[Federal Register Volume 75, Number 193 (Wednesday, October 6, 2010)]
[Notices]
[Pages 61758-61760]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-25320]


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FINANCIAL STABILITY OVERSIGHT COUNCIL


Public Input for the Study Regarding the Implementation of the 
Prohibitions on Proprietary Trading and Certain Relationships With 
Hedge Funds and Private Equity Funds

AGENCY: Financial Stability Oversight Council.

ACTION: Notice and request for information.

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SUMMARY: The Dodd-Frank Wall Street Reform and Consumer Protection Act 
(the ``Dodd-Frank Act'') prohibits banking entities from engaging in 
proprietary trading and from maintaining certain relationships with 
hedge funds and private equity funds. These prohibitions, commonly 
known as the ``Volcker Rule,'' are contained in Section 619 of the 
Dodd-Frank Act. Section 619 of the Dodd-Frank Act requires the 
Financial Stability Oversight Council (``FSOC'') to study and make 
recommendations on implementing the Volcker Rule. Under Section 619, 
the Office of the Comptroller of the Currency (``OCC''), the Federal 
Deposit Insurance Corporation (``FDIC''), the Board of Governors of the 
Federal Reserve System (``Board''), the Securities and Exchange 
Commission (``SEC'') and the Commodity Futures Trading Commission 
(``CFTC'') must consider the recommendations of the FSOC study in 
developing and adopting regulations to implement the Volcker Rule. To 
assist the FSOC in conducting the study and formulating its 
recommendations, the FSOC is issuing this request for information 
through public comment.

DATES: Comment Due Date: November 5, 2010.

ADDRESSES: Interested persons are invited to submit comments regarding 
this notice according to the instructions for ``Electronic Submission 
of Comments'' below. All submissions must refer to the document title 
and one of the above docket numbers. The FSOC encourages the early 
submission of comments.
    Electronic Submission of Comments. Interested persons must submit 
comments electronically through the Federal eRulemaking Portal at 
http://www.regulations.gov. Electronic submission of comments allows 
the commenter maximum time to prepare and submit a comment, ensures 
timely receipt, and enables the FSOC to make them available to the 
public. Comments submitted electronically through the http://www.regulations.gov Web site can be viewed by other commenters and 
interested members of the public. Commenters should follow the 
instructions provided on that site to submit comments electronically.

    Note:  To receive consideration as public comments, comments 
must be submitted through the method specified above. Again, all 
submissions must refer to the docket number and title of the notice.

    Public Inspection of Public Comments. All properly submitted 
comments will be available for

[[Page 61759]]

inspection and downloading at http://www.regulations.gov.
    Additional Instructions. Please note the number of the question to 
which you are responding at the top of each response. Though the 
responses will be screened for obscenities and appropriateness, in 
general comments received, including attachments and other supporting 
materials, are part of the public record and are immediately available 
to the public. Do not enclose any information in your comment or 
supporting materials that you consider confidential or inappropriate 
for public disclosure.

FOR FURTHER INFORMATION CONTACT: For further information regarding this 
interim final rule contact the Office of Domestic Finance, Treasury, at 
(202) 622-1703. All responses to this Notice and Request for 
Information should be submitted via http://www.regulations.gov to 
ensure consideration.

SUPPLEMENTARY INFORMATION:

I. Background

    The Dodd-Frank Act was enacted on July 21, 2010.\1\ Under section 
619 of the Dodd-Frank Act, banking entities \2\ are prohibited from 
engaging in proprietary trading and from maintaining certain 
relationships with hedge funds and private equity funds. These 
prohibitions and other provisions of section 619 are commonly known, 
and referred to herein, as the ``Volcker Rule.'' Section 619 of the 
Dodd-Frank Act requires the FSOC to study and make recommendations on 
implementing the Volcker Rule. Under Section 619, the OCC, the Board, 
the FDIC, the SEC and the CFTC must consider the findings of the FSOC 
study in developing and adopting regulations to carry out the Volcker 
Rule.
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    \1\ Dodd-Frank Wall Street Reform and Consumer Protection Act, 
Public Law No. 111-203, 124 Stat. 1376 (2010).
    \2\ The term ``banking entity'' is defined in section 13(h)(1) 
of the Bank Holding Company Act, as amended by section 619 of the 
Dodd-Frank Act. The term generally means any insured depository 
institution, any company that controls an insured depository 
institution, any company that is treated as a bank holding company 
for the purposes of section 8 of the International Banking Act of 
1978, and any affiliate or subsidiary of any such entity.
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    Section 619(b) provides certain specific guidance with respect to 
the FSOC study and recommendations, stating as follows:

