More On Legal & Compliancefrom The Advisor's Professional Library
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.
Lawmakers took regulators to task on Wednesday over their proposal to implement Section 619 of the Dodd-Frank Act, commonly referred to as the Volcker rule, citing the proposed rule’s complexity as well as its costs.
At a joint hearing held by the House Financial Services Capital Markets and Financial Institution and Consumer Credit Subcommittees, lawmakers challenged the regulators’ rule proposal to implement the Volcker rule, which prohibits proprietary trading among banks.
A large portion of the hearing focused on whether regulators could adequately discern between the permissible activity of market making and the prohibited proprietary trading.
House Financial Services Chairman Spencer Bachus, R-Ala. (left), said during his opening remarks that Section 619 “was a mistake.” Proprietary trading, he said, did not contribute to the financial crisis, and companies and consumers say the Volcker rule “will threaten the United States’ capital markets, the most deep and liquid in the world. Proprietary trading contributes to that liquidity.” Section 619, he said, “will be a self-inflicted wound on the U.S. capital markets” and “will drive up the cost of loans, restrict capital, make our capital markets less safe and cost hundreds of thousands of jobs.”
The Volcker rule proposal is a collaboration of the Federal Reserve, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, and the Securities and Exchange Commission. The proposed rule is nearly 300 pages long and asks market participants to answer more than 1,300 questions.
Fed Gov. Daniel Tarullo acknowledged in his testimony that “the distinction between prohibited proprietary trading and permissible market making can be difficult to draw, because these activities share several important characteristics.”
Because of the importance and complexity of the issues raised by the statutory provisions that make up the Volcker rule, Tarullo said, the agencies provided the public a 90-day opportunity to submit comments but recently extended the comment period an additional 30 days, until Feb. 13.
SEC Chairman Mary Schapiro and U.S. Commodities Futures Trading Commission Chairman Gary Gensler both said at the hearing that the regulators would use the public comments received to better determine how to distinguish between market making and proprietary trading. “We are very open to additional ideas and approaches,” Schapiro said.
In testimony on behalf of the Securities Industry and Financial Markets Association’s Asset Managers Group, Douglas Peebles, chief investment officer and head of fixed income at AllianceBernstein noted that the rule, as proposed “clearly fails to account for different types of market making environments, particularly those related to fixed income and over-the-counter markets, where market makers regularly trade as principal due to the high degree of fragmentation and intermittent liquidity.”
Peebles said that “the failure to take into account different OTC market making activities reflects a major oversight in the proposal and could have devastating effects on fixed income market that exhibit intermittent liquidity.”