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SEC Commissioners Will Also Vote on Volcker Rule Tuesday

Joe Mont | December 6, 2013

The Securities and Exchange Commission will be among the regulators weighing in on a near-final version of the Volcker Rule next week.

"We expect to move up our consideration of the Volcker rule to Dec. 10 using the seriatim process to coordinate our timing with the other agencies on what is expected to be a joint rulemaking and to enable all of our Commissioners to participate in the vote and express their views," SEC Spokesman John Nester said in a statement. Under the seriatim process, each commissioner will vote on paper, one at a time, in series.

The SEC joins other regulators participating in the joint rulemaking that have also announced meetings, and likely votes, on the latest version of the complicated effort, a Dodd-Frank Act requirement to curb proprietary by banks. Other agencies that must approve the new language are the Commodity Futures Trading Commission, Federal Reserve, Office of the Comptroller of the Currency, Treasury Department, and Federal Deposit Insurance Corp.

Throughout many months of debate, there has been a split among regulators over how strict its prohibitions should be, versus a more flexible approach to hedging interests. The difficult matter of defining the distinction between high-risk trading and legitimate hedging has been a complex challenge in crafting the language.

The SEC's voting may be the most pivotal. Whereas other regulators have signaled likely support of a stronger rule (with CFTC Chairman Gary Gensler and Treasury Secretary Jack Lew among the most vocal), public statements by its commissioners have shown more diverse views.

Commissioner Kara Stein has said she will reject a rule that doesn't live up to the strong dividing line intended by Congress when it passed Dodd-Frank. Commissioner Michael Piwowar could also be a “no” vote, but for different reasons. He is calling for the rule to be re-proposed, with a fresh comment period, if the final version, now over 1,000 pages long, is substantially different from the initial draft made public before his confirmation. Commissioner Daniel Gallagher has also voiced concerns and urged re-proposal

Legal challenges, already very likely, would become a certainty if the two versions have substantial differences.

All indications are that the final rule is tougher on Wall Street banks than the previous version.This was referenced by the Treasury Department's Lew in a speech on Thursday.

“Next week, regulators will begin voting on the Volcker Rule, putting in place tough restrictions on proprietary trading and investment in private funds by banks,” he told a Pew Charitable Trusts audience. “Rule-writers will soon put forward a tough Volcker Rule that I expect to be true to President Obama's vision and the statute's intent." 

The rule regulators are reviewing, Lew said, “prohibits risky proprietary trading while protecting economically essential activities like market making, such as when a firm facilitates selling bonds for a mutual fund. The rule prohibits risky trading bets like the ‘London Whale' that are masked as risk-mitigating hedges,”

Lew also gave credence to suspicions that the final rule may mandate something akin to CEO attestations. “It puts in place strong compliance requirements that require those in charge of financial institutions to make sure that the ‘tone at the top' sends the right signal to the whole firm,”
he said.