Since the release of the proposed rule to implement the Volcker Rule (the Proposed Rule) more than two years ago, participants in the financial services industry have continued to express concern about the burden of complying with the proprietary trading restrictions in the Volcker Rule and the potential effects of those restrictions on the competitiveness of U.S. banks. The final rule to implement the Volcker Rule (the Final Rule) was adopted by five U.S. financial regulators (the Agencies) on December 10, 2013. Institutions within the ambit of the Rule have only just begun to evaluate the Final Rule and the accompanying preamble (collectively, the Adopting Release) to ascertain the impact that the Rule will have on both their operations and the broader financial industry.

Consistent with the Dodd-Frank Wall Street Reform and Consumer Protection Act(the Dodd-Frank Act) and the Proposed Rule, the Final Rule restricts the ability of banking entities to engage in proprietary trading, subject to the exceptions prescribed by statute. The exceptions are intended to allow banking entities to continue to provide traditional client-oriented financial services, including underwriting, market making-related and asset management services, and to continue hedging and liquidity management activities designed to enhance the safety of their operations.

The full effect of the Final Rule and the practical implications of the differences between its proposed and final forms will be revealed only as the Agencies apply the Rule to the myriad financial transactions that will fall within its ambit over time. Even before all of its effects become evident, however, it appears clear that the heightened compliance program requirements contained in the Final Rule will require meaningful changes in many banking entities, the cost and effect of which may be tempered by the attempts the Agencies have made in the Final Rule to employ greater consistency across the proprietary trading exemptions and to develop a more nuanced approach to the realities of trading across differing markets and asset classes.