UPDATE: According to Deputy Treasury Secretary Neal Wolin, the CFTC will most likely adopt Volcker Rule requirements matching those already proposed by other regulators. Says Wolin: “The CFTC will do its piece of this when it does, but I would expect there would be a consistent approach across the major elements of Volcker Rule implementation. Four regulators have spoken with the same voice. I expect the central coordination of the substance of this rule will continue to be the case.”
The CFTC will be taking a “wait-and-see” approach to the Volcker Rule, defying with the swift adoption of the Dodd-Frank provision by other agencies. Though the CFTC will not have a major role in implementing the rule, the Commission’s hesitation may open the provision to legal challenges.
The Volcker Rule is the piece of the Dodd-Frank Wall Street Reform and Consumer Protection Act which prevents banks from trading securities, derivatives, and other financial instruments for their own profit. It also prohibits banks from investing in hedge or private equity funds. The Volcker Rule is considered Dodd-Frank’s answer to the Glass–Steagall Act, and was included in the Act as a way to limit the overlap between commercial and investment banking.
The FDIC and SEC are already scheduled to vote on the rule this week, but the CFTC is stepping back to watch the proceedings. “[CFTC Chairman Gary Gensler] said we might, if it’s the will of the commission, put forward … a virtually identical proposal with the other regulators, or we could go it alone,” said Commissioner Scott O’Malia. “He’s not committing either way.”
Unlike other financial regulators, the CFTC will only have a small role in implementing the Volcker Rule. One decision the Commission will have to make is how to define hedge and private equity funds. The CFTC can either agree to the definition already drafted by the SEC, or work with the agency to create a new rule.