Federal Register / Vol. 75, No. 227 / Friday, November 26, 2010 / Proposed Rules 72741 

1 Dodd-Frank Wall Street Reform and Consumer 

Protection Act, Public Law No. 111–203, 124 Stat. 

1376 (2010). 

2The term ‘‘banking entity’’ is defined in section 

13(h)(1) of the BHC Act, as amended by section 619 

of the Dodd-Frank Act. See 12 U.S.C. 1851(h)(1). 

The term means any insured depository institution 

(other than certain limited purpose trust 

institutions), any company that controls an insured 

depository institution, any company that is treated 

as a bank holding company for purposes of section 

8 of the International Banking Act of 1978 (12 

U.S.C. 3106), and any affiliate or subsidiary of any 

of the foregoing. 

3The Volcker Rule defines the terms ‘‘hedge fund’’ 

and ‘‘private equity fund’’ as an issuer that would 

be an investment company, as defined under the 

Investment Company Act of 1940 (15 U.S.C. 80a– 

1 et seq.), but for section 3(c)(1) or 3(c)(7) of that 

Act, or any such similar funds as the appropriate 

Federal banking agencies, the Securities and 

Exchange Commission (‘‘SEC’’), and the Commodity 

Futures Trading Commission (‘‘CFTC’’) may, by 

rule, determine should be treated as a hedge fund 

or private equity fund. See 12 U.S.C. 1851(h)(2). 

4See 12 U.S.C. 1851(a)(2) and (f)(4). A ‘‘nonbank 

financial company supervised by the Board’’ is a 

nonbank financial company or other company that 

has been designated by the Financial Stability 

Oversight Council (‘‘FSOC’’) under section 113 of 

the Dodd-Frank Act as requiring supervision and 

regulation by the Board on a consolidated basis 

because of the danger such company may pose to 

the financial stability of the United States. 

5 12 U.S.C. 1851(a)(1)(A) and (B). 

6 Id. at § 1851(d)(1)(A). 

7 Id. at § 1851(d)(1)(B). 

8 Id. at § 1851(d)(1)(C). 

9 Id. at § 1851(d)(1)(D). 

temporary industry-wide waiver or 

guidance, to allow use of the data 

correction factor for room air 

conditioners. This relief would be 

automatically superseded by the 

effective date of the new DOE test 

procedure. 

AHAM looks forward to meeting with 

DOE at the earliest opportunity to 

discuss this important matter. 

[FR Doc. 2010–29773 Filed 11–24–10; 8:45 am] 

BILLING CODE 6450–01–P 

FEDERAL RESERVE SYSTEM 

12 CFR Part 225 

[Regulation Y; Docket No. R–1397] 

RIN AD 7100–58 

Conformance Period for Entities 

Engaged in Prohibited Proprietary 

Trading or Private Equity Fund or 

Hedge Fund Activities 

AGENCY: Board of Governors of the 

Federal Reserve System (‘‘Board’’). 

ACTION: Proposed rule; request for 

public comment. 

SUMMARY: The Board is requesting 

comment on a proposed rule that would 

implement the conformance period 

during which banking entities and 

nonbank financial companies 

supervised by the Board must bring 

their activities and investments into 

compliance with the prohibitions and 

restrictions on proprietary trading and 

relationships with hedge funds and 

private equity funds imposed by section 

619 of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

(‘‘Dodd-Frank Act’’). Section 619 is 

commonly referred to as the ‘‘Volcker 

Rule.’’ 

DATES: Comments: Comments should be 

received on or before January 10, 2011. 

ADDRESSES: You may submit comments, 

identified by Docket No. R–1397 and 

RIN No. AD 7100–58, by any of the 

following methods: 

• Agency Web Site: http:// 

www.federalreserve.gov. Follow the 

instructions for submitting comments at 

http://www.federalreserve.gov/ 

generalinfo/foia/ProposedRegs.cfm. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• E-mail: 

regs.comments@federalreserve.gov. 

Include Docket Number R–1397 and 

RIN AD 7100–58 in the subject line of 

the message. 

• Fax: (202) 452–3819 or (202) 452– 

3102. 

• Mail: Jennifer J. Johnson, Secretary, 

Board of Governors of the Federal 

Reserve System, 20th Street and 

Constitution Avenue, NW., Washington, 

DC 20551. 

All public comments are available 

from the Board’s Web site at http:// 

www.federalreserve.gov/generalinfo/ 

foia/ProposedRegs.cfm as submitted, 

unless modified for technical reasons. 

Accordingly, your comments will not be 

edited to remove any identifying or 

contact information. Public comments 

may also be viewed electronically or in 

paper form in Room MP–500 of the 

Board’s Martin Building (20th and C 

Streets, NW) between 9 a.m. and 5 p.m. 

on weekdays. 

FOR FURTHER INFORMATION CONTACT: 

Brian P. Knestout, Senior Attorney, 

(202) 452–2249, Jeremy R. Newell, 

Senior Attorney, (202) 452–3239, 

Christopher M. Paridon, Senior 

Attorney, (202) 452–3274, or Kieran J. 

Fallon, Associate General Counsel, (202) 

452–5270, Legal Division; David K. 

Lynch, Division of Banking Supervision 

and Regulation, Board of Governors of 

the Federal Reserve System, 20th Street 

and Constitution Avenue, NW., 

Washington, DC 20551. Users of 

Telecommunication Device for Deaf 

(TDD) only, call (202) 263–4869. 

SUPPLEMENTARY INFORMATION: 

I. Background 

The Dodd-Frank Act was enacted on 

July 21, 2010.1 Section 619 of the DoddFrank Act adds a new section 13 to the 

Bank Holding Company Act of 1956 

(‘‘BHC Act’’) (to be codified at 12 U.S.C. 

1851) that generally prohibits banking 

entities 2 from engaging in proprietary 

trading or from investing in, sponsoring, 

or having certain relationships with a 

hedge fund or private equity fund.3 The 

new section 13 of the BHC Act also 

provides for nonbank financial 

companies supervised by the Board that 

engage in such activities or have such 

investments to be subject to additional 

capital requirements, quantitative 

limits, or other restrictions.4 These 

prohibitions and other provisions of 

section 619 are commonly known, and 

referred to herein, as the ‘‘Volcker Rule.’’ 

Specifically, the Volcker Rule 

prohibits banking entities from engaging 

in proprietary trading (as defined by the 

Volcker Rule) or from acquiring or 

retaining any ownership interest in, or 

sponsoring, a hedge fund or private 

equity fund.5 The Volcker Rule, 

however, also expressly provides certain 

exceptions from these prohibitions, 

including, among others, exceptions 

that allow a banking entity, subject to 

certain terms, conditions, and 

restrictions, to: (i) Trade in obligations 

of the United States or any agency 

thereof, obligations issued by the 

Government National Mortgage 

Association, the Federal Home Loan 

Mortgage Corporation, a Federal Home 

Loan Bank, the Federal Agricultural 

Mortgage Corporation, or a Farm Credit 

System institution chartered under and 

subject to the provisions of the Farm 

Credit Act of 1971 (12 U.S.C. 2001 et 

seq.), and obligations of any State or of 

any political subdivision thereof; 6 (ii) 

purchase and sell securities and other 

instruments in connection with 

underwriting or market-making related 

activities, to the extent that any such 

activities are designed not to exceed the 

reasonable near term demands of 

clients, customers, or counterparties; 7

(iii) engage in risk-mitigating hedging 

activities in connection with and related 

to individual or aggregated positions, 

contracts, or other holdings that are 

designed to reduce the specific risks to 

the banking entity in connection with 

and related to such positions, contracts, 

or other holdings; 8 and (iv) purchase, 

sell, acquire, or dispose of securities and 

other instruments on behalf of 

customers.9 Additionally, the Volcker 

Rule permits the appropriate agency or 

agencies, by rule, to grant other 

exceptions from the prohibitions on 

proprietary trading and investing in, or 


srobinson on DSKHWCL6B1PROD with PROPOSALS
72742 Federal Register / Vol. 75, No. 227 / Friday, November 26, 2010 / Proposed Rules 

10 Id. at § 1851(d)(1)(J). 

11See id. at § 1851(d)(2). 

12See 12 U.S.C. 371c. 

13 12 U.S.C. 1851(f)(1). 

14See id. at § 1851(f)(3). 

15See id. at § 1851(a)(2), (d)(4). 

16See id. § 1851(b)(1). The FSOC recently 

requested public comment on a number of issues 

to assist the FSOC in conducting its study. See 75 

FR 61,758 (Oct. 6, 2010). 

17See 12 U.S.C. 1851(b)(2). The Secretary of the 

Treasury, as Chairperson of the FSOC, is 

responsible for coordinating the agencies’ 

rulemakings under the Volcker Rule. See id. at 

§ 1851(b)(2)(B)(ii). 

18See id. at § 1851(b)(2)(A). 

19See id. at § 1851(c)(6). 

20See 156 Cong. Rec. S5898 (daily ed. July 15, 

2010) (Statement of Senator Merkley). 