    ``(1) STUDY.--Not later than 6 months after the date of 
enactment of this section, the Financial Stability Oversight Council 
shall study and make recommendations on implementing the provisions 
of this section so as to--
    ``(A) promote and enhance the safety and soundness of banking 
entities;
    ``(B) protect taxpayers and consumers and enhance financial 
stability by minimizing the risk that insured depository 
institutions and the affiliates of insured depository institutions 
will engage in unsafe and unsound activities;
    ``(C) limit the inappropriate transfer of Federal subsidies from 
institutions that benefit from deposit insurance and liquidity 
facilities of the Federal Government to unregulated entities;
    ``(D) reduce conflicts of interest between the self-interest of 
banking entities and nonbank financial companies supervised by the 
Board, and the interests of the customers of such entities and 
companies;
    ``(E) limit activities that have caused undue risk or loss in 
banking entities and nonbank financial companies supervised by the 
Board, or that might reasonably be expected to create undue risk or 
loss in such banking entities and nonbank financial companies 
supervised by the Board;
    ``(F) appropriately accommodate the business of insurance within 
an insurance company, subject to regulation in accordance with the 
relevant insurance company investment laws, while protecting the 
safety and soundness of any banking entity with which such insurance 
company is affiliated and of the United States financial system; and
    ``(G) appropriately time the divestiture of illiquid assets that 
are affected by the implementation of the prohibitions under 
subsection (a).''

II. Solicitation for Comments on the Volcker Rule Study

    To assist the FSOC in conducting the study and formulating its 
recommendations concerning the Volcker Rule, the FSOC seeks public 
comment on the following questions:
    1. Commenters are invited to submit views on ways in which the 
implementation of the Volcker Rule can best serve to:
    (i) Promote and enhance the safety and soundness of banking 
entities;
    (ii) Protect taxpayers and consumers and enhance financial 
stability by minimizing the risk that insured depository institutions 
and the affiliates of insured depository institutions will engage in 
unsafe and unsound activities;
    (iii) Limit the inappropriate transfer of federal subsidies from 
institutions that benefit from deposit insurance and liquidity 
facilities of the federal government to unregulated entities;
    (iv) Reduce conflicts of interest between the self-interest of 
banking entities and nonbank financial companies supervised by the 
Board,\3\ and the interests of the customers of such entities and 
companies;
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    \3\ The term ``nonbank financial companies supervised by the 
Board'' refers to those nonbank financial companies that may be 
designated by the FSOC under section 113 of the Act to be supervised 
by the Board and subject to enhanced prudential standards.
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    (v) Limit activities that have caused undue risk or loss in banking 
entities and nonbank financial companies supervised by the Board, or 
that might reasonably be expected to create undue risk or loss in such 
banking entities and nonbank financial companies supervised by the 
Board;
    (vi) Appropriately accommodate the business of insurance within an 
insurance company, subject to regulation in accordance with the 
relevant insurance company investment laws, while protecting the safety 
and soundness of any banking entity with which such insurance company 
is affiliated and of the United States financial system; and
    (vii) Appropriately time the divestiture of illiquid assets that 
are affected by the implementation of the prohibitions under the 
Volcker Rule.
    2. What are the key factors and considerations that should be taken 
into account in making recommendations on implementing the proprietary 
trading provisions of the Volcker Rule?
    3. What are the key factors and considerations that should be taken 
into account in making recommendations on implementing the provisions 
of the Volcker Rule that restrict the ability of banking entities to 
invest in, sponsor or have certain other covered relationships with 
private equity and hedge funds?
    4. With respect to proprietary trading and hedge fund and private 
equity fund activities, what factors and considerations should inform 
decisions on the definitions of:
    (i) ``Banking entity'' [Sec.  619(h)(1)];
    (ii) ``Hedge fund'' [Sec.  619(h)(2)];
    (iii) ``Private equity fund'' [Sec.  619(h)(2)];
    (iv) ``Such similar funds'' [Sec.  619(h)(2)];
    (v) ``Proprietary trading'' [Sec.  619(h)(4)];
    (vi) ``Sponsor'' [Sec.  619(h)(5)];
    (vii) ``Trading account'' [Sec.  619(h)(6)];
    (viii) ``Short term'' [Sec.  619(h)(6)];
    (ix) ``Illiquid fund'' [Sec.  619(h)(7)];
    (x) A transaction ``in connection with underwriting or market 
making related activities * * * designed not to exceed the reasonably 
expected near-term demands of clients, customers or counterparties'' 
[Sec.  619(d)(1)(B)];
    (xi) ``Risk-mitigating hedging activities'' [Sec.  619(d)(1)(C)];
    (xii) ``The purchase, sale, acquisition, disposition of securities 
or other instruments `on behalf of customers' '' [Sec.  619(d)(1)(D)];
    (xiii) Investments in ``small business investment companies'' and 
certain ``public welfare'' investments [Sec.  619(d)(1)(E)];
    (xiv) A permitted activity by an insurance company [Sec.  
619(d)(1)(F)]; and

