Thursday, July 08, 2010

House Colloquy Clarifies Scope of Volcker Rule in Dodd-Frank

Section 619 of Dodd-Frank Act, the Volcker Rule, prohibits firms from investing in traditional private equity funds and hedge funds. Rep. Jim Himes (D-CT), a member of the Financial Services Committee, noted that because the legislation uses the very broad Investment Company Act approach to define private equity and hedge funds, it could technically apply to lots of corporate structures, and not just the hedge funds and private equity funds. A colloquy between House Financial Services Chair Barney Frank and Rep. Himes clarified that, when firms own or control subsidiaries or joint ventures that are used to hold other investments, the Volcker Rule won’t deem those things to be private equity or hedge funds and disrupt the way the firms structure their normal investment holdings. Chairman Frank added that Congress does not want excessive regulation here. He is confident that the regulators will appreciate that distinction and maintain it, and that the congressional oversight committees will make sure that they do. (Cong. Record, June 30, 2010, p. H5226).