21See id. at § 1851(b)(2). 22Proposed Rule 225.180(a)–(c). 

sponsoring, a hedge fund or private 

equity fund if the agency(ies) determine 

that the exception would promote and 

protect the safety and soundness of the 

banking entity and the financial stability 

of the United States.10 However, no 

transaction, class of transactions, or 

activity may be permitted if the relevant 

agency(ies) determine that the 

transaction, class of transactions, or 

activity would: (i) Result in a material 

conflict of interest; (ii) result in a 

material exposure of the banking entity 

to high-risk assets or high-risk trading 

strategies; (iii) pose a threat to the safety 

and soundness of the banking entity; or 

(iv) pose a threat to the financial 

stability of the United States.11

The Volcker Rule separately prohibits 

a banking entity that serves, directly or 

indirectly, as the investment manager, 

investment adviser, or sponsor to a 

hedge fund or private equity fund, and 

any affiliate of the banking entity, from 

entering into any transaction with the 

fund, or any other hedge fund or private 

equity fund controlled by such fund, 

that would be a ‘‘covered transaction’’ as 

defined in section 23A of the Federal 

Reserve Act,12 as if such banking entity 

or affiliate were a member bank and the 

hedge fund or private equity fund were 

an affiliate thereof.13 There are, 

however, certain exceptions to this 

prohibition.14

The Volcker Rule does not prohibit 

nonbank financial companies 

supervised by the Board from engaging 

in proprietary trading, or from having 

the types of investments in or 

relationships with hedge funds or 

private equity funds that banking 

entities are prohibited or restricted from 

having under the Volcker Rule. 

However, the Volcker Rule provides for 

the Board or other appropriate agency to 

impose additional capital charges, 

quantitative limits, or other restrictions 

on nonbank financial companies 

supervised by the Board or their 

subsidiaries that are engaged in such 

activities or maintain such 

relationships.15

The Board and several other agencies 

have responsibilities with respect to the 

Volcker Rule. The FSOC is required to 

conduct a study and make 

recommendations by January 21, 2011, 

on the implementation of the Volcker 

Rule.16 As a general matter, authority for 

developing and adopting regulations to 

implement the prohibitions and 

restrictions of the Volcker Rule is 

divided between the Board, the Office of 

the Comptroller of the Currency 

(‘‘OCC’’), the Federal Deposit Insurance 

Corporation (‘‘FDIC’’), the CFTC and the 

SEC in the manner provided in section 

13(b)(2) of the BHC Act.17 The Board 

and these other agencies are directed to 

adopt implementing rules not later than 

9 months after the FSOC completes its 

study.18 The restrictions and 

prohibitions of the Volcker Rule become 

effective 12 months after issuance of 

final rules by the agencies, or July 21, 

2012, whichever is earlier. 

The Board, however, is solely charged 

with adopting rules to implement the 

provisions of the Volcker Rule that 

provide a banking entity or a nonbank 

financial company supervised by the 

Board a period of time after the effective 

date of the Volcker Rule to bring the 

activities, investments, and 

relationships of the banking entity or 

company commenced, acquired, or 

entered into before the Volcker Rule’s 

effective date into compliance with the 

Volcker Rule and the agencies’ 

implementing regulations.19 This period 

is intended to give markets and firms an 

opportunity to adjust to the Volcker 

Rule.20 The Dodd-Frank Act requires 

that the Board issue rules to implement 

this conformance period no later than 

January 21, 2011. 

II. Overview of Proposed Rule 

In accordance with the mandate of the 

Dodd-Frank Act, the Board is requesting 

comment on a proposed rule that would 

implement the conformance period 

provisions of the Volcker Rule. The 

proposed rule does not address other 

aspects of the Volcker Rule which, as 

noted above, are subject to separate 

rulemaking requirements under section 

13(b)(2) of the BHC Act.21 Because the 

proposed rule is not intended to address 

the definitional and other issues that are 

appropriately the subject of that 

coordinated, interagency rulemaking 

process, the proposed rule incorporates 

without modification the definitions of 

‘‘banking entity,’’ ‘‘hedge fund,’’ and 

‘‘private equity fund’’ contained in the 

Dodd-Frank Act.22 In addition, the 

Board has structured the proposed rule 

to address only those matters that are 

essential to implementation of the 

conformance period provisions of the 

Volcker Rule. 

In developing this proposal, the Board 

considered, among other factors, the 

language and legislative history of the 

Dodd-Frank Act and the Volcker Rule, 

and the Board’s experience in 

supervising and regulating banking 

entities’ trading activities and 

investments in, or relationships with, 

hedge funds and private equity funds. 

The Board also consulted with the 

Department of the Treasury, the OCC, 

the FDIC, the SEC, and the CFTC. The 

Board invites public comment on all 

aspects of its proposal implementing the 

conformance period. 

A. General Conformance Period 

As noted above, the prohibitions and 

restrictions of the Volcker Rule do not 

take effect until the earlier of July 21, 

2012, or 12 months after the issuance of 

final regulations by the rulewriting 

agencies under section 13(b)(2) of the 

BHC Act. However, in order to allow the 

markets and firms to adjust to these 

prohibitions and restrictions, the 

Volcker Rule also, by its terms and 

without any action by the Board, 

provides banking entities and nonbank 

financial companies supervised by the 

Board an additional conformance period 

during which the entity or company can 

wind down, sell, or otherwise conform 

its activities, investments, and 

relationships to the requirements of the 

Volcker Rule. Under the statute, this 

conformance period generally extends 

through the date that is 2 years after the 

date on which the prohibitions become 

effective or, in the case of a nonbank 

financial company supervised by the 

Board, 2 years after the company is 

designated by the FSOC for supervision 

by the Board, if that period is later. 

Section 225.181(a) of the proposed 

rule implements these provisions. In 

addition, section 225.181(a)(2) of the 

proposed rule clarifies how the 

conformance period applies to a 

company that first becomes a banking 

entity after July 21, 2010 (the date of 

enactment of the Dodd-Frank Act), 

because, for example, the company 

acquires or becomes affiliated with an 

insured depository institution for the 

first time. In these circumstances, the 

restrictions and prohibitions of the 

Volcker Rule would first become 

effective with respect to the company 

only at the time it became a banking 

entity. Accordingly, the proposed rule 


srobinson on DSKHWCL6B1PROD with PROPOSALS
Federal Register / Vol. 75, No. 227 / Friday, November 26, 2010 / Proposed Rules 72743 

23See 12 U.S.C. 1843(a)(2). 

24 12 U.S.C. 1851(c)(2). 

25Nothing in the Volcker Rule or the proposed 

rule limits or otherwise affects the authority that the 

Board, the other Federal banking agencies, the SEC, 

or the CFTC may have under other provisions of 

law. In the case of the Board, these authorities 

include, but are not limited to, section 8 of the 

Federal Deposit Insurance Act and section 8 of the 

BHC Act. See 12 U.S.C. 1818, 1847. 

26 Id. at § 1851(c)(3)(A). 

27 Id. at § 1851(c)(3)(B). 

28See 156 Cong. Rec. S5899 (daily ed. July 15, 

2010) (statement of Sen. Merkley). 

provides that such a company generally 

must bring its activities, investments, 

and relationships into compliance with 

the requirements of the Volcker Rule 

before the later of: (i) The date the 

Volcker Rule’s prohibitions would 

otherwise become effective with respect 

to the company under section 

225.181(a)(1) of the Proposed Rule; or 

(ii) 2 years after the date on which the 

company first becomes a banking entity. 

Thus, for example, a company that first 

becomes a banking entity on January 1, 

2015, would have until January 1, 2017, 

to bring its activities and investments 

into conformance with the requirements 

of section 13 of the BHC Act and its 

implementing regulations. This 

proposal provides comparable treatment 

to ‘‘new’’ banking entities and nonbank 

financial companies supervised by the 

Board, and is consistent with the 

manner in which newly established 

bank holding companies are treated for 

purposes of the nonbanking restrictions 

under section 4 of the BHC Act.23

B. Extension of Conformance Period 

The Volcker Rule permits the Board, 

by rule or by order, to extend the 

generally available two-year 

conformance period by up to three 

additional one-year periods, for an 

aggregate conformance period of 5 

years.24 Section 225.181(a)(3) of the 

proposed rule implements this 

authority. In order to grant any 

extension, the Board must determine 

that the extension is consistent with the 

purposes of the Volcker Rule and would 

not be detrimental to the public interest. 

The proposed rule requires that any 

banking entity that seeks a one-year 

extension of the conformance period 

under this authority submit a request to 

the Board. Any such request for an 

extension must: (1) Be submitted in 

writing to the Board at least 90 days 

prior to the expiration of the applicable 

time period; (2) provide the reasons why 

the banking entity believes the 

extension should be granted; and (3) 

provide a detailed explanation of the 

banking entity’s plan for divesting or 

conforming the activity or 

investment(s). 

In addition, the proposed rule 

provides that any extension request by 

a banking entity must address each of 

the following matters (to the extent they 

are relevant): (i) Whether the activity or 

investment (A) involves or results in 

material conflicts of interest between 

the banking entity and its clients, 

customers or counterparties; (B) would 

result, directly or indirectly, in a 

material exposure by the banking entity 

to high-risk assets or high-risk trading 

strategies; (C) would pose a threat to the 

safety and soundness of the banking 

entity; or (D) would pose a threat to the 

financial stability of the United States; 

(ii) market conditions; (iii) the nature of 

the activity or investment; (iv) the date 

that the banking entity’s contractual 

obligation to make or retain an 

investment in the fund was incurred 

and when it expires; (v) the contractual 

terms governing the banking entity’s 

interest in the fund (if applicable); (vi) 

the degree of control held by the 

banking entity over investment 

decisions of the fund (if applicable); 

(vii) the types of assets held by the fund 

(if applicable); (viii) the date on which 

the fund is expected to wind up its 

activities and liquidate or its 

investments may be redeemed or sold (if 

applicable); (ix) the total exposure of the 

banking entity to the activity or 

investment and the risks that disposing 

of, or maintaining, the investment or 

activity may pose to the banking entity 

or the financial stability of the United 

States; (x) the cost to the banking entity 

of disposing of the activity or 

investment within the applicable 

period; and (xi) any other factor that the 

Board believes appropriate. Under the 

proposal, the Board would consider 

requests for an extension in light of all 

relevant facts and circumstances, 

including the factors described above. 

