Commodity Futures Trading Commission

Office of Public Affairs

Three Lafayette Centre

1155 21st Street, NW

Washington, DC 20581

www.cftc.gov

November 13, 2014

CFTC Division of Swap Dealer and Intermediary Oversight Responds to

Frequently Asked Questions Regarding Certain Requirements under Section 

13 of the Bank Holding Company Act of 1956 and Prohibitions and 

Restrictions on Proprietary Trading and Certain Interests in, and 

Relationships with, Hedge Funds and Private Equity Funds

Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act added a new section 13 to the 

Bank Holding Company Act of 1956 (“BHC Act”), commonly referred to as the Volcker rule, that generally 

prohibits insured depository institutions and any company affiliated with an insured depository institution from 

engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring, or having 

certain relationships with a hedge fund or private equity fund. These prohibitions are subject to a number of 

statutory exemptions, restrictions, and definitions.

The Commodity Futures Trading Commission (“CFTC”) is working closely with the other agencies charged with 

implementing the requirements of section 13, including the Federal Reserve Board, Office of the Comptroller of 

the Currency, the Federal Deposit Insurance Corporation, and the Securities and Exchange Commission (each 

an “Agency” and collectively with the CFTC “the Agencies”). While these frequently asked questions (“FAQs”) 

apply to banking entities for which the CFTC has jurisdiction under section 13 of the BHC Act, they have been 

developed by staffs of the Agencies and substantively identical versions will appear on the public websites of 

each Agency.

Metrics Reporting During the Conformance Period

1. Appendix A of the final rule provides that certain of the metrics required to be 

reported by banking entities under the final rule should include the limits set out in §§ 

75.4 and 75.5 of the final rule. Since the limits required by §§ 75.4 and 75.5 of the 

final rule are not required to be established prior to the end of the conformance 

period, when would a banking entity need to report metrics that include these limits?

A banking entity must conform its activities and investments to the prohibitions and restrictions of the final 

rule implementing section 13 of the Bank Holding Company Act no later than the end of the conformance 

period.1 During this conformance period, some banking entities are nonetheless required to report certain 

quantitative measurements to the appropriate Agency under Appendix A of the final rule.2 Appendix A 

provides that Risk and Position Limits and Usage should include the limits set out in §§ 75.4 and 75.5 of the 

final rule and explains that a number of metrics such as Risk Factor Sensitivities, Value-at-Risk, and Stress 

Value-at-Risk relate to a trading desk’s risk and position limits and are useful in evaluating and setting these 

 

1

 See Federal Reserve System, Order Approving Extension of Conformance Period (Dec. 10, 2013), available at: 

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20131210b1.pdf. 

2

 See 12 C.F.R. § 75.20(d). 
2

Commodity Futures Trading Commission ♦ Office of Public Affairs ♦ 202-418-5080

limits in the broader context of the trading desk’s overall activities, particularly for the market- making-related 

activities under § 75.4(b) and the risk-mitigating hedging activities under § 75.5.3 

The limits required under the underwriting, market-making, and risk-mitigating hedging sections of the final 

rule must be in place by the end of the conformance period. A banking entity that reports metrics under 

Appendix A prior to the end of the conformance period need not report the limits required by §§ 

75.4(a)(2)(iii), 75.4(b)(2)(iii), and 75.5(b)(1)(i) until the end of the conformance period. However, if such a 

banking entity already has in place or develops limits of the type described in §§ 75.4 and 75.5 prior to the 

end of the conformance period, the banking entity is urged to report such limits as part of its reporting of 

quantitative measurements to the appropriate Agency.

Mortgage-Backed Securities of Government-Sponsored Enterprises

2. How are certain mortgage-backed securities issuers sponsored by governmentsponsored enterprises (“GSEs”) treated under the final rule’s covered funds 

provisions?

Section 75(10)(c)(12)(ii) of the final rule excludes from the definition of a covered fund an issuer that may rely 

on an exclusion or exemption from the definition of “investment company” under the Investment Company Act 

of 1940 other than the exclusions contained in section 3(c)(1) and 3(c)(7) of that Act. The SEC has stated 

that, “certain federally sponsored structured financings, such as those sponsored by the Federal National 

Mortgage Association, are exempted from the [Investment Company] Act under section 2(b), which exempts, 

among other things, activities of United States Government instrumentalities and wholly owned corporations of 

such instrumentalities.”4 To the extent that an issuer may rely on section 2(b) of the Investment Company 

Act, the issuer would be relying on an exemption from regulation under the Investment Company Act other 

than the exclusions contained in section 3(c)(1) or 3(c)(7), and thus would qualify for the exclusion from the 

covered fund definition provided by section 75.10(c)(12)(ii) of the final rule.

 

3

 See Appendix A, 79 Fed. Reg. 5808 at 6067. 

4

See Exclusion From the Definition of Investment Company for Certain Structured Financings, Investment Company Act Rel. No. 18736 (June 5, 1992). 

In addition, staff in the SEC’s Division of Investment Management have taken the position, based on the facts and representations presented to the staff 

in each case, that certain GSE-sponsored mortgage-backed securities issuers would not be required to register under the Investment Company Act in 

reliance on section 2(b) of that Act. See, e.g., Federal National Mortgage Association, SEC No-Action Letter (May 25, 1988) (expressing the staff’s view 

that the Federal National Mortgage Association (“Fannie Mae”) “is excluded from the 1940 Act under Section 2(b) as an instrumentality of the United 

States” and that Fannie Mae, rather than certain trusts, is the issuer for purposes of sections 3(a)(1) and 3(a)(3) of the Investment Company Act).