Federal Reserve Issues Proposed Conformance Period Rules for the Volcker Rule

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On November 17, the Federal Reserve Board requested comment on a proposed rule to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act that give banking firms a defined period of time to conform their activities and investments to the Volcker Rule. The Volcker Rule generally prohibits banking entities from engaging in proprietary trading in securities, derivatives or certain other financial instruments, and from investing in, sponsoring or having certain relationships with a hedge fund or private equity fund. The statute generally provides banking entities two years to bring their activities and investments into compliance with the Volcker Rule, and allows the Board to extend this conformance period for specified periods under certain conditions. The proposed rule does not address other aspects of the Volcker Rule that are subject to separate rulemaking requirements by other agencies.

In general, the prohibitions and restrictions of the Volcker Rule do not take effect until the earlier of July 21, 2012, or 12 months after the issuance of final regulations by the rule writing agencies under Section 13(b)(2) of the Bank Holding Company Act. The conformance period generally extends through the date that is two years after the date on which the prohibitions become effective or, in the case of a nonbank financial company supervised by the Board, two years after the company is designated by the Financial Stability Oversight Council for supervision by the Board, if that period is later.

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