November 23, 2013 3:10 am

CFTC goes its own way over Volcker rule

The chairman of the US Commodity Futures Trading Commission has come under fire for pitching a version of the Volcker rule that is different to the draft being studied by the country’s four other regulators before the proposal can be finalised.

The Securities and Exchange Commission, the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency are all basing their comments on the same draft, which is different to CFTC chairman Gary Gensler’