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Tuesday, August 7, 2012 - 16:29

US House Fin Services Seeks Workable Volcker Rule Alternative

WASHINGTON (MNI) - Regulators have yet to propose a final rule implementing a provision of Dodd-Frank that prohibits U.S. bank holding companies and their affiliates from engaging in proprietary trading and from sponsoring hedge funds and private equity funds.

Before they do so, however, House Financial Services Committee Chair Spencer Bachus wants to explore a legislative alternative to the provision commonly known as the Voclker Rule.

Bachus "is asking investors, industry professionals and the public to offer their ideas and suggestions on how to formulate a less burdensome legislative alternative to the Volcker Rule," the Committee said in a statement Tuesday.

"We must consider legislative alternatives that will not stifle economic growth and job creation," Bachus said.

A Committee spokesperson told MNI, "The purpose of this isn't to delay it but to find a better alternative because what is proposed is unworkable."

The Committee is planning a hearing "in the fall," hence setting a September 7 deadline to submit input so the Committee can prepare for the hearing.

Last fall, five regulators -- the Federal Reserve, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission -- issued a joint proposal interpreting the Dodd-Frank Act provision banning proprietory trading in a way that triggered tremendous controversy, not just between the private sector and regulators, but among regulators.

The rule allows exemptions, notably for market making, triggering the debate about when to draw the line between proprietory trading and market making.

And that is only one one of the debates, albeit an important one.

Another exemption, for U.S. government securities, has drawn criticism from foreign governments.

Even U.S. municipalities and the Municipal Securities and Exchange Commission said the definition of municipal securities exempted should be broadened.

The financial industry has stressed the Volcker Rule puts it at disadvantage relative to its foreign counterparts.

And the rule is complex: the sheer volume -- 300 pages -- and the number of questions accompanying the proposal -- more than 1,300 -- underscore that.

Regulators even had to issue a rule in April just to clarify when compliance with the Volcker Rule would start, determining it would be July 21, 2014.

Bachus said, "If regulators implement the Volcker Rule in its current form, the repercussions will be devastating to our economy,: reflecting the financial industry's view.

"While the idea sounds simple, regulators have had great difficulty writing the Volcker Rule since there is no bright line that separates 'proprietary trading' from 'market making,' which enables companies to raise funds by issuing equity, or bonds, notes and commercial paper," he said.

"Since the Volcker Rule was not proposed by President Obama until after the House had already passed its version of the financial regulatory bill that eventually became Dodd-Frank, the upcoming hearing will be the Committee's first opportunity to consider legislative alternatives," Bachus said.

The idea of an alternative is not new.

Among regulators, SEC Commissioner Troy Paredes, for instance, has called for the Volcker Rule to be reproposed.

Comments for the proposed rules initially had to be submitted by January 2012, before the deadline was extended to February 2012. Comments, however, kept coming in even as of July.

"We remain concerned that the Regulators have not fully taken into account the impacts of the proposed Volcker Rule upon main street businesses," the U.S. Chamber of Commerce wrote in a July 24 comment letter.

Regulators have given clear indications the current proposal would be altered, some calling for a tougher version.

It remains to be seen whether a simpler rule -- if achieved -- would be tougher than the current proposal.

** Market News International Washington Bureau: 202-371-2121 **

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