companies'' and
certain ``public welfare'' investments [Sec. 619(d)(1)(E)];
(xiv) A permitted activity by an insurance company [Sec.
619(d)(1)(F)]; and
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(xv) Such other activities as ``would promote and protect the
safety and soundness of banking entities and the financial stability of
the United States'' [Sec. 619(d)(1)(J)];?
5. With respect to proprietary trading and hedge fund and private
equity fund activities, what factors and considerations should be taken
into account as indicative that a transaction, class of transactions or
activity:
(i) Would involve or result in a material conflict of interest
between a banking entity (or a nonbank financial company supervised by
the Board) and its clients, customers or counterparties;
(ii) Would result, directly or indirectly, in a material exposure
by a banking entity (or a nonbank financial company supervised by the
Board) to high-risk assets or high-risk trading strategies; or
(iii) Would pose a threat to the safety and soundness of a banking
entity (or a nonbank financial company supervised by the Board)?
6. What factors and considerations should be taken into account in
making recommendations on whether additional capital and quantitative
limitations are appropriate to protect the safety and soundness of
banking entities or nonbank financial companies supervised by the Board
engaged in activities permitted under the Volcker Rule?
7. With respect to proprietary trading and hedge fund and private
equity fund activities, which practices, types of transactions or
corporate structures in general have historically accounted for or
involved increased risks or may account for or involve increased risks
in the future?
8. With respect to proprietary trading and hedge fund and private
equity fund activities, what practices, policies or procedures have
historically been utilized that may have mitigated or exacerbated risks
or losses? What practices, policies or procedures might be useful in
limiting undue risk or loss in the future?
9. What factors and considerations should be taken into account in
making recommendations to safeguard against evasion of the Volcker
Rule?
10. How should the international context be considered when
implementing the Volcker Rule? Are there any factors or considerations
that should be taken into account regarding the application of the
Volcker Rule to banking entities or nonbank financial companies that
operate outside the United States? What issues does implementation of
the Volcker Rule present with respect to the following:
(i) Domestic banking entities that have access to foreign
exchanges,
(ii) foreign affiliates of domestic banking entities, and
(iii) foreign non-bank financial companies
11. What timing issues are raised in connection with the
divestiture of illiquid assets affected by the prohibitions of the
Volcker Rule, and how might such issues be appropriately addressed?
12. Commenters are generally invited to submit views with respect
to any qualitative or quantitative factors that should be considered in
connection with the Council's study of the Volcker Rule, as well as any
analogous areas of law, economics, or industry practice, and any
factors specific to the commenter's experience. Please comment
generally and specifically, and please include empirical data and other
information in support of such comments, where appropriate and
available.
Dated: October 1, 2010.
Alastair Fitzpayne,
Deputy Chief of Staff and Executive Secretary, Department of the
Treasury.
[FR Doc. 2010-25320 Filed 10-4-10; 4:15 pm]
BILLING CODE 4810-25-P-P