The Volcker Rule and Capital Markets Offerings

Final regulations under the section of the Dodd-Frank Act known as the “Volcker Rule” were enacted in December 2013 (the “Final Rule”) by five federal financial regulatory agencies (collectively, the “Agencies”). The Volcker Rule prohibits a banking entity from engaging in proprietary trading and from acquiring or retaining an ownership interest in, or sponsoring, a hedge fund or private equity fund. The Volcker Rule permits certain kinds of trading activity – notably, in connection with underwriting, market making, and risk-mitigating hedging activities – and the Final Rule addresses the parameters of and possible conditions on these activities.

Under the Final Rule, larger banks and bank affiliates (based on total assets) engaged in proprietary trading permitted by the Final Rule will be subject to a comprehensive regime to ensure compliance with the Final Rule’s prohibition on proprietary trading. In addition, the largest banks and bank affiliates (based on the amount of trading assets and liabilities) engaged in proprietary trading permitted by the Final Rule will be required to report a highly technical set of quantitative measures. Banking entities with only a “modest” level of trading activities will be subject to a much less comprehensive set of compliance requirements, and those entities participating in no covered activities will have no obligation under the Final Rule.

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