WASHINGTON (CN) – The Commodity Futures Trading Commission plans to adopt new rules to implement Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Section 619, known as the Volcker Rule, after former Fed Chairman Paul Volcker, prohibits banking entities from making speculative investments on their own behalf or from engaging in proprietary trading or from owning an interest in, or sponsoring, a hedge fund or private equity fund.
The CFTC plans to adopt rules identical to those already proposed by the Board of Governors of the Federal Reserve, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission and other federal financial regulators, with some exceptions specific to the entities the CFTC regulates.
The rule is intended to limit the exposure of banking entities and by extension, protections afforded to them by federal agencies, to credit-default swaps and other types of high risk investments that helped to bring on the collapse of the financial services sector in 2007.
Separately, the rule also prohibits a banking entity that advises, manages or sponsors a hedge fund or private equity fund from entering into any transaction with the fund. This eliminates financial incentives for banking entities to place outside bets on positions held by funds they advise.
The prohibitions of the rule are set to go into effect 12 months after all the regulating agencies involved in implementation complete their rule making processes, but no later than July 21, 2012.
The CFTC seeks public comment on the proposed rules by April 16.