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The Volcker Rule Coming to Wall Street

The Volcker Rule is an attempt to discourage risky trading practices by banks. Regulators are expected to adopt the rule today as part of the Dodd-Frank Wall Street Reform Act. The rule will prohibit banks from engaging in proprietary trading with some exceptions. Full implementation of the rule will be delayed until July 2015. Here are some of the outlines:

  • Banks will be allowed to engaging in proprietary trading only for government bonds (Treasuries and munis) and foreign sovereign securities.
  • Banks can’t own more than 3 percent of hedge funds and private equity funds
  • Banks have to show that risk hedging is having the desired effect. Risk hedging can’t be speculative in nature.  
  • In any market-making capacity for clients, risk taking is acceptable.