These factors are not exclusive, and 

under the proposal, the Board retains 

the ability to consider other factors or 

considerations that it deems 

appropriate. The Board specifically 

requests comment on whether these 

factors are appropriate, certain factors 

should be removed, or any additional 

factors should be included. 

The proposed rule would allow the 

Board to impose conditions on any 

extension granted under the proposed 

rule if the Board determines such 

conditions are necessary or appropriate 

to protect the safety and soundness of 

banking entities or the financial stability 

of the United States, address material 

conflicts of interest or other unsound 

practices, or otherwise further the 

purposes of section 13 of the BHC Act 

and the proposed rules.25 In cases where 

the banking entity is primarily 

supervised by another Federal banking 

agency, the SEC, or the CFTC, the Board 

would consult with such agency both in 

connection with its review of the 

application and, if applicable, prior to 

imposing conditions in connection with 

the approval of any request by the 

banking entity for an extension of the 

conformance period under the proposed 

rule. 

C. Extended Transition Period for 

Illiquid Funds 

Section 619 of the Dodd-Frank Act 

includes a special provision to address 

the difficulty banking entities may 

experience in conforming investments 

in illiquid funds. This provision 

expressly permits a banking entity to 

request the Board’s approval for an 

additional extension of up to 5 years in 

order to permit the banking entity to 

meet contractual commitments in place 

as of May 21, 2010, to a hedge fund or 

private equity fund that qualifies as an 

‘‘illiquid fund.’’ Specifically, the statute 

provides that the Board may extend the 

period during which a banking entity 

may take or retain an ownership interest 

in, or otherwise provide additional 

capital to, an illiquid fund, but only if 

the extension is necessary to allow the 

banking entity to fulfill a contractual 

obligation that was in effect on May 1, 

2010.26 Any extended transition period 

with respect to an illiquid fund may not 

exceed 5 years and may be in addition 

to the conformance period available 

under other provisions of the Volcker 

Rule.27 However, any extended 

transition period granted with respect to 

an illiquid fund, by statute, 

automatically terminates on the date 

during any such extension on which the 

banking entity is no longer under a 

contractual obligation to invest in, or 

provide capital to, the illiquid fund. The 

purpose of this extended transition or 

‘‘wind-down’’ period for investments in 

an illiquid fund is to minimize 

disruption of existing investments in 

illiquid funds and permit banking 

entities to fulfill existing obligations to 

illiquid funds while still steadily 

moving banking entities toward 

conformance with the prohibitions and 

restrictions of the Volcker Rule.28

Section 225.181(b) of the proposed 

rule implements the statute’s extended 

transition period for illiquid funds. As 

a general matter, to qualify for the 

statute’s extended transition period a 

banking entity’s investment in, or 

relationship with, a hedge fund or 

private equity fund must meet two sets 

of criteria. The first set of criteria 


srobinson on DSKHWCL6B1PROD with PROPOSALS
72744 Federal Register / Vol. 75, No. 227 / Friday, November 26, 2010 / Proposed Rules 

29Proposed Rule 225.180(e). 

30Proposed Rule 225.180(h). 

31See 15 CFR 240.15c3–1(c)(11)(i). 

32See 15 CFR 240.3b–8(a). 

33See 12 CFR 223.42(e) and (f)(5). 

focuses on the nature, assets and 

investment strategy of the hedge fund or 

private equity fund itself. The second 

set of criteria focuses on the terms of the 

banking entity’s investment in the hedge 

fund or private equity fund. 

1. Fund-Focused Criteria 

As noted above, the extended 

transition period under section 13(c)(3) 

of the BHC Act is available only with 

respect to investments made in an 

‘‘illiquid fund,’’ and then only with 

respect to investments in or 

commitments to these funds made as of 

May 1, 2010. In accordance with the text 

of the Volcker Rule, the proposed rule 

defines an ‘‘illiquid fund’’ to mean a 

hedge fund or private equity fund that: 

(i) As of May 1, 2010, was principally 

invested in illiquid assets, or was 

invested in, and contractually 

committed to principally invest in, 

illiquid assets; and (ii) makes all 

investments pursuant to, and consistent 

with, an investment strategy to 

principally invest in illiquid assets.29 In 

determining how to implement the 

definition of an illiquid fund, the Board 

considered, among other things, the 

terms of the statute, as well as 

information (including confidential 

supervisory information) concerning the 

terms of investments in hedge funds or 

private equity funds, the characteristics 

of liquid and illiquid assets, and the 

ability of a fund to divest assets held by 

the fund. 

The proposed rule defines several 

terms that are integral to the statute’s 

definition of an illiquid fund, including 

the terms or phrases ‘‘illiquid asset,’’ 

‘‘principally invested’’ in illiquid assets, 

‘‘contractually committed to principally 

invest’’ in illiquid assets, and 

‘‘investment strategy to principally 

invest’’ in illiquid assets. 

a. ‘‘Illiquid Asset.’’ 

The proposed rule generally defines 

an ‘‘illiquid asset’’ as any asset that is not 

a liquid asset. In turn, ‘‘liquid assets’’ are 

defined to include: 

• Cash or cash equivalents; 

• An asset that is traded on a 

recognized, established exchange, 

trading facility or other market on 

which there exist independent, bona 

fide offers to buy and sell so that a price 

reasonably related to the last sales price 

or current bona fide competitive bid and 

offer quotations can be determined for 

the asset almost instantaneously; 

• An asset for which there are bona 

fide, competitive bid and offer 

quotations in a recognized inter-dealer 

quotation system or similar system or 

for which multiple dealers furnish bona 

fide, competitive bid and offer 

quotations to other brokers and dealers 

on request; 

• An asset the price of which is 

quoted routinely in a widely 

disseminated publication that is readily 

available to the general public or 

through an electronic service that 

provides indicative data from real-time 

financial networks; 

• An asset with an initial term of one 

year or less and the payments on which 

at maturity may be settled, closed-out, 

or paid in cash or one or more other 

liquid assets described above; and 

• Any other asset that the Board 

determines, based on all the facts and 

circumstances, is a liquid asset.30

The standards contained in the 

second, third, and fourth standards 

above are based on existing standards in 

the Federal banking and securities laws 

that are designed to identify securities 

that are liquid and may be sold 

promptly at a price that is reasonably 

related to its fair value. Specifically, the 

second standard above is based in part 

on the SEC’s definition of securities for 

which a ‘‘ready market’’ exists for 

purposes of the net capital rules 

applicable to broker-dealers under the 

Securities Exchange Act of 1934 

(‘‘Exchange Act’’).31 Similarly, the third 

standard above is based, in part, on the 

actions regularly taken by a ‘‘qualified 

OTC market maker’’ as defined in the 

SEC’s Rule 3b–8, with respect to 

securities under the Exchange Act.32

The fourth standard above is based, in 

part, on the criteria used to identify 

whether a security or other asset is a 

‘‘marketable security’’ or a ‘‘liquid asset’’ 

for purposes of the Board’s Regulation 

W governing transactions between 

member banks and their affiliates.33 In 

each instance, the proposal represents a 

modification of the standards to reflect 

the broader range of financial 

instruments (including derivatives) or 

other assets that may be held by a hedge 

fund or private equity fund and that 

should be considered ‘‘liquid’’ if traded 

or quoted in the manner described. The 

Board has proposed using these 

standards (which are generally 

understood within the banking and 

financial services industries) to help 

promote ready and measurable 

compliance with the requirements of the 

Volcker Rule. These standards are 

designed to capture the wide range of 

instruments and assets (or their 

equivalents) that one actively or 

routinely trades on markets or trading 

facilities, as for which bid, offer or price 

quotations are widely available, and 

that, therefore, should be considered as 

liquid assets for purposes of the Volcker 

Rule’s provision regarding illiquid 

funds. For example, these standards 

would treat as a liquid asset: (i) Equity 

and debt securities, derivatives, and 

commodity futures traded on a 

registered securities exchange, board of 

trade, alternative trading system, 

electronic trading platform or similar 

market that provides independent, bona 

fide offers to buy and sell; (ii) assets 

traded on an electronic inter-dealer 

quotation system, such as OTC Bulletin 

Board or the system maintained by 

PINK OTC Markets, Inc., as well as overthe-counter derivatives, debt securities 

(such as corporate bonds), and 

syndicated commercial loans for which 

active inter-dealer markets exist; and 

(iii) financial instruments for which 

indicative price data is supplied by an 

electronic service, such as Markit Group 

Limited. 

The fifth standard is designed to 

capture instruments with a relatively 

short-term duration and that can be 

monetized or converted at maturity into 

a liquid asset. The Board recognizes that 

there may be situations where other, 

non-enumerated assets may be liquid 

even though they are not included in 

the standards contained in sections 

225.181(h)(1)—(5) of the proposed rule. 

In order to address these situations, the 

Board has expressly retained the ability 

to determine that any other asset is a 

liquid asset, based on all the facts and 

circumstances. 

