Regulation Review: The “Volcker Rule,” Taxing Christmas

Thu, 2011-11-10 12:10 | Regulation | Sam Batkins
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The controversial “Volcker rule” hit the Federal Register this week.  Officially, the “Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds” proposed rule in its broadest terms restricts the ability of banks to engage in proprietary trading and to contract with private equity or hedge funds.

The four agencies promulgating the regulation divided the proposed rule into four main subparts and three appendices:

  • Subpart A describes the scope and authority of the agencies and provides definitions.
  • Subpart B “prohibits proprietary trading … establishes exemptions … and requires certain banking entities to report quantitative measurements with respect to their trading activities.”
  • Subpart C “prohibits or restricts acquiring or retaining an ownership interest in … a covered [private equity or hedge] fund.”
  • Subpart D requires banks to form new compliance programs, including independent testing and recordkeeping.
  • Appendix A provides details for quantitative measurements that covered banking entities must compute.
  • Appendix B establishes factors “to help distinguish permitted market making-related activities from prohibited proprietary trading.”
  • Appendix C explains certain minimum standards that banks must establish for their compliance programs.

Here is the proposed rule by the numbers:

  • 4: number of agencies involved in rulemaking: Federal Reserve, Federal Deposit Insurance Corporation, Comptroller of the Currency, and the Securities and Exchange Commission. 
  • 127: number of pages.
  • 394: questions for comment posed to the public.
  • 6,583,844: annual paperwork burden hours for the private-sector.
  • $1 billion: “trading asset and liability” threshold for banking entities forced to comply.
  • $5 billion: threshold for banking entities “to furnish quantitative measurements for all trading units of the banking entity subject to … permitted underwriting and market making-related activity.”
  • 0: number of quantified cost-benefit analyses.

Here is a snapshot of the proposed rule.

Comments are due “on or before” January 13, 2012 but the rule will become effective July 21, 2012, regardless of whether the agencies finalize the rule by that date.

Christmas Trees Under Fire

On Tuesday the USDA and the Agricultural Marketing Service finalized a rule to place a 15-cent levy on Christmas trees.  There is an exemption for producers and importers who produce or import less than 500 trees annually.

The rule estimates $2 million in revenue from the levy, affecting approximately 3,200 business entities.  However, there are more than 12,000 business entities that must provide information to USDA, requiring $348,000 in annual paperwork burden costs and more than 10,000 compliance hours.