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Volcker Rule Amendments To Bank Holding Company Act
As more and more details of the actual Volcker Rule implementation continue to trickle in, we present the following excerpts from proposed additions to the Bank Holding Company Act, first noted in iMarketNews. For a proposal that has been written off by pretty much everyone, Volcker's proposal sure seems to refuse to give up the ghost.
The Bank Holding Company Act is amended by adding the following new
sections:
PROHIBITION ON PROPRIETARY TRADING.
Notwithstanding any other provision of law, the appropriate Federal
banking agencies shall jointly prohibit proprietary trading by an
insured depository institution or by a company that controls an insured
depository institution or is treated as a bank holding company for
purposes of this Act.
EXCEPTION FOR UNITED STATES AND OTHER GOVERNMENT AND RELATED
OBLIGATIONS.
Any prohibition imposed pursuant to this subsection shall not apply
to trading in obligations of the United States or any agency thereof,
obligations, participations, or other instruments of or issued by the
Government National Mortgage Association, the Federal National Mortgage
Association, and the Federal Home Loan Mortgage Corporation, and
obligations of any State or of any political subdivision thereof.
PROHIBITION ON SPONSORING AND INVESTING IN HEDGE FUNDS AND PRIVATE
EQUITY FUNDS.
The appropriate Federal banking agencies shall jointly prohibit
sponsoring and investing in hedge funds and private equity funds by an
insured depository institution or by a company that controls an insured
depository institution or is treated as a bank holding company for
purposes of the Bank Holding Company Act.
EXCEPTION FOR INVESTMENTS IN SMALL BUSINESS INVESTMENT COMPANIES
AND INVESTMENTS DESIGNED PRIMARILY TO PROMOTE THE PUBLIC WELFARE.
Any prohibition imposed pursuant to this subsection shall not apply
to investments in small business investment companies and investments
designed primarily to promote the public welfare as provided in
LIMITATIONS ON RELATIONSHIP WITH HEDGE FUNDS AND PRIVATE EQUITY
FUNDS.
No insured depository institution and no company that controls an
insured depository institution or that is treated as a bank holding
company for purposes of this Act that serves, directly or indirectly, as
the investment manager or investment adviser to a company described in
subsection may enter into a covered transaction as defined in section
23A of the Federal Reserve Act with, or provide custody, securities
lending and other prime brokerage services to, such company.
RULEMAKING AUTHORITY.
The appropriate Federal banking agencies shall jointly issue
regulations and guidance to carry out this section including appropriate
additional capital requirements giving full effect to the prudential
intent of the Congress regarding this section.
EFFECTIVE DATE AND TRANSITION.
The provisions of this section shall take effect after the end of
the 180-day period beginning on the date of enactment of this title.
TRANSITION.
Any insured depository institution, any company which owns or
controls an insured depository institution and any company which is
treated as a bank holding company for purposes of the Bank Holding
Company Act, shall not, after two years from the effective date of this
Act, retain any investment prohibited by this section. The appropriate
Federal banking agency is authorized, upon application of any such
company, to extend the two-year period as to such company for not more
than one year at a time, if in its judgment, such an extension would not
be detrimental to the public interest, but no such extension shall in
the aggregate exceed three years.
CAPITAL AND QUANTITATIVE LIMITATIONS FOR CERTAIN NONBANK FINANCIAL
COMPANIES.
The Board shall adopt rules imposing additional capital
requirements and specifying additional quantitative limits for nonbank
financial companies under its supervision that engage in proprietary
trading and sponsoring and investing in hedge funds and private equity
funds.
CONCENTRATION LIMIT ON LARGE FINANCIAL FIRMS.
A financial company may not merge or consolidate with, acquire all
or substantially all of the assets of, or otherwise acquire control of,
another company if the acquiring financial companys total consolidated
liabilities upon consummation of the transaction would exceed 10 percent
of the aggregate consolidated liabilities of all financial companies at
the end of the prior calendar.
RULEMAKING AND GUIDANCE.
The Board shall issue regulations implementing this section,
including the definition of terms as necessary. The Board may issue
interpretations or guidance regarding the application of this section to
an individual company or in general.
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So the old Investment Banks renounce their timely moves to Bank Holding Companies and return to their good old business, taking the money with them?
I suppose it's only fair, them having saved the world financial system and all.
Yes, that's it; it has a silver lining deep inside it. Erin Burnett will be extolling the joys of the Volcker rule tomorrow. Dick Bove will come on CNBC to show how bank earnings will actually improve once implemented & the whole idea is accretive to every financial institution in the long run. Stocks will rise propelling a new bull leg in the indexes. Brilliant!
As a former blown up prop trader (04-06) about to become a lawyer... Same comment as I first heard Volcker speak up... How in the @#*/ do you distinguish between market making (also on the resume) and taking positions? Furthermore (and at its most basic), how do you justify the risk of market making without the freedom of taking a view on the future?
I'm not objecting to the logic, but wasn't Glass-Steagall more neat and practical in its reasoning? Why is even Volcker taking this path of lessor resistance?
"As a former blown up prop trader (04-06) about to become a lawyer... "
??????????????????????
Ok, I'll bite. What type of law will you practice?
