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Clifford Chance

Clifford Chance


U.S. Regulators Propose Regulations to Implement the Volcker Rule

14 October 2011

On Tuesday, October 11, the Federal Reserve and the Federal Deposit Insurance Corporation (the "FDIC") unveiled proposed regulations to implement the Volcker Rule (the "Proposed Regulations") that will be issued jointly by the Federal Reserve, the FDIC, the Office of the Comptroller of the Currency, and the U.S. Securities and Exchange Commission (the "SEC") (collectively, the "Agencies"). Enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), the Volcker Rule generally prohibits banking organizations from conducting proprietary trading and from sponsoring or acquiring an interest in a hedge fund or a private equity fund. In the Proposed Regulations, the Agencies attempt to take the very broad concepts of the Volcker Rule and create a workable framework for doing business under its prohibitions and exceptions. This is no simple task. The complete package from the Agencies is 298 pages long and includes nearly 400 specific questions that the Agencies hope will be answered in the public comment process. Comments are due by January 13, 2012. The Volcker Rule becomes effective on July 21, 2012.

In this document, we provide a general overview of the proposal and encourage the broadest possible participation in this rulemaking process. In many instances the Agencies have interpreted the scope of permitted activities narrowly. We note, in particular, the narrow interpretation of the exemption for proprietary trading conducted outside the United States by non-U.S. banking organizations and the constraints imposed by the Proposed Regulations on fund co-investment activities. The Agencies clearly want and need, however, thoughtful comments on the proposal. The Volcker Rule will transform a significant segment of the financial services industry. The best opportunity to limit the compliance burden and ensure reasonable implementation is to provide input now.

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