A December 2010 SIFMA and Oliver Wyman Study on the Volcker Rule and considerations for implementation of proprietary trading regulations.
Implementing the Volcker Rule restrictions on proprietary trading will be one of the most important, and most challenging, rulemaking responsibilities under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The Volcker Rule distinguishes between prohibited trading and permitted activities – specifically market making, securitization, hedging and underwriting related activities. These activities allow for the effective functioning of US markets and ongoing access to capital, the engine of economic growth. As a result, regulators must be able to meaningfully and effectively distinguish between prohibited proprietary trading and activities permitted under the Volcker Rule, which can vary substantially across asset classes, market practices, and market conditions. This study describes how such permitted activities provide essential liquidity in a representative set of asset classes and markets and illustrates why implementation of the Volcker Rule must be firmly grounded in market realities.