In a letter to SEC Chair Mary Schapiro and the heads of the CFTC and federal banking agencies, House Financial Services Committee Chair Spencer Bachus (R-ALA) requested that the comment period for the proposed regulations implementing the Dodd-Frank Volcker Rule be extended for at least 30 days to accommodate a committee hearing set for January 18, 2012. Currently, the comment period is set to expire on January 13, 2012. The implementation of the Volcker Rule is too important to rush, said Chairman Bachus, and Members of Congress must have an opportunity to provide input.
It is quite likely that regulatory arbitrage will be discussed at the hearing. Noting that many Asian and European jurisdictions will not be adopting a version of the Volcker Rule, Chairman Bachus expressed concern that the Volcker Rule could, depending on how it is implemented, spark an exodus of clients from US financial institutions to offshore competitors. Similarly, US financial institutions may move their operations elsewhere to avoid burdensome regulations on client-driven market making and on hedging and risk management activities. The House leader also emphasized that implementing the proposed regulations in their present form would dramatically reduce liquidity across multiple markets, thereby making it more expensive for companies to borrow and invest and create jobs.
Whatever the benefits of banning proprietary trading, noted the House oversight Chair, there is no reason that compliance with the Volcker Rule should be so complicated and expensive. Congressional oversight and a full examination of the Volcker Rule’s implications are necessary, he said. While acknowledging that the Volcker Rule is complex and consequential, Chairman Bachus noted that the proposed regulations are hundreds of pages long and ask more than 1300 questions about more than 400 topics. In the Chair’s view, effective implementation of the Volcker Rule depends on the SEC and other regulators identifying and defining the differences between proprietary trading and market making. The problem is that making these distinctions will be difficult if not impossible.