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June 1, 2012

Volcker Phase In Pleases Street

By John D'Antona Jr.

Wall Street banks are breathing a sigh of relief, as the Federal Reserve delayed compliance with the Volcker rule until July 2014. The move allows firms to ease into compliance with the new rule's provisions, as opposed to having to comply this summer.

Jamie Brigagliano

Banks and brokers can now wait a little longer to see how regulators define certain aspects of the rule's provisions, said Jamie Brigagliano, partner in the securities and futures group at Sidley Austin LLC and former deputy director of the Division of Trading and Markets at the Securities and Exchange Commission.

He added that the language regarding what market-making activities are permissible is still in question, as are which metrics are to be used to measure compliance. And comments are still coming in on the rule.

"I think it was an appropriate decision, because the regulators are still considering comments and have not yet issued an adopting release," Brigagliano said. "Any implementation period should run from the issuance of the final rules, so firms can develop policies, procedures and systems with a clear view of the legal requirements."

In its statement, the Fed said entities will have the full two-year period provided by statute to conform their activities and investments with the new rule, unless the board extends the compliance period again.

The Securities Industry and Financial Markets Association, which represents brokers, said in a statement the new Fed announcement was critically important, because it alleviates concerns over potentially having to comply with a rule whose details have not yet been made clear.

"We felt the Fed's guidance provided some certainty over regulators' enforcement of the Volcker rule while the details of the regulations continue to be worked out," said Tim Ryan, president and CEO of SIFMA.

The Volcker rule, named for former Federal Reserve Chairman Paul Volcker, seeks to limit risky trading practices by banks. Such practices are believed to have contributed to the financial crisis of 2008.

Furthermore, the Federal Reserve also said it could extend the compliance period for Volcker even further beyond 2014 if needed, further comforting the banks and traders alike.

Jim Toes, president and chief executive officer at the Security Traders Association, told Traders Magazine the decision on the two-year conformance period was most likely in response to the large number of comments and requests for clarification by the public on this issue. To him, the delay signified the benefits that the public comment period brings to the rule-making process.

However, there are those not in favor of the extension. Sens. Jeff Merkley, D-Ore., and Carl Levin, D-Mich., and 20 other lawmakers wrote to regulators urging them to complete the rule by the July 21 deadline. With the rule finished, banks would have to comply immediately, the thinking goes.

"The proposed rule is not perfect, but it should not be delayed or scrapped," the letter said.

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