Q&A by Don Bright
The Volcker Rule
I keep hearing so much about the Dodd-
Frank bill coming into effect soon. Is this
something that will impact your traders?
How about retail traders? Any light you
can shed on this would be appreciated.
Wow, this is probably one of the toughest
questions I have ever been asked.
Of course we have to wait and see how
much different the trading environment
looks when all this gets sorted out and
implemented. Here are some thoughts,
One primary portion, the “Volcker
Rule” (named after Paul Volcker, chairman
of the Federal Reserve under
Presidents Jimmy Carter and Ronald
Reagan, as well as Chairman of the Economic
Recovery Advisory Board under
President Barack Obama), attempts to
limit how major investment banks and
brokers (like Goldman Sachs, JP Morgan,
Bank of America, and so on) can
trade and invest their depositors’ money.
Essentially, as I read it, these big banks
will not be allowed to commingle their
proprietary trading money with their
depositors’ money. This may be a good
thing for our traders, since who wants to
compete with these big brokers anyway?
The other side of this coin is that this may
cut down on the daily trading activity to
such an extreme degree that liquidity will
dry up significantly.
Here is an excerpt from http://www.
The final Volcker Rule included in
the Dodd-Frank Act prohibits banks
from proprietary trading and restricted
investment in hedge funds and private
equity by commercial banks and their
affiliates. Further, the Act directed the
Federal Reserve to impose enhanced
prudential requirements on systemically
identified non-bank institutions
engaged in such activities. Congress
did exempt certain permitted activities
of banks, their affiliates, and non-bank
institutions identified as systemically
important, such as market making,
hedging, securitization, and risk
management. The Rule also capped
bank ownership in hedge funds and
private equity funds at three percent.
Institutions have a seven year timeframe
to become compliant with the