SIFMA Submits Comments Seeking Clarity and Specificity on Volcker Rule Implementation

Release Date: November 8, 2010
Contact: Katrina Cavalli, 212.313.1181, 

SIFMA Submits Comments Seeking Clarity and Specificity on Volcker Rule Implementation 

Washington, DC, November 8, 2010—SIFMA today released two comment letters submitted to the Financial Stability Oversight Council (FSOC) on the Volcker Rule in the Dodd-Frank Act - one on the Volcker Rule’s prohibition on proprietary trading and the other on its restrictions on sponsoring and investing in hedge funds and private equity funds.

“The Volcker Rule must be implemented carefully and surgically to achieve Congress’ intended goals without triggering adverse economic consequences that Congress did not intend,” said Tim Ryan, president and CEO of SIFMA. “Market making and risk reducing activities must be preserved to serve customers and protect the safety and soundness of banks, the availability of capital and credit to American businesses, job creation and the recovering economy.”

The comments and recommendations of the letters are summarized below:

Proprietary Trading 

The new restrictions on proprietary trading will result in meaningful changes to the way that banking entities do business. To avoid unintended consequences, SIFMA urged the FSOC to adopt a careful, staged approach to implementation of the proprietary trading restrictions with a firm grounding in market realities. SIFMA stated its belief that ultimately the regulators should require that banking entities establish and maintain policies and procedures reasonably designed to ensure compliance with the Volcker Rule, which would be supervised by the regulators. 

In the letter, SIFMA also noted that the Volcker Rule expressly permits activities that are key to market function and requested that the FSOC recognize the crucial role these activities play. 

  • FSOC should encourage regulators to define market making-related activities in a way that preserves their essential function and recognizes that market making involves risk.
  • FSOC should encourage the regulators to define hedging to address the full range of risks to which banking entities are subject, the manner in which banking entities currently assess those risks, and the range of risk management techniques that banking entities presently employ to mitigate those risks.
  • FSOC should confirm that asset-liability, liquidity, interest-rate and treasury management activities fall outside the scope of the restrictions on proprietary trading. 
  • SIFMA underscored that when implementing the Volcker Rule, regulators must differentiate between asset classes, noting that regulators should not take a one-size-fits-all approach.
Sponsoring and Investing in Hedge Funds and Private Equity Funds


The new restrictions on sponsoring and investing in hedge funds and private equity funds may require some banking entities to restructure their asset management businesses. SIFMA urged that these restrictions be implemented in a way that clarifies the asset management activities that continue to be permissible. As Senator Boxer noted, the asset management businesses that remain permissible contribute to “spurring innovation, creating jobs and growing companies.” SIFMA urged that banking entities be given enough time to restructure their businesses so that assets are not forced to be sold at fire sale prices. Distressed sales would eat into the capital of the banking industry at a time when policymakers are urging the industry to increase its capital.

In the letter, SIFMA identified a number of technical problems with the funds portion of the Volcker Rule and proposed solutions to them, including the following:

  • The general definition of “hedge fund” and “private equity fund” is overbroad, so the regulatory agencies should grant exemptions for entities that were clearly not intended to be treated as hedge funds or private equity funds, such as acquisition vehicles, joint ventures, employee pension funds, credit funds and others.
  • The regulatory agencies should construe the terms “affiliate,” “subsidiary” and “banking entity” so that the Volcker Rule does not contain internal contradictions, such as both permitting and prohibiting master/feeder fund structures and investments in other funds by a fund of funds.
  • The regulatory agencies should construe the restrictions on name sharing so that it preserves the ability to have a single name for a family of funds, as long as the funds do not use the name of any insured depository institution affiliate or parent holding company.
  • The regulatory agencies should grant an exemption for banking entities to foreclose on private fund shares that are pledged by borrowers to secure their debts or otherwise to accept such securities in satisfaction of a debt previously contracted in good faith. 

The proprietary trading letter can be found at the following link: 

The hedge funds and private equity funds letter can be found at the following link: 


The Securities Industry and Financial Markets Association (SIFMA) brings together the shared interests of hundreds of securities firms, banks and asset managers. SIFMA's mission is to support a strong financial industry, investor opportunity, capital formation, job creation and economic growth, while building trust and confidence in the financial markets. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit 



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