The CFTC held a Roundtable on Thursday to gather expert opinions on the Volcker Rule’s hedging and market-making exemptions as the agency works towards finalizing its proposal (see Client Report PROPTRADE11). Chairman Gensler made clear, as he did at last week’s Senate Banking hearing (see Client Report REFORM84), that the JPM case has shaken him up and led to a review of the degree to which hedging, especially with regard to open swap positions, could mask banned proprietary trading. Former FDIC Chairman Sheila Bair argued that insured depositories have no business being involved in market-making or proprietary trading activities and that the hedging exemption should be tightly drawn to prevent it from swallowing the rule. Banking industry representatives called for high-level rules that provide both clarity and flexibility, while commercial end-users stated that narrow exemptions would lead to less capital investments and slower economic growth. Academics pushing for stringent standards stressed, among other things, the need for tight compensation restrictions as a way to identify banned activities. Comments by Chairman Gensler and CFTC staff suggest that the agency is again considering finalizing its version of the Volcker Rule instead of joining the banking agencies and SEC on the inter-agency proposal (see FSM Report PROPTRADE10). This client report analyzes the CFTC Roundtable.
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