[[Page 61760]]

    (xv) Such other activities as ``would promote and protect the 
safety and soundness of banking entities and the financial stability of 
the United States'' [Sec.  619(d)(1)(J)];?
    5. With respect to proprietary trading and hedge fund and private 
equity fund activities, what factors and considerations should be taken 
into account as indicative that a transaction, class of transactions or 
activity:
    (i) Would involve or result in a material conflict of interest 
between a banking entity (or a nonbank financial company supervised by 
the Board) and its clients, customers or counterparties;
    (ii) Would result, directly or indirectly, in a material exposure 
by a banking entity (or a nonbank financial company supervised by the 
Board) to high-risk assets or high-risk trading strategies; or
    (iii) Would pose a threat to the safety and soundness of a banking 
entity (or a nonbank financial company supervised by the Board)?
    6. What factors and considerations should be taken into account in 
making recommendations on whether additional capital and quantitative 
limitations are appropriate to protect the safety and soundness of 
banking entities or nonbank financial companies supervised by the Board 
engaged in activities permitted under the Volcker Rule?
    7. With respect to proprietary trading and hedge fund and private 
equity fund activities, which practices, types of transactions or 
corporate structures in general have historically accounted for or 
involved increased risks or may account for or involve increased risks 
in the future?
    8. With respect to proprietary trading and hedge fund and private 
equity fund activities, what practices, policies or procedures have 
historically been utilized that may have mitigated or exacerbated risks 
or losses? What practices, policies or procedures might be useful in 
limiting undue risk or loss in the future?
    9. What factors and considerations should be taken into account in 
making recommendations to safeguard against evasion of the Volcker 
Rule?
    10. How should the international context be considered when 
implementing the Volcker Rule? Are there any factors or considerations 
that should be taken into account regarding the application of the 
Volcker Rule to banking entities or nonbank financial companies that 
operate outside the United States? What issues does implementation of 
the Volcker Rule present with respect to the following:
    (i) Domestic banking entities that have access to foreign 
exchanges,
    (ii) foreign affiliates of domestic banking entities, and
    (iii) foreign non-bank financial companies
    11. What timing issues are raised in connection with the 
divestiture of illiquid assets affected by the prohibitions of the 
Volcker Rule, and how might such issues be appropriately addressed?
    12. Commenters are generally invited to submit views with respect 
to any qualitative or quantitative factors that should be considered in 
connection with the Council's study of the Volcker Rule, as well as any 
analogous areas of law, economics, or industry practice, and any 
factors specific to the commenter's experience. Please comment 
generally and specifically, and please include empirical data and other 
information in support of such comments, where appropriate and 
available.

    Dated: October 1, 2010.
Alastair Fitzpayne,
Deputy Chief of Staff and Executive Secretary, Department of the 
Treasury.
[FR Doc. 2010-25320 Filed 10-4-10; 4:15 pm]
BILLING CODE 4810-25-P-P