While pure proprietary trading for one’s own account is a limited activity for most banks, the ability to trade and take positions in securities has been an essential tool to making markets and ensuring those markets remain liquid. Although SIFMA does not believe that the Volcker Rule addresses the root causes of the financial crisis, we will work with regulators to ensure it is implemented in a way that does not inadvertently limit market making and, in turn, reduce liquidity which would increase volatility and risk in markets.
SIFMA’s primary concern with the October 11th proposal is the potential negative impact on market liquidity. As proposed, the rule's narrowly-crafted exemption for permitted market making activity exceeds Congressional intent and overly prescriptive and burdensome compliance requirements could well depress the market making functions of banks and their affiliated broker-dealers as well as the asset management alternative fund business. Restrictions on the ability of firms to make markets will reduce market liquidity, discourage investment, limit credit availability and increase the cost of capital for companies. This will have the cumulative effect of stifling economic growth and job creation.
SIFMA believes the proposal appropriately raises important questions related to the costs and burdens of complying with certain aspects of the proposal and SIFMA appreciates the opportunity to work with regulators to ensure proper economic analysis is undertaken.
