Friday, January 27, 2012

NY Senator Says SEC and CFTC Should Uniformly Enforce the Volcker Rule

The SEC, CFTC and banking agencies must achieve a uniform approach to enforcement of the Volcker Rule so as not to favor certain entities with an advantage and not to create opportunities for regulatory avoidance, emphasized Senator Kirstin Gillibrand (D-NY). In a letter to the regulators, the Senator also questioned how granular the enforcement level would be and said that the market making so crucial to the financial markets must continue under the Volcker regulations.

The proposed regulations implementing the Volcker provisions in Section 619 of Dodd-Frank call for enforcement at the smallest unit of organization. The Senator queried if this meant individual traders or trading desks. In her view, granular enforcement at that level would create a substantially different standard than one focused on a larger picture. In addition, such a standard may require added build time to develop the reporting mechanisms to enable such a standard to function. At the very least, the Senator urged the regulators to clarify the unit of enforcement needed to assess the level at which the standards proposed will be applied.

Further, the Senator pointed out that Congress sought to balance the need of financial institutions to hold assets in order to maintain market liquidity with the Volcker Rule restrictions. The ability of firms to make markets is critical to the competitiveness of the US financial industry and to the maintenance of deep and liquid financial markets that undergird the economic system. The Senator emphasized that the final regulations should strike this important balance in order to ensure the competitiveness and safety of financial institutions.