Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds

SUMMARY: The OCC, Board, FDIC, and SEC (individually, an "Agency," and collectively, "the Agencies") are adopting a rule that would implement section 13 of the BHC Act, which was added by section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"). Section 13 contains certain prohibitions and restrictions on the ability of a banking entity and nonbank financial company supervised by the Board to engage in proprietary trading and have certain interests in, or relationships with, a hedge fund or private equity fund.

EFFECTIVE DATE: The final rule is effective April 1, 2014.

FOR FURTHER INFORMATION CONTACT:

OCC: Ursula Pfeil, Counsel, or Deborah Katz, Assistant Director, Legislative and Regulatory Activities Division, (202) 649-5490; Ted Dowd, Assistant Director, or Roman Goldstein, Senior Attorney, Securities and Corporate Practices Division, (202) 649-5510; Kurt Wilhelm, Director for Financial Markets Group, (202) 649-6360; Stephanie Boccio, Technical Expert for Credit and Market Risk Group, (202) 649-6360, Office of the Comptroller of the Currency, 250 E Street SW., Washington, DC 20219.

Board: Christopher M. Paridon, Counsel, (202) 452-3274, or Anna M. Harrington, Senior Attorney, Legal Division, (202) 452-6406; Mark E. Van Der Weide, Deputy Director, Division of Bank Supervision and Regulation, (202) 452-2263; or Sean D. Campbell, Deputy Associate Director, Division of Research and Statistics, (202) 452-3760, Board of Governors of the Federal Reserve System, 20th and C Streets NW., Washington, DC 20551.

FDIC: Bobby R. Bean, Associate Director, [email protected], or Karl R. Reitz, Chief, Capital Markets Strategies Section, [email protected], Capital Markets Branch, Division of Risk Management Supervision, (202) 898-6888; Michael B. Phillips, Counsel, [email protected], or Gregory S. Feder, Counsel, [email protected], Legal Division, Federal Deposit Insurance Corporation, 550 17th Street NW., Washington, DC 20429.

SEC: Josephine J. Tao, Assistant Director, Angela R. Moudy, Branch Chief, John Guidroz, Branch Chief, Jennifer Palmer or Lisa Skrzycki, Attorney Advisors, Office of Trading Practices, Catherine McGuire, Counsel, Division of Trading and Markets, (202) 551-5777; W. Danforth Townley, Attorney Fellow, Jane H. Kim, Brian McLaughlin Johnson or Marian Fowler, Senior Counsels, Division of Investment Management, (202) 551-6787; David Beaning, Special Counsel, Office of Structured Finance, Division of Corporation Finance, (202) 551-3850; John Cross, Office of Municipal Securities, (202) 551-5680; or Adam Yonce, Assistant Director, or Matthew Kozora, Financial Economist, Division of Economic and Risk Analysis, (202) 551-6600, U.S. Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background

II. Notice of Proposed Rulemaking

III. Overview of Final Rule

A. General Approach and Summary of Final Rule

B. Proprietary Trading Restrictions

C. Restrictions on Covered Fund Activities and Investments

D. Metrics Reporting Requirement

E. Compliance Program Requirement

IV. Final Rule

A. Subpart B--Proprietary Trading Restrictions

1. Section __.3: Prohibition on Proprietary Trading and Related Definitions

a. Definition of "Trading Account"

b. Rebuttable Presumption for the Short-Term Trading Account

c. Definition of "Financial Instrument"

d. Proprietary Trading Exclusions

1. Repurchase and Reverse Repurchase Arrangements and Securities Lending

2. Liquidity Management Activities

3. Transactions of Derivatives Clearing Organizations and Clearing Agencies

4. Excluded Clearing-Related Activities of Clearinghouse Members

5. Satisfying an Existing Delivery Obligation

6. Satisfying an Obligation in Connection With a Judicial, Administrative, Self-Regulatory Organization, or Arbitration Proceeding

7. Acting Solely as Agent, Broker, or Custodian

8. Purchases or Sales Through a Deferred Compensation or Similar Plan

9. Collecting a Debt Previously Contracted

10. Other Requested Exclusions

2. Section __.4(a): Underwriting Exemption

a. Introduction

b. Overview

1. Proposed Underwriting Exemption

2. Comments on Proposed Underwriting Exemption

3. Final Underwriting Exemption

c. Detailed Explanation of the Underwriting Exemption

1. Acting as an Underwriter for a Distribution of Securities

a. Proposed Requirements That the Purchase or Sale Be Effected Solely in Connection With a Distribution of Securities for Which the Banking Entity Acts as an Underwriter and That the Covered Financial Position be a Security

i. Proposed Definition of "Distribution"

ii. Proposed Definition of "Underwriter"

iii. Proposed Requirement That the Covered Financial Position Be a Security

b. Comments on the Proposed Requirements That the Trade Be Effected Solely in Connection With a Distribution for Which the Banking Entity Is Acting as an Underwriter and That the Covered Financial Position Be a Security

i. Definition of "Distribution"

ii. Definition of "Underwriter"

iii. "Solely in Connection With" Standard

c. Final Requirement That the Banking Entity Act as an Underwriter for a Distribution of Securities and the Trading Desk's Underwriting Position Be Related to Such Distribution

i. Definition of "Underwriting Position"

ii. Definition of "Trading Desk"

iii. Definition of "Distribution"

iv. Definition of "Underwriter"

v. Activities Conducted "in Connection With" a Distribution

2. Near Term Customer Demand Requirement

a. Proposed Near Term Customer Demand Requirement

b. Comments Regarding the Proposed Near Term Customer Demand Requirement

c. Final Near Term Customer Demand Requirement

3. Compliance Program Requirement

a. Proposed Compliance Program Requirement

b. Comments on the Proposed Compliance Program Requirement

c. Final Compliance Program Requirement

4. Compensation Requirement

a. Proposed Compensation Requirement

b. Comments on the Proposed Compensation Requirement

c. Final Compensation Requirement

5. Registration Requirement

a. Proposed Registration Requirement

b. Comments on Proposed Registration Requirement

c. Final Registration Requirement

6. Source of Revenue Requirement

a. Proposed Source of Revenue Requirement

b. Comments on the Proposed Source of Revenue Requirement

c. Final Rule's Approach to Assessing Source of Revenue

3. Section __.4(b): Market-Making Exemption

a. Introduction

b. Overview

1. Proposed Market-Making Exemption

2. Comments on the Proposed Market-Making Exemption

a. Comments on the Overall Scope of the Proposed Exemption

b. Comments Regarding the Potential Market Impact of the Proposed Exemption

3. Final Market-Making Exemption

c. Detailed Explanation of the Market-Making Exemption

1. Requirement to Routinely Stand Ready To Purchase And Sell

a. Proposed Requirement To Hold Self Out

b. Comments on the Proposed Requirement To Hold Self Out

i. The Proposed Indicia

ii. Treatment of Block Positioning Activity

iii. Treatment of Anticipatory Market Making

iv. High-Frequency Trading

c. Final Requirement To Routinely Stand Ready To Purchase And Sell

i. Definition of "Trading Desk"

ii. Definitions of "Financial Exposure" and "Market-Maker Inventory"

iii. Routinely Standing Ready To Buy and Sell

--This is a summary of a Federal Register article originally published on the page number listed below--

Final rule.

CFR Part: "12 CFR Part 44"

RIN Number: "RIN 1557-AD44"

Citation: "79 FR 5536"

Document Number: "RIN 3064-AD85"

Federal Register Page Number: "5536"

"Rules and Regulations"