Effective April 1, 2014, five federal agencies* will implement a provision of the Dodd-Frank Act known as the Volcker rule. This rule prohibits a bank from making short-term trades in financial instruments for its own account. The rule also limits the relationships a bank can have with hedge funds and private equity funds.
The rule provides exemptions for certain activities, including underwriting, market making, hedging risk, trading in certain government securities, trading in a fiduciary capacity, and riskless principal trading. Foreign banks are exempt if the trades meet certain requirements. Insurance companies are exempt when trading for their general or separate accounts.
The rule requires banks engaging in the activities covered by the rule to put in place a compliance program. The level of detail of the compliance program depends on the size of the bank, with larger banks needing more detailed compliance programs.
*The five agencies are the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission and the Commodity Futures Trading Commission.
Source: SEC Release 2013-258: Agencies Issue Final Rules Implementing the Volcker Rule
This alert applies to the Series 6, Series 7, Series 24, Series 55, Series 62, and Series 79.