On the other hand, consistent with 

the purpose of the Volcker Rule, this 

proposed approach to defining illiquid 

assets should include as illiquid assets 

investments in portfolio companies, 

investments in real estate (other than 

those made through publicly traded 

REITs), venture capital investments, and 

investments in other hedge funds or 

private equity funds that both are not 

publicly traded and invest in illiquid 

assets. The proposed rule also provides 

that an asset—including a liquid asset 

such as a security—may be considered 

an ‘‘illiquid asset’’ if, because of 

statutory or regulatory restrictions 

applicable to the hedge fund, private 

equity fund or asset, the asset cannot be 

offered, sold, or otherwise transferred by 

the hedge fund or private equity fund to 

a person that is unaffiliated with the 

banking entity. This approach 

recognizes situations where, for 

example, a security held by a fund is 

subject to one or more statutory or 

regulatory restrictions under the Federal 

securities laws (such as under Rule 

144A of the Securities Act of 1933 


srobinson on DSKHWCL6B1PROD with PROPOSALS
Federal Register / Vol. 75, No. 227 / Friday, November 26, 2010 / Proposed Rules 72745 

34See 15 CFR 230.144a. 

35Proposed Rule 225.180(g)(2). 

36Accordingly, institutional investors, such as 

pension plans and endowments, that seek exposure 

to different types of assets typically invest in a 

range of different types of hedge funds or private 

equity funds to obtain diversification across asset 

classes. 

37Proposed Rule 225.180(i). 

38See 12 U.S.C. 1851(d)(1)(C). The Board expects 

to interpret the language concerning risk-mitigating 

hedges consistent with the manner in which such 

language is implemented through the rulemaking 

process conducted under section 13(b)(2) of the 

BHC Act. 

39Proposed Rule 225.180(i)(2). 40Proposed Rule 225.180(i)(3). 

regarding private resales of securities to 

institutions) that temporarily prohibit 

the transferability or resale of the 

security.34 However, the proposed rule 

expressly provides that an asset may be 

considered an illiquid asset under this 

provision only for so long as and to the 

extent that the relevant statutory or 

regulatory restriction is effective.35

Once the relevant statutory or regulatory 

restriction is no longer applicable to the 

asset, hedge fund, or private equity 

fund, the asset would cease to be treated 

as an illiquid asset and would be a 

‘‘liquid asset’’ if it met any of the 

standards contained in sections 

225.181(g)(1)–(6) of the proposed rule. 

The Board is interested in receiving 

comments on the appropriateness of the 

definitions and standards mentioned 

above, as well as whether there are 

particular types of assets that should be 

defined, by rule, as liquid or illiquid. If 

so, what types of assets would these be? 

b. ‘‘Principally invested.’’ 

The statute’s fund-related criteria also 

require that the hedge fund or private 

equity fund either (1) have been 

principally invested in illiquid assets as 

of May 1, 2010, or (2) have been 

invested to some degree in illiquid 

assets and contractually committed to 

principally invest in illiquid assets as of 

such date. In addition, in either case, 

the fund must make all of its 

investments pursuant to, and consistent 

with, an investment strategy to 

principally invest in illiquid assets. 

Many types of hedge funds and 

private equity funds have investment 

strategies that focus almost exclusively 

on one type of illiquid assets, such as 

real estate or start-up companies 

(including new or emerging companies 

in the technology, life sciences, 

alternative energy, or ‘‘clean tech’’ 

areas).36 These types of hedge funds and 

private equity funds typically request 

capital contributions from their 

investors only when particular 

investment opportunities have been 

identified and hold only a small portion 

of their assets in cash or other liquid 

assets (other than during brief periods 

pending the investment of capital or the 

distribution of proceeds from the sale of 

an investment). By limiting the 

availability of the extended transition 

period to hedge funds or private equity 

funds that ‘‘principally invest’’ in and 

have an investment strategy to 

principally invest in illiquid assets, 

such as real estate, nonpublic portfolio 

companies, and venture capital 

opportunities, Congress appears to have 

structured the extended transition 

period for those types of funds that are 

clearly focused on, and invest 

substantially all of their capital in, 

illiquid assets. 

Accordingly, the proposed rule 

provides that a hedge fund or private 

equity fund will be considered to be 

‘‘principally invested’’ in illiquid assets 

only if at least 75 percent of the fund’s 

consolidated total assets are, or are 

expected to be, comprised of illiquid 

assets or risk-mitigating hedges entered 

into in connection with, and related to, 

individual or aggregated positions in, or 

holdings of, illiquid assets.37 The 

proposal would allow a fund to count 

risk-mitigating hedging positions that 

are related to the fund’s holdings of 

illiquid assets towards the 75 percent 

asset test because such positions are, by 

definition, associated with the fund’s 

illiquid holdings. In addition, this 

approach is consistent with safe and 

sound risk-management practices and 

other provisions of the Volcker Rule.38

The proposed rule also provides that 

a fund will be considered ‘‘contractually 

committed to principally invest’’ in 

illiquid assets as of May 1, 2010, if the 

fund’s organizational documents (such 

as the limited partnership agreement in 

the case of a fund organized in this 

manner), or other documents that 

constitute a contractual obligation of the 

fund (such as a binding side letter 

agreement entered into with investors) 

that was in effect as of May 1, 2010, 

provide for the fund to be principally 

invested in illiquid assets during the 

period beginning on the date when 

capital contributions are first received 

by the fund for the purpose of making 

investments and ending on the fund’s 

expected termination date.39 This 

definition is intended to recognize that 

an illiquid fund may have more than 25 

percent of its assets in liquid assets 

(such as cash or money market 

instruments) during its initial preinvestment organizational period, while 

the fund seeks to meet its investment 

objective of investing principally in 

illiquid assets. 

Additionally, the proposed rule 

provides that a fund would be 

considered to have an ‘‘investment 

strategy to principally invest’’ in illiquid 

assets if the fund either: (i) Markets or 

holds itself out to investors as intending 

to principally invest in illiquid assets; 

or (ii) has a documented investment 

policy of principally investing in 

illiquid assets.40 In considering whether 

a hedge fund or private equity fund’s 

organizational documents, marketing 

materials, or investment policy provide 

for the fund to principally invest in 

illiquid assets, banking entities should 

consider whether the assets to be 

acquired by the fund (as specified in 

such materials) are of the type and 

nature that would make the assets 

‘‘illiquid assets’’ or ‘‘liquid assets’’ for 

purposes of the rule. For example, 

under the proposal, if a fund’s 

investment strategy provides for the 

fund to primarily invest in publicly 

traded stocks or OTC derivatives that 

are regularly bought and sold in the 

inter-dealer market, the fund would not 

be considered to have an investment 

strategy to principally invest in illiquid 

assets. This would be the case even if 

the fund’s investment strategy did not 

indicate that the assets acquired by the 

fund must be traded on a recognized 

exchange, trading facility, or market of 

the type described in section 

225.180(h)(2) or quoted on inter-dealer 

systems of the type described in section 

225.180(h)(3). Likewise, under the 

proposal, a fund generally would be 

considered to be contractually 

committed to invest in illiquid assets if 

the fund’s organizational documents 

provide for the fund to invest in the 

equity of early-stage nonpublic 

companies, even if the fund’s 

documents do not specify that the 

equity of such companies must not be 

traded or quoted in the manner 

described in section 225.180(h)(2)–(4). 

The Board is interested in receiving 

comments on the appropriateness of 

these criteria and on whether there are 

other indicia of being ‘‘contractually 

committed to principally invest,’’ or 

having an ‘‘investment strategy to 

principally invest,’’ in illiquid assets 

that would better achieve the Volcker 

Rule’s objectives. 

2. Criteria Focused on the Banking 

Entity’s Investment 

Besides meeting the criteria described 

above, a banking entity’s interest in a 

hedge fund or private equity fund 

qualifies for the extended transition 

period in section 13(c)(3) of the BHC 

Act only if the banking entity’s retention 

of that ownership interest in the fund, 

or provision of additional capital to the 

fund, is necessary to fulfill a contractual 


srobinson on DSKHWCL6B1PROD with PROPOSALS
72746 Federal Register / Vol. 75, No. 227 / Friday, November 26, 2010 / Proposed Rules 

41 12 U.S.C. 1851(c)(3)(A). 

42Proposed Rule 225.181(b)(3)(i). 

43Proposed Rule 225.181(b)(3)(iii)(A) and (B). 

44The statute provides that a banking entity may 

apply for a single extension with respect to an 

illiquid fund, and that such extension may not 

exceed 5 years. In light of the statutory language, 

the Board retains the right to grant an extended 

transition period of less than 5 years if, based on 

all the facts and circumstances, it determines such 

extension is appropriate. 

45 Id. at § 1851(c)(4). 

46See 12 U.S.C. 1851(h)(7)(B). 47 12 U.S.C. 1851(h)(2). 

obligation of the banking entity that was 

in effect on May 1, 2010.41 This 

statutory restriction complements and 

reinforces the fund-related criteria 

discussed above because a fund that is 

principally invested in liquid assets is 

unlikely to require its investors to 

commit to remaining invested in the 

fund for, or provide additional capital 

over, an extended period of time. 

The proposed rule provides that a 

banking entity will be considered to 

have a ‘‘contractual obligation’’ to 

remain invested in a fund only if the 

banking entity, under the contractual 

terms of its equity, partnership, or other 

ownership interest in the fund or other 

contractual arrangements with the fund 

that were in effect as of May 1, 2010, is 

prohibited from both: (i) Redeeming all 

of its equity, partnership, or other 

ownership interests in the fund; and (ii) 

selling or otherwise transferring all such 

ownership interests to a person that is 

not an affiliate of the banking entity.42

Similarly, the proposed rule specifies 

that a banking entity has a contractual 

obligation to provide additional capital 

to an illiquid fund only if the banking 

entity is required, under the contractual 

terms of its equity, partnership, or other 

ownership interest in the fund or other 

contractual arrangements with the fund 

that were in effect as of May 1, 2010, to 

provide additional capital to the fund. 

