Federal Reserve Adopts Final Systemically Important Financial Market Utilities Rules
On Wednesday, December 5, 2013, the Federal Reserve Board (the "Federal Reserve") adopted final rules that amend Regulation HH pursuant to Section 806 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"). The rules establish the conditions and requirements for a Federal Reserve Bank to open and maintain accounts for and provide financial services to financial market utilities designated as systemically important by the Financial Stability Oversight Council. Additionally, the final rules authorize a Reserve Bank to pay interest on the balances maintained by a designated financial market utility in accordance with the statute and other terms and conditions as the Federal Reserve may prescribe.
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Federal Reserve Adopts Final Market Risk Capital Rules
On Thursday December 6, 2013, the Federal Reserve adopted final rules that make technical changes to the Federal Reserve's market risk capital rule to align it with the Basel III revised capital framework adopted earlier this year. The market risk capital rule is used by banking organizations with significant trading activities to calculate regulatory capital requirements for market risk. The final rule also clarifies criteria for determining whether underlying assets are delinquent for certain traded securitization positions, clarifies disclosure deadlines and modifies the definition of a covered position.
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Agencies Adopt Final Rules Implementing the "Volcker Rule"
On Tuesday, December 10, 2013, five federal agencies—including the Securities and Exchange Commission (the "SEC"), the Commodity Futures Trading Commission (the "CFTC"), the Federal Reserve, the Federal Deposit Insurance Corporation (the "FDIC") and the Office of the Comptroller of the Currency (the "OCC')—adopted jointly developed rules to implement Section 619 of the Dodd-Frank Act, known as the “Volcker Rule”. The final rules prohibit insured depository institutions, and companies affiliated with them ("banking entities"), from engaging in short-term proprietary trading, for their own account, of certain securities, derivatives, commodity futures and options on these instruments. The final rules also impose limits on banking entities’ investments in, and other relationships with, hedge funds or private equity funds.
The final rules provide exemptions for certain activities, including market making, underwriting, hedging, trading in government obligations, insurance company activities, and organizing and offering hedge funds or private equity funds. The final rules also clarify that certain activities, such as acting as agent, broker, or custodian, are not prohibited.
These rules will require banking entities with significant trading operations to establish an independently tested and analyzed compliance program, and their CEOs will be required to attest that the program is reasonably designed to achieve compliance with the final rule. Smaller, less-complex institutions will have more limited compliance and reporting requirements, and a banking entity that does not engage in covered trading activities will not need to establish a compliance program.
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Read the Federal Reserve press release
Read the FDIC press release
Read the OCC press release
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