The U.S. Commodity Futures Trading Commission convened a roundtable today, seeking expert input on how to implement the Volcker rule, passed by Congress as part of the Dodd-Frank Act in 2010.
The rule seeks to prohibit commercial banks from engaging in proprietary trading, while allowing trades that are intended to hedge risk.
Participants in the roundtable include former FDIC Chairman Sheila Blair, Barclays Plc Managing Director Keith Bailey and Credit Suisse Managing Director Peter Antico, as well as advocates for a stronger rule such as MIT professor Simon Johnson. Mr. Volcker himself is travelling internationally and was unable to attend.
One major question is how to distinguish between the two types of trading. While banks such as Goldman Sachs and Morgan Stanley have argued for a looser implementation of the rule, JPMorgan’s revelation of a $2 billion (and growing) loss on what were supposed to be hedges strengthened the hand of advocates of a strict ban on proprietary trading, who argue that had the rule already been in effect, the loss would not have taken place.
“In adopting the Volcker rule, Congress prohibited banking entities from proprietary trading while at the same time permitting banking entities to engage in certain activities, such as market making and risk mitigating hedging,” CFTC Chairman Gary Gensler said. “One of the challenges in finalizing this rule is achieving these multiple objectives.”