Proposed Rule Regarding Prohibitions and
Restrictions
on Proprietary Trading (Volcker Rule)
Section 619 of the Dodd-Frank
Act, among other things, generally prohibits two activities of banking
entities.
1. · It prohibits federally insured depository
institutions, bank holding companies, and their subsidiaries or affiliates
(banking entities) from engaging in short-term proprietary trading of any
security, derivative, and certain other financial instruments for a banking
entity’s own account, subject to certain exemptions.
2. · It prohibits owning, sponsoring, or having
certain relationships with a hedge fund or private equity fund, subject to
certain exemptions.
This provision restricts banks' ability
to trade for their own profit, a practice known as proprietary trading. It is
named for former Federal Reserve Chairman Paul Volcker.
Analyst say proprietary trading was not
a cause of the 2008 financial crisis and the rule is a means of political
revenge on an unpopular industry. Advocates of stronger regulation argue that
the rule would have prevented JPMorgan's loss. They say the trades were made to
boost bank profits, not to protect against market-wide risk.
JPMorgan announced this month a trading
loss of at least $2 billion on a botched hedging strategy. Since that
announcement, potential losses have mounted. Advocates of stronger regulation
argue that the rule would have prevented JPMorgan's loss. They say the trades were
made to boost bank profits, not to protect against market-wide risk.Many
Question's have been raised after JPMorgan, the largest U.S. bank, revealed
that a faulty hedging strategy had generated a loss 2 Billion dollar that could
reach $5 billion.
The rule was slated to be finalized by
July but regulators have indicated they will likely miss the deadline. Banks
will have until 2014 to fully comply
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