Full support!
First, GS has two years to comply. Second, GS competition is subject to additional capital requirements too, and my guess is that this further erodes the competition. Is this really that bad for GS?
GS changed to a Finacial holding Co. in September
And they are deep-sixing their own customers again, this time with regard to English Premier League Footie! They have no shame!
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7362397/...
One of the sacrifices you make to do God's work. This would sure leave JPM in a pickle, though. Can't believe it will ever happen.
this is ridiculous. there is no section to address how one can differentiate between franchise and proprietary trading at all. any bank can just come along and say oh I was just "hedging" my core businesses
I was hoping that any bank or bank holding company would have to disgorge themselves of the proprietary trading desk say, within 30 days of enactment. Now that would have been fun!
It seems like political posturing to me. Lets send the bill to Congress so the administration shows its tough on bank. Then let Congress water it down, or kill it, so the Democrats can show how Congress is ineffectual. Just another talking point or quip that will be easily dismissed.
Sounds like they're trying to get banks to stop speculating in stocks and derivatives and get them to put all that cash into government debt.
------------------
Any prohibition imposed pursuant to this subsection shall not apply to trading in obligations of the United States or any agency thereof, obligations, participations, or other instruments of or issued by the Government National Mortgage Association, the Federal National Mortgage Association, and the Federal Home Loan Mortgage Corporation, and obligations of any State or of any political subdivision thereof.
Can't believe this will happen? Look what happened to the Giant Squid's last competitors, BS and Lehman. Devoured.
A little info on the rarely seen GS. Surrounding a beak-like mouth strong enough to cut through steel cable, are five pairs of Treasury employees. One pair is used to catch food and bring it to the mouth. Just past the mouth are the eyes. Eyes that are the largest in the Federal Government. They help the Giant Squid stay predominant in its natural habitat - Wall Street.
For years scientist have tried to capture pictures of a giant squid in its natural habitat. Scientists have long argued whether the great squid is slow and passive or active and aggressive. Scientist photographs seemed to settle the issue as they show the squid viciously attacking bait on a line and only backing off after one of its own tentacles was torn off by the hook.
Giant Squid will eat Morgan Stanley.
So you short BONY and StateStreet? Essentially, running a hedge fund would become a cottage industry.
I guess not such a bad idea. Small partnerships/firms are much easier to dissolve if necessary.
Prop stands for... propulsion.
There are other HFT methods that has been "commissioned" long time ago and nobody seems to even unveil or comment it's simplicity. It is accounted as part of genuine volume that has being produced by the trading behavior between at least a few (but probably many) firms. Using the HF speed like a ping-pong turbo, those guys seals temporary alliances buying and selling to each other the same instrument in order to pump or bend the market. Since trading firms, can even trade the position of an institutional client breaking it in blocks and choosing when (or better with "who"), the also can use it to it's own purposes, waiting for the right liquidity window. There are little tinny "codes" that can be detected by a partner algo (the other side can decode it reading the HF behavior, and it's INVISIBLE), triggering it to start the ping pong.
The same stock passes trough many hands in nanoseconds at higher and higher or lower and lower prices (according to the imputed algo pro-defined bias for the session).
It's important to understand that this is not the myth of a bunch of old men drawing tomorrow's charts to delude the retail crowd.
This is rogue science. The manipulation goes beyond the simple spread or arbitrage methods. Although limited by daily liquidity and the foe's algorithms (yes, it's a nasty game and not that easy, since not all the players has the same needs), this can easily generate short term impacts (and therefore deforming an intermediate term trend, constantly inducing stress to lift or plunge the majority of securities and derivatives. Of course, without breaking the law, specially if the regulator's connivance is more than a thesis. Oh did I said if?
The point is, while I believe this is a noble battle to fight, it`s worthless to just keep complaining against manipulators in a while. Money leads to corruption. If you`re skillful to spot and uncover how this game is being played, play it. Trading is about being in the right side of a move. This market is a nasty lie, don`t get me wrong. But being so, be by the side of the manipulators. And just till and while the manipulators are the trend.
Without prop, there will be a healthy market purgatory, and after that, the stock market appreciation will likely be slow.
This skyrocketing price cycle surely will not be endless. Props can destroy the market by saturation and fall as victims of their own gadgets, holding stuff without real hands wanting to buy it. Or algo failures can start an undesired chain of orders flooding the markets to front running and sell, sell, sell, like an automatic implosion. Or none of the above. Perhaps something nobody can figure out.
We're living interesting times, and I'm really interested to watch it unfolding. Whatever comes, prices will tell, leaving the thieves finger prints in the charts. For now, it seems to be the verge of a topping process. But keep your eyes on the ping pong turbo ball, always.
"you're scheming on a thing that's a mirage.
I'm trying to tell ya now it's sabotage"
-Beastie Boys
Props to the old man. He's gonna give em a good stiff one before he kicks the bucket.
EXCEPTION FOR UNITED STATES AND OTHER GOVERNMENT AND RELATED OBLIGATIONS.
does that include other sovereign nations
More kabuki theater, this time starring the esteemed Mr. Volker.
Just another asshole.
any idea where I could get view a copy of the actual draft legislation
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