While pure proprietary trading for one’s own account was historically 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.

SIFMA does not believe that proprietary trading caused the financial crisis or contributed to the failure of any banking organizations and that the best response to the Volcker Rule’s many problems would be to repeal the statute in favor of the traditional prudential regulatory framework applicable to banks. In addition, SIFMA believes that the Volcker Rule with its complex regulatory structure has caused diminished liquidity in a number of markets.

SIFMA supports the regulatory agencies’ recent changes to the Rule’s implementing regulations that addressed the reducing compliance-related inefficiencies of the Volcker Rule and its negative impact in some markets. The final revisions issued in October 2019 and June 2020 will help ensure the Rule does not negatively impact capital formation and economic growth, which could exacerbate financial harm during times of stress. The removal of the accounting prong is a positive step forward in ensuring the regulatory definition of ‘trading account’ does not go beyond the statutory definition and Congressional intent. In addition, the recognition of banks’ participation is certain fund structures in the final covered funds rules permits banks to aid in capital formation.

In the face of studies showing the Rule’s negative impact on liquidity, including from the Office of Financial Research, and numerous calls to simplify the Rule, including from former Fed Governor Dan Tarullo and Paul Volcker, it was clear revisions were needed. It is important to note that nothing in these amended rules changes the fact that banks and their affiliated entities are subject to strict prohibitions on proprietary trading, but as Congress explicitly intended, may engage in certain trading and investment activities on behalf of clients.

However, the revisions do provide market participants with more clarity on compliance as they implement the continuing legal restrictions under the Rule, and they will make it easier for the regulators to ensure compliance. As well, they allow banking entities the needed flexibility to provide asset management services, customer facilitation services and financing to U.S. businesses and their customers, including start-ups, indirectly through fund structures. SIFMA appreciates the continuing efforts by regulators to review rules, regulations and practices to identify those areas which can be simplified, harmonized and streamlined to eliminate unnecessary inconsistencies and overlap without impacting safety and soundness.