The SEC and other regulators charged with implementing the Dodd-Frank Volcker Rule provisions should establish the same type of multi-dimensional approach that the IRS uses to identify tax evasion, said NYU Professor William Silber, including face-to-face audits where such are indicated. Beyond that, in his letter to the federal financial regulators, he urged them to arm themselves with a variety of methodologies, including one that he developed, for monitoring the Volcker Rule ban on proprietary trading by financial institutions. Professor Silber, formerly on the President’s Council of Economic Advisors, was favorably mentioned by Chairman Volcker in his letter to the regulators, in which the central banker described the professor as an expert witness in cases requiring identification of, and distinctions between, proprietary and market-making activity. Chairman Volcker asked the regulators to consider the relevant analysis provided by Professor Silber.
In his letter, Professor Silber offered his published article on how to distinguish between market-making and proprietary trading. The article was written in connection with a legal dispute concerning whether a party to a takeover was engaged in speculative trading despite their representations to the contrary. While the methodology in the article could be applied to the proprietary trading ban in Section 619 of Dodd-Frank, said the professor, it should not be viewed as a substitute for a comprehensive approach to implementing the Volcker Rule.