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Proposed Volcker Rule Regulations: A Summary

October 18, 2011

Section 619 of the Dodd-Frank Act,1 commonly known as the Volcker Rule, has been described by regulators as a key part of the effort to strengthen the financial system and constrain risk taking at banking entities.2 It nquestionably has far reaching implications for financial institutions and the financial system.

The Volcker Rule is codified as Section 13 of the Bank Holding Company Act of 1956, as amended (the "BHC Act").3  Its operative provisions prohibit any "banking entity" (as defined — broadly) from (i) engaging in proprietary trading and (ii) acquiring or retaining an ownership interest in, sponsoring or having certain relationships with hedge funds, private equity funds or certain other private funds ("covered funds"), subject to certain exemptions.

Implementation of the Volcker Rule requires rulemaking, and the release of proposed regulations has been anxiously awaited by the financial community. On October 11, the federal banking agencies4  and the Securities and Exchange Commission ("SEC") released for comment a notice of proposed rulemaking (the "Notice") with implementing regulations (the "Proposed Regulations").5 The Proposed Regulations provide extensive additional detail to the framework of Section 619. Implementation of the Volcker Rule raises complex and difficult issues, as the regulators evidently recognize. The Proposed Regulations include nearly 400 specific questions on which comment is solicited. The deadline for comments is January 13, 2012. Given the many issues raised and the impact that implementation is expected to have, interested parties should consider commenting on matters that may affect them most directly.

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