In the Board’s experience, to the 

extent that contractual obligations 

described above exist between a banking 

entity and a hedge fund or private 

equity fund, such obligations often may 

be waived with the consent of the 

general partner and/or the other 

investors in the fund. To address these 

situations, the proposed rule provides 

that either of the contractual obligations 

described above will not be considered 

to be in effect with respect to a banking 

entity if: (i) The obligation may be 

terminated by the banking entity or any 

of its subsidiaries or affiliates; or (ii) the 

obligation may be terminated with the 

consent of other persons unless the 

banking entity and its subsidiaries and 

affiliates have used their reasonable best 

efforts to obtain such consent and such 

consent has been denied.43 These 

provisions are intended to ensure that 

the banking entity’s obligation to remain 

invested in, or provide additional 

capital to, a fund cannot be terminated 

by the banking entity itself or through 

its reasonable best efforts. 

The Board invites comments on the 

appropriateness of the criteria contained 

in the definition. For example, are there 

other ways to define a ‘‘contractual 

obligation’’ that would better achieve the 

objectives of the Volcker Rule’s 

conformance period? 

3. Application for Extended Transition 

Period 

Under section 619 of the Dodd-Frank 

Act, a banking entity may take 

advantage of the extended transition 

period with respect to an investment in 

a qualifying illiquid fund only with the 

approval of the Board. Section 

225.181(b) of the proposed rule 

implements this requirement. A banking 

entity that seeks an extended transition 

period with respect to an illiquid fund 

must submit a request to the Board in 

accordance with the requirements of 

section 225.181(c). Any request must 

address the factors specified in section 

225.181(d) of the proposed rule, as 

described in Part II above. The Board 

expects to carefully review requests for 

an extended transition period to ensure 

that the banking entity’s interest in the 

fund and the fund’s assets and 

investment strategy satisfy the 

requirements contained in the rule in 

order to be eligible for an extended 

transition period. As noted above, in 

cases where the banking entity is 

primarily supervised by another Federal 

banking agency, the SEC, or the CFTC, 

the Board would consult with such 

agency both in connection with its 

review of the application and, if 

applicable, prior to imposing conditions 

in connection with the approval of any 

request by the banking entity seeking an 

extended transition period with respect 

to an illiquid fund under the proposed 

rule. 

As provided in the Volcker Rule, the 

Board may grant a banking entity only 

one extended transition period with 

respect to any illiquid fund, which may 

not exceed 5 years.44 The Volcker Rule 

expressly states that any extended 

transition period will automatically 

terminate (unless it already expired by 

its terms) on the date on which the 

contractual obligation to invest in, or 

provide additional capital to, the 

illiquid fund terminates.45 Section 

225.181(b)(2)(ii) implements this 

termination requirement. 

4. Exception for Private Equity Funds as 

Defined Under the Investment Advisors 

Act of 1940 

Section 13(h)(7)(B) of the BHC Act 

provides that, for purposes of the 

definition of an ‘‘illiquid fund,’’ the term 

‘‘hedge fund’’ shall not include a 

‘‘private equity fund,’’ as such term is 

used in section 203(m) of the 

Investment Advisors Act of 1940 (15 

U.S.C. 80b–3(m)).’’ 46 However, section 

203(m) of the Investment Advisors Act, 

as added by section 408 of the DoddFrank Act, does not contain a definition 

of, nor does it use the term, ‘‘private 

equity fund.’’ Moreover, Congress’ intent 

in adopting this exclusion is unclear. 

For example, a fund that invests 

primarily in nonpublic portfolio 

companies, which are commonly 

referred to in the investment community 

as ‘‘private equity funds,’’ appears to be 

the type of fund that the Volcker Rule 

intended to potentially qualify as an 

‘‘illiquid fund.’’ As noted earlier, the 

Volcker Rule specifically includes 

investments in ‘‘portfolio companies’’ as 

an example of an ‘‘illiquid asset,’’ one of 

the key terms used to define an ‘‘illiquid 

fund.’’ 

In any event, the Board does not 

believe that it is necessary to resolve the 

ambiguity surrounding this provision 

because the exclusion would not have 

any effect on the ability of a fund to 

qualify as an illiquid fund. This is 

because the Volcker Rule defines a 

‘‘hedge fund’’ and a ‘‘private equity fund’’ 

synonymously.47 Thus, any illiquid 

fund that would have been excluded 

from the definition of ‘‘hedge fund’’ 

because it met the missing definition of 

a ‘‘private equity fund’’ in the 

Investment Advisors Act could still 

qualify for the extended conformance 

period afforded to illiquid funds as a 

‘‘private equity fund’’ under the Volcker 

Rule itself. 

D. Nonbank Financial Companies 

Supervised by the Board 

As noted above, the Volcker Rule does 

not prohibit nonbank financial 

companies supervised by the Board 

from engaging in proprietary trading, or 

from having the types of investments in 

or relationships with hedge funds or 

private equity funds that banking 

entities are prohibited or restricted from 

having under the Volcker Rule. 

However, the Volcker Rule provides that 

the Board or other appropriate agency 

impose additional capital charges, 

quantitative limits, or other restrictions 

on nonbank financial companies 

supervised by the Board or their 


srobinson on DSKHWCL6B1PROD with PROPOSALS
Federal Register / Vol. 75, No. 227 / Friday, November 26, 2010 / Proposed Rules 72747 

48See 12 U.S.C. 1851(a)(2), (d)(4). 

49 12 U.S.C. 1851(c)(2). 50 44 U.S.C. 3506; 5 CFR 1320, Appendix A.1. 

subsidiaries that are engaged in such 

activities or maintain such 

relationships.48 Like banking entities, 

the Volcker Rule provides a nonbank 

financial company supervised by the 

Board two years after the date the 

company becomes a nonbank financial 

company supervised by the Board to 

conform its activities to any applicable 

requirements of the Volcker Rule, 

including any capital requirements or 

quantitative limitations adopted 

thereunder and applicable to the 

company. The Volcker Rule also 

provides the Board the ability to extend 

this two-year conformance period by up 

to three additional one-year periods.49

Section 225.182 of the proposed rule 

implements the conformance period for 

nonbank financial companies 

supervised by the Board. A nonbank 

financial company supervised by the 

Board seeking an extension must submit 

a request to the Board under the same 

time frame as required of banking 

entities. 

III. Request for Comments 

The Board invites comments on all 

aspects of the proposed rule. Comments 

are specifically requested on the 

following matters: 

1. Are the definitions contained in the 

proposed rule appropriate? Would other 

definitions be more consistent with the 

language or purposes of the Volcker 

Rule? 

2. Is the proposed requirement that at 

least 75 percent of a fund’s assets be 

‘‘illiquid assets’’ or related hedges 

appropriate in order for a fund to meet 

the definition of ‘‘principally invested’’? 

Would an alternative number, metric, or 

other indicia be more consistent with 

the purposes of the Volcker Rule? 

3. Are the enumerated criteria for 

determining what qualifies as a ‘‘liquid 

asset’’ appropriate? If not, what 

additional or alternative metrics or 

screens should the Board consider? 

4. Are there particular types of assets 

that should be defined, by rule, as 

illiquid? If so, what types of assets 

would these be? Would the assets 

generally be considered illiquid assets 

under the terms of the proposed rule? 

5. What will the potential impact of 

the proposed rule be on affected 

entities? 

6. Are there any additional factors 

that the Board should consider in 

reviewing a request for an extension of 

the conformance period? Are there 

additional factors that the Board should 

consider in reviewing a request for an 

extension with respect to an illiquid 

fund? 

7. Are there specific additional 

conditions or limitations that the Board 

should, by rule, impose in connection 

with granting an extension of the 

conformance period? If so, what 

conditions or limitations would be 

appropriate? Alternatively, should the 

Board and the other Federal agencies 

responsible for implementing the 

Volcker Rule consider what conditions 

or limitations might be appropriate to 

apply to prohibited activities that are 

conducted during the conformance 

period (including any extension thereof) 

on a tailored or case-by-case basis? 

8. Are there other matters that the 

Board should address as part of the 

conformance period rulemaking 

required by section 13(c)(6) of the BHC 

Act? 

IV. Administrative Law Matters 

A. Paperwork Reduction Act Analysis 

In accordance with the Paperwork 

Reduction Act of 1995 (‘‘PRA’’),50 the 

Board reviewed the proposed rule under 

the authority delegated to the Board by 

Office of Management and Budget 

(‘‘OMB’’). The Board may not conduct or 

sponsor, and a respondent is not 

required to respond to, an information 

collection unless it displays a currently 

valid OMB control number. 

Sections 225.181(c) and 225.182(c) of 

the proposed rule contain collections of 

information that are subject to the PRA. 

The OMB control number for these 

information collections will be assigned. 

These collections of information would 

only be required for banking entities 

and nonbank financial companies 

supervised by the Board that voluntarily 

decide to seek an extension of time to 

conform their activities to the Volcker 

Rule or divest their interest in an 

illiquid hedge fund or private equity 

fund. As discussed in the 

Supplementary Information, the DoddFrank Act generally requires banking 

entities and nonbank financial holding 

companies supervised by the Board to 

conform their activities and investments 

to the restrictions in the Volcker Rule 

within 2 years of the effective date of 

the Volcker Rule’s restrictions. The 

proposed rule implements this 

conformance period and, as permitted 

by the Dodd-Frank Act, permits a 

banking entity or nonbank financial 

company supervised by the Board to 

request an extension of time to conform 

its activities to the Volcker Rule. Section 

225.181(c) would require an application 

for an extension by a banking entity to 

be (1) submitted in writing to the Board 

at least 90 days prior to the expiration 

of the applicable time period, (2) 

provide the reasons why the banking 

entity believes the extension should be 

granted, and (3) provide a detailed 

explanation of the banking entity’s plan 

for divesting or conforming the activity 

or investment(s). Section 225.182(c) 

would require an application for an 

extension by a nonbank financial 

holding company to be (1) submitted in 

writing to the Board at least 90 days 

prior to the expiration of the applicable 

time period, (2) provide the reasons why 

the nonbank financial holding company 

believes the extension should be 

granted, and (3) provide a detailed 

explanation of the company’s plan for 

coming into compliance with the 

requirements of the Volcker Rule. A 

banking entity or nonbank financial 

company supervised by the Board may 

request confidential treatment of 

information submitted as part of an 

extension request in accordance with 

the Freedom of Information Act. 

The estimated burden per request is 1 

hour. It is estimated that there were 

approximately 7,200 banking entities as 

of December 31, 2009. Of that number, 

the Board estimates that approximately 

720 banking entities would request an 

extension of the conformance period 

under the proposed rule. Therefore, the 

total amount of annual burden is 

estimated to be 720 hours. The number 

of nonbank financial companies 

supervised by the Board will be 

determined by the FSOC in accordance 

with the procedures established under 

the Dodd-Frank Act. Accordingly, the 

Board is unable at this time to estimate 

the number of nonbank financial 

companies supervised by the Board that 

might request an extension of the 

Volcker Rule conformance period under 

the proposed rule. 

Comments are invited on: 

(a) Whether the information collection 

is necessary for the proper performance 

of the agency functions; including 

whether the information has practical 

utility; 

(b) The accuracy of the estimate of the 

burden of the information collection, 

including the cost of compliance; 

(c) Ways to enhance the quality, 

utility, and clarity of the information to 

be collected; and 

(d) Ways to minimize the burden of 

information collection on respondents, 

including through the use of automated 

collection techniques or other forms of 

information technology. 


srobinson on DSKHWCL6B1PROD with PROPOSALS
72748 Federal Register / Vol. 75, No. 227 / Friday, November 26, 2010 / Proposed Rules 

51 13 CFR 121.201. 

B. Initial Regulatory Flexibility Act 

Analysis 

In accordance with Section 3(a) of the 

Regulatory Flexibility Act, 5 U.S.C. 601 

et seq., (‘‘RFA’’), the Board is publishing 

an initial regulatory flexibility analysis 

of the proposed rule. The RFA requires 

an agency either to provide an initial 

regulatory flexibility analysis with a 

proposed rule for which a general notice 

of proposed rulemaking is required or to 

certify that the proposed rule will not 

have a significant economic impact on 

a substantial number of small entities. 

Based on this analysis and for the 

reasons stated below, the Board believes 

that this proposed rule would not have 

a significant economic impact on a 

substantial number of small entities. 

Nevertheless, the Board is publishing an 

initial regulatory flexibility analysis and 

requesting public comment in the 

following areas. A final regulatory 

flexibility analysis will be conducted 

after consideration of comments 

received during the public comment 

period. 

The Volcker Rule, adopted as a new 

section 13 of the BHC Act, applies to all 

banking entities and nonbank financial 

companies supervised by the Board, 

regardless of size. The Board is 

proposing to amend Regulation Y to 

implement the provisions of the DoddFrank Act that allow a banking entity— 

including a small banking entity—or a 

nonbank financial company supervised 

by the Board to obtain, with the Board’s 

approval, an extended period of time to 

conform its activities and investments to 

the requirements of the Volcker Rule. 

Under the proposed rule, a banking 

entity of any size may request up to 

three one-year extensions of the general 

two-year conformance period provided 

under section 13 of the BHC Act, as well 

as one extension of up to five years to 

divest certain ownership interests in a 

hedge fund or private equity fund that 

qualifies as an ‘‘illiquid fund’’ under the 

statute and proposed rule. The 

SUPPLEMENTARY INFORMATION provides 

additional information regarding the 

reasons for, and the objective and legal 

basis of, the proposed rule. 

Under regulations issued by the Small 

Business Administration (‘‘SBA’’), a 

bank or other depository institution is 

considered ‘‘small’’ if it has $175 million 

or less in assets.51 As of December 31, 

2009, there were approximately 2450 

small bank holding companies, 293 

small savings association, 132 small 

national banks, 73 small State member 

banks, 665 small State nonmember 

banks, and 21 small foreign banking 

organizations that are subject to section 

8 of the International Banking Act of 

1978. As of that date, there were no 

nonbank financial companies 

supervised by the Board. The Volcker 

Rule would affect only those entities 

that engage in activities or that hold 

investments prohibited or restricted 

under the terms of the Volcker Rule. As 

explained above, the Board estimates 

that of the total number of banking 

entities that would be affected by the 

Volcker Rule, approximately 10 percent 

would likely file an extension request 

under the proposed rule. Based on its 

supervisory experience, the Board 

believes that small banking entities are 

less likely to be engaged in the types of 

activities or hold investments 

prohibited under the Volcker Rule, and 

as such estimates that only 5 percent of 

small banking entities likely would file 

an extension request under the 

proposal. The Board specifically seeks 

comment on whether this estimate is 

appropriate. The Board notes that the 

impact of the proposal on entities 

choosing to take advantage of the 

proposal’s extended conformance 

period provided under the proposed 

rule would be positive and not adverse. 

This is because the proposed rule would 

allow affected entities to seek and 

obtain an extended period of time to 

conform their activities, investments, or 

relationships to the requirements of the 

Volcker Rule. The Board also has taken 

several steps to reduce the potential 

burden of the proposed rule on all 

banking entities, including small 

banking entities. For example, the 

proposed rule establishes a 

straightforward process for banking 

entities, including small banking 

entities, to request an extension of the 

conformance period or an extended 

transition period with respect to an 

investment in an illiquid fund, and 

permits such requests to be submitted in 

letter form. The proposed rule also uses 

standards drawn from existing federal 

banking and securities regulations to 

help define the types of funds that may 

qualify as an ‘‘illiquid fund’’ under the 

statute and the proposed rule, which 

should assist small banking entities in 

determining whether their investments 

qualify for the extended transition 

period available for investments in 

illiquid funds. 

As discussed in the SUPPLEMENTARY

INFORMATION, the Dodd-Frank Act 

requires that the Board adopt rules 

implementing the Volcker Rule’s 

conformance period by January 21, 

2011. The Board does not believe that 

the proposed rule duplicates, overlaps, 

or conflicts with any other Federal 

rules. The Board requests comment on 

whether there are additional steps that 

the Board could take to reduce the 

potential burden on small banking 

entities consistent with the terms and 

purpose of section 13 of the BHC Act. 

The Board will carefully review any 

comments received on these issues 

during the public comment period. 

Solicitation of Comments on Use of 

Plain Language 

Section 722 of the GLBA required the 

Federal banking agencies to use plain 

language in all proposed and final rules 

published after January 1, 2000. The 

Board invites comment on how to make 

the interim final rule easier to 

understand. For example, the Board 

requests comment on such questions as: 

• Have we organized the material to 

suit your needs? If not, how could the 

rule be more clearly stated? 

• Are the requirements in the rule 

clearly stated? If not, how could the rule 

be more clearly stated? 

• Do the regulations contain technical 

language or jargon that is not clear? If 

so, which language requires 

clarification? 

• Would a different format (grouping 

and order of sections, use of headings, 

paragraphing) make the regulation 

easier to understand? If so, what 

changes would make the regulation 

easier to understand? 

• Would more, but shorter, sections 

be better? If so, which sections should 

be changed? 

• What else could we do to make the 

regulation easier to understand? 

List of Subjects in 12 CFR Part 225 

Administrative practice and 

procedure, Banks, banking, Holding 

companies, Reporting and 

recordkeeping requirements, Securities. 

Authority and Issuance 

For the reasons stated in the 

preamble, the Board proposes to amend 

Regulation Y, 12 CFR part 225, as set 

forth below: 

Proposed Rules 

The Board proposes to adopt rules 

under part 225 of Title 12, Chapter II of 

the Code of Federal Regulations, as 

follows: 

PART 225—BANK HOLDING 

COMPANIES AND CHANGE IN BANK 

CONTROL (REGULATION Y) 

1. The authority citation for part 225 

is revised to read as follows: 

Authority: 12 U.S.C. 1817(j)(13), 1818, 

1828(o), 1831i, 1831p–1, 1843(c)(8), 1844(b), 

1851, 1972(1), 3106, 3108, 3310, 3331–3351, 

3907, and 3909; 15 U.S.C. 6801 and 6805. 


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Federal Register / Vol. 75, No. 227 / Friday, November 26, 2010 / Proposed Rules 72749 

Subpart L—Conditions to Orders 

2. Add a new subpart L heading as set 

forth above, and designate § 225.200 

under subpart L. 

3. Add Subpart K to part 225 to read 

as follows: 

Subpart K—Proprietary Trading and 

Relationships with Hedge Funds and 

Private Equity Funds 

Sec. 

225.180 Definitions. 

225.181 Conformance period for banking 

entities engaged in prohibited 

proprietary trading or private fund 

activities. 

225.182 Conformance period for nonbank 

financial companies supervised by the 

board engaged in proprietary trading or 

private fund activities. 

Subpart K—Proprietary Trading and 

Relationships with Hedge Funds and 

Private Equity Funds 

§ 225.180 Definitions. 

For purposes of this subpart: 

(a) Banking entity means— 

(1) Any insured depository 

institution; 

(2) Any company that controls an 

insured depository institution; 

(3) Any company that is treated as a 

bank holding company for purposes of 

section 8 of the International Banking 

Act of 1978; and 

(4) Any affiliate or subsidiary of any 

of the foregoing entities. 

(b) Hedge fund and private equity 

fund mean an issuer that would be an 

investment company, as defined in the 

Investment Company Act of 1940 (15 

U.S.C. 80a–1 et seq.), but for section 

3(c)(1) or 3(c)(7) of that Act, or such 

similar funds as the appropriate Federal 

banking agencies, the Securities and 

Exchange Commission, and the 

Commodity Futures Trading 

Commission may, by rule, as provided 

in section 13(b)(2) of the Bank Holding 

Company Act (12 U.S.C. 1851(b)(2)), 

determine. 

(c) Insured depository institution has 

the same meaning as ordered to that 

term in section 3 of the Federal Deposit 

Insurance Act (12 U.S.C. 1813), except 

that for purposes of this subpart the 

term shall not include an institution 

that functions solely in a trust or 

fiduciary capacity if— 

(1) All or substantially all of the 

deposits of such institution are in trust 

funds and are received in a bona fide 

fiduciary capacity; 

(2) No deposits of such institution 

which are insured by the Federal 

Deposit Insurance Corporation are 

offered or marketed by or through an 

affiliate of such institution; 

(3) Such institution does not accept 

demand deposits or deposits that the 

depositor may withdraw by check or 

similar means for payment to third 

parties or others or make commercial 

loans; and 

(4) Such institution does not— 

(i) Obtain payment or payment related 

services from any Federal Reserve bank, 

including any service referred to in 

section 11A of the Federal Reserve Act 

(12 U.S.C. 248a); or 

(ii) Exercise discount or borrowing 

privileges pursuant to section 19(b)(7) of 

the Federal Reserve Act (12 U.S.C. 

416(b)(7)). 

(d) Nonbank financial company 

supervised by the Board means a 

nonbank financial company supervised 

by the Board of Governors, as defined in 

section 102 of the Financial Stability 

Act of 2010 (12 U.S.C. 5311). 

(e) Board means the Board of 

Governors of the Federal Reserve 

System. 

(f) Illiquid fund means a hedge fund 

or private equity fund that as of May 1, 

2010: 

(1) Was principally invested in 

illiquid assets; or 

(2) Was invested in, and contractually 

committed to principally invest in, 

illiquid assets; and 

(3) Makes all investments pursuant to, 

and consistent with, an investment 

strategy to principally invest in illiquid 

assets. 

(g) Illiquid assets means any real 

property, security, obligation, or other 

asset that— 

(1) Is not a liquid asset; or 

(2) Because of statutory or regulatory 

restrictions applicable to the hedge 

fund, private equity fund or asset, 

cannot be offered, sold, or otherwise 

transferred by the hedge fund or private 

equity fund to a person that is 

unaffiliated with the relevant banking 

entity, provided that any asset may be 

considered an illiquid asset under this 

paragraph (g)(2) only for so long as such 

statutory or regulatory restriction is 

applicable. 

(h) Liquid asset means: 

(1) Cash or cash equivalents; 

(2) An asset that is traded on a 

recognized, established exchange, 

trading facility or other market on 

which there exist independent, bona 

fide offers to buy and sell so that a price 

reasonably related to the last sales price 

or current bona fide competitive bid and 

offer quotations can be determined for a 

particular asset almost instantaneously; 

(3) An asset for which there are bona 

fide, competitive bid and offer 

quotations in a recognized inter-dealer 

quotation system or similar system or 

for which multiple dealers furnish bona 

fide, competitive bid and offer 

quotations to other brokers and dealers 

on request; 

(4) An asset the price of which is 

quoted routinely in a widely 

disseminated publication that is readily 

available to the general public or 

through an electronic service that 

provides indicative data from real-time 

financial networks; 

(5) An asset with an initial term of 

one year or less and the payments on 

which at maturity may be settled, 

closed-out, or paid in cash or one or 

more other liquid assets described in 

paragraphs (h)(1), (2), (3), or (4) of this 

section; and 

(6) Any other asset that the Board 

determines, based on all the facts and 

circumstances, is a liquid asset. 

(i) Principally invested and related 

definitions.—A hedge fund or private 

equity fund— 

(1) Is principally invested in illiquid 

assets if at least 75 percent of the fund’s 

consolidated total assets (as reflected on 

the fund’s financial statements prepared 

in accordance with applicable 

accounting standards) are— 

(i) Illiquid assets; or 

(ii) Risk-mitigating hedges entered 

into in connection with and related to 

individual or aggregated positions in, or 

holdings of, illiquid assets; 

(2) Is contractually committed to 

principally invest in illiquid assets if the 

fund’s organizational documents, or 

other documents that constitute a 

contractual obligation of the fund, 

provide for the fund to be principally 

invested in assets described in 

paragraph (i)(1) of this section during 

the period beginning on the date when 

capital contributions are first received 

for the purpose of making investments 

and ending on the fund’s expected 

termination date; and 

(3) Has an investment strategy to 

principally invest in illiquid assets if the 

fund— 

(i) Markets or holds itself out to 

investors as intending to principally 

invest in assets described in paragraph 

(i)(1) of this section; or 

(ii) Has a documented investment 

policy of principally investing in assets 

described in paragraph (i)(1) of this 

section. 

§ 225.181 Conformance period for banking 

entities engaged in prohibited proprietary 

trading or private fund activities. 

(a) Conformance period. (1) In 

general.—Except as provided in 

paragraph (b)(2) or (3), a banking entity 

shall bring its activities and investments 

into compliance with the requirements 

of section 13 of the Bank Holding 

Company Act (12 U.S.C. 1851) and this 


srobinson on DSKHWCL6B1PROD with PROPOSALS
72750 Federal Register / Vol. 75, No. 227 / Friday, November 26, 2010 / Proposed Rules 

subpart no later than 2 years after the 

earlier of: 

(i) July 21, 2012; or 

(ii) 12 months after the date on which 

final rules adopted under section 

13(b)(2) of the Bank Holding Company 

Act (12 U.S.C. 1851(b)(2)) are published 

in the Federal Register. 

(2) New banking entities.—A 

company that was not a banking entity, 

or a subsidiary or affiliate of a banking 

entity, as of July 21, 2010, and becomes 

a banking entity, or a subsidiary or 

affiliate of a banking entity, after that 

date shall bring its activities and 

investments into compliance with the 

requirements of section 13 of the Bank 

Holding Company Act (12 U.S.C. 1851) 

and this subpart before the later of— 

(i) The conformance date determined 

in accordance with paragraph (a)(1) of 

this section; or 

(ii) 2 years after the date on which the 

company becomes a banking entity or a 

subsidiary or affiliate of a banking 

entity. 

(3) Extended conformance period. 

The Board may extend the two-year 

period under paragraph (a)(1) or (2) of 

this section by not more than three oneyear periods, if, in the judgment of the 

Board, each such one-year extension is 

consistent with the purposes of section 

13 of the Bank Holding Company Act 

(12 U.S.C. 1851) and this subpart and 

would not be detrimental to the public 

interest. 

(b) Illiquid funds. (1) Extended 

transition period.—The Board may 

further extend the period provided by 

paragraph (a) of this section during 

which a banking entity may acquire or 

retain an equity, partnership, or other 

ownership interest in, or otherwise 

provide additional capital to, a private 

equity fund or hedge fund if— 

(i) The fund is an illiquid fund; and 

(ii) The acquisition or retention of 

such interest, or provision of additional 

capital, is necessary to fulfill a 

contractual obligation of the banking 

entity that was in effect on May 1, 2010. 

(2) Duration limited. The Board may 

grant a banking entity only one 

extension under paragraph (b)(1) of this 

section and such extension— 

(i) May not exceed 5 years beyond any 

conformance period granted under 

paragraph (a)(3) of this section; and 

(ii) Shall terminate automatically on 

the date during any such extension on 

which the banking entity is no longer 

under a contractual obligation described 

in paragraph (b)(1)(ii) of this section. 

(3) Contractual obligation. For 

purposes of this paragraph (b)— 

(i) A banking entity has a contractual 

obligation to take or retain an equity, 

partnership, or other ownership interest 

in an illiquid fund if the banking entity 

is prohibited under the terms of its 

equity, partnership, or other ownership 

interest in the fund or other contractual 

arrangements with the fund from— 

(A) Redeeming all of its equity, 

partnership, or other ownership 

interests in the fund; and 

(B) Selling or otherwise transferring 

all such ownership interests to a person 

that is not an affiliate of the banking 

entity; 

(ii) A banking entity has a contractual 

obligation to provide additional capital 

to an illiquid fund if the banking entity 

is required under the terms of its equity, 

partnership, or other ownership interest 

in the fund or other contractual 

arrangements with the fund to provide 

additional capital to such fund; and 

(iii) A banking entity shall be 

considered to have a contractual 

obligation for purposes of paragraph 

(b)(3)(i) or (ii) of this section only if— 

(A) The obligation may not be 

terminated by the banking entity or any 

of its subsidiaries or affiliates under the 

terms of its agreement with the fund; 

and 

(B) In the case of an obligation that 

may be terminated with the consent of 

other persons, the banking entity and its 

subsidiaries and affiliates have used 

their reasonable best efforts to obtain 

such consent and such consent has been 

denied. 

(c) Approval required to hold interests 

in excess of time limit. The conformance 

period in paragraph (a) may be extended 

in accordance with paragraph (a)(3) or 

(b)(1) of this section only with the 

approval of the Board. A banking entity 

that seeks the Board’s approval for an 

extension of the conformance period 

under paragraph (a)(3) or for an 

extended transition period under 

paragraph (b)(1) of this section must— 

(1) Submit a request in writing to the 

Board at least 90 days prior to the 

expiration of the applicable time period; 

(2) Provide the reasons why the 

banking entity believes the extension 

should be granted, including 

information that addresses the factors in 

paragraph (d)(1) of this section; and 

(3) Provide a detailed explanation of 

the banking entity’s plan for divesting or 

conforming the activity or 

investment(s). 

(d) Factors governing Board 

determinations. 

(1) Extension requests generally.—In 

reviewing any application for an 

extension under paragraph (a)(3) or 

(b)(1) of this section, the Board may 

consider all the facts and circumstances 

related to the activity, investment, or 

fund, including, to the extent relevant— 

(i) Whether the activity or 

investment— 

(A) Involves or results in material 

conflicts of interest between the banking 

entity and its clients, customers or 

counterparties; 

(B) Would result, directly or 

indirectly, in a material exposure by the 

banking entity to high-risk assets or 

high-risk trading strategies; 

(C) Would pose a threat to the safety 

and soundness of the banking entity; or 

(D) Would pose a threat to the 

financial stability of the United States; 

(ii) Market conditions; 

(iii) The nature of the activity or 

investment; 

(iv) The date that the banking entity’s 

contractual obligation to make or retain 

an investment in the fund was incurred 

and when it expires; 

(v) The contractual terms governing 

the banking entity’s interest in the fund; 

(vi) The degree of control held by the 

banking entity over investment 

decisions of the fund; 

(vii) The types of assets held by the 

fund; 

(viii) The date on which the fund is 

expected to wind up its activities and 

liquidate, or its investments may be 

redeemed or sold; 

(ix) The total exposure of the banking 

entity to the activity or investment and 

the risks that disposing of, or 

maintaining, the investment or activity 

may pose to the banking entity or the 

financial stability of the United States; 

(x) The cost to the banking entity of 

disposing of the activity or investment 

within the applicable period; and 

(xi) Any other factor that the Board 

believes appropriate. 

(2) Consultation. In the case of a 

banking entity that is primarily 

supervised by another Federal banking 

agency, the Securities and Exchange 

Commission, or the Commodity Futures 

Trading Commission, the Board will 

consult with such agency prior to the 

approval of a request by the banking 

entity for an extension under paragraph 

(a)(3) or (b)(1) of this section. 

(e) Authority to impose restrictions on 

activities or investments during any 

extension period. 

(1) In general. The Board may impose 

such conditions on any extension 

approved under paragraph (a)(3) or 

(b)(1) of this section as the Board 

determines are necessary or appropriate 

to protect the safety and soundness of 

banking entity or the financial stability 

of the United States, address material 

conflicts of interest or other unsound 

banking practices, or otherwise further 

the purposes of section 13 of the Bank 

Holding Company Act (12 U.S.C. 1851) 

and this subpart. 


srobinson on DSKHWCL6B1PROD with PROPOSALS
Federal Register / Vol. 75, No. 227 / Friday, November 26, 2010 / Proposed Rules 72751 

(2) Consultation. In the case of a 

banking entity that is primarily 

supervised by another Federal banking 

agency, the Securities and Exchange 

Commission, or the Commodity Futures 

Trading Commission, the Board will 

consult with such agency prior to 

imposing conditions on the approval of 

a request by the banking entity for an 

extension under paragraph (a)(3) or 

(b)(1) of this section. 

§ 225.182 Conformance period for 

nonbank financial companies supervised by 

the board engaged in proprietary trading or 

private fund activities. 

(a) Divestiture requirement. A 

nonbank financial company supervised 

by the Board shall come into 

compliance with all applicable 

requirements of section 13 of the Bank 

Holding Company Act (12 U.S.C. 1851) 

and this subpart, including any capital 

requirements or quantitative limitations 

adopted thereunder and applicable to 

the company, not later than 2 years after 

the date the company becomes a 

nonbank financial company supervised 

by the Board. 

(b) Extensions. The Board may, by 

rule or order, extend the two-year 

period under paragraph (a) of this 

section by not more than three one-year 

periods, if, in the judgment of the Board, 

each such one-year extension is 

consistent with the purposes of section 

13 of the Bank Holding Company Act 

(12 U.S.C. 1851) and this subpart and 

would not be detrimental to the public 

interest. 

(c) Approval required to hold interests 

in excess of time limit. A nonbank 

financial company supervised by the 

Board that seeks the Board’s approval 

for an extension of the conformance 

period under paragraph (b) of this 

section must— 

(1) Submit a request in writing to the 

Board at least 90 days prior to the 

expiration of the applicable time period; 

(2) Provide the reasons why the 

nonbank financial company supervised 

by the Board believes the extension 

should be granted; and 

(3) Provide a detailed explanation of 

the company’s plan for conforming the 

activity or investment(s) to any 

applicable requirements established 

under section 13(a)(2) or (f)(4) of the 

Bank Holding Company Act (12 U.S.C. 

1851(a)(2) and (f)(4)). 

(d) Factors governing Board 

determinations. In reviewing any 

application for an extension under 

paragraph (b) of this section, the Board 

may consider all the facts and 

circumstances related to the nonbank 

financial company and the request 

including, to the extent determined 

relevant by the Board, the factors 

described in § 225.181(d)(1). 

(e) Authority to impose restrictions on 

activities or investments during any 

extension period. The Board may 

impose conditions on any extension 

approved under paragraph (b) of this 

section as the Board determines are 

necessary or appropriate to protect the 

safety and soundness of the nonbank 

financial company or the financial 

stability of the United States, address 

material conflicts of interest or other 

unsound practices, or otherwise further 

the purposes of section 13 of the Bank 

Holding Company Act (12 U.S.C. 1851) 

and this subpart. 

By order of the Board of Governors of the 

Federal Reserve System, November 16, 2010. 

Jennifer J. Johnson, 

Secretary of the Board. 

[FR Doc. 2010–29277 Filed 11–24–10; 8:45 am] 

BILLING CODE 6210–01–P 

FEDERAL HOUSING FINANCE 

AGENCY 

12 CFR Part 1278 

RIN 2590–AA37 

Voluntary Mergers of Federal Home 

Loan Banks 

AGENCY: Federal Housing Finance 

Agency. 

ACTION: Notice of proposed rulemaking; 

request for comment. 

SUMMARY: Section 1209 of the Housing 

and Economic Recovery Act of 2008 

(HERA) amended section 26 of the 

Federal Home Loan Bank Act (Bank Act) 

to permit any Federal Home Loan Bank 

(Bank) to merge with another Bank with 

the approval of its board of directors, its 

members, and the Director of the 

Federal Housing Finance Agency 

(FHFA). This proposed rule would 

establish the conditions and procedures 

for the consideration and approval of 

voluntary Bank mergers. 

DATES: Written comments must be 

received on or before January 25, 2011. 

ADDRESSES: You may submit your 

comments, identified by regulatory 

information number (RIN) 2590–AA37, 

by any of the following methods: 

• E-mail: Comments to Alfred M. 

Pollard, General Counsel may be sent by 

e-mail to RegComments@fhfa.gov. 

Please include ‘‘RIN 2590–AA37’’ in the 

subject line of the message. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. If 

you submit your comment to the 

Federal eRulemaking Portal, please also 

send it by e-mail to FHFA at 

RegComments@fhfa.gov to ensure 

timely receipt by FHFA. Please include 

‘‘RIN 2590–AA37’’ in the subject line of 

the message. 

• U.S. Mail, United Parcel Service, 

Federal Express, or Other Mail Service: 

The mailing address for comments is: 

Alfred M. Pollard, General Counsel, 

Attention: Comments/RIN 2590–AA37, 

Federal Housing Finance Agency, 

Fourth Floor, 1700 G Street, NW., 

Washington, DC 20552. 

• Hand Delivered/Courier: The hand 

delivery address is: Alfred M. Pollard, 

General Counsel, Attention: Comments/ 

RIN 2590–AA37, Federal Housing 

Finance Agency, Fourth Floor, 1700 G 

Street, NW., Washington, DC 20552. The 

package should be logged at the Guard 

Desk, First Floor, on business days 

between 9 a.m. and 5 p.m. 

FOR FURTHER INFORMATION CONTACT: John 

P. Foley, Senior Financial Analyst, 

Policy and Program Development, 

john.foley@fhfa.gov, (202) 408–2828 

(this is not a toll-free number), Federal 

Housing Finance Agency, 1625 Eye 

Street, NW., Washington, DC 20006; 

Eric M. Raudenbush, Assistant General 

Counsel, eric.raudenbush@fhfa.gov, 

(202) 414–6421 (this is not a toll-free 

number); Federal Housing Finance 

Agency, Fourth Floor, 1700 G Street, 

NW., Washington, DC 20552. The 

telephone number for the 

Telecommunications Device for the 

Hearing Impaired is (800) 877–8339. 

SUPPLEMENTARY INFORMATION: 

I. Comments 

FHFA invites comments on all aspects 

of the proposed rule and will take all 

comments into consideration before 

issuing the final rule. Copies of all 

comments will be posted without 

change, including any personal 

information you provide, such as your 

name and address, on the FHFA Internet 

Web site at http://www.fhfa.gov. In 

addition, copies of all comments 

received will be available for 

examination by the public on business 

days between the hours of 10 a.m. and 

3 p.m. at the Federal Housing Finance 

Agency, Fourth Floor, 1700 G Street, 

NW., Washington, DC 20552. To make 

an appointment to inspect comments, 

please call the Office of General Counsel 

at (202) 414–6924. 

II. Background 

A. The Federal Home Loan Bank System 

The twelve regional Banks are 

instrumentalities of the United States 


srobinson on DSKHWCL6B1PROD with PROPOSALS