The Volcker Rule, as currently implemented, unnecessarily restricts banking and capital markets activities to the detriment of customer facilitation. Its current structure negatively impacts capital formation and economic growth and could exacerbate financial harm during times of stress.

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’ goal of reducing compliance-related inefficiencies of the Volcker Rule. The revisions issued in August 2019 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 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 be clear on what the changes encompass: the prohibition on proprietary trading under the Rule is not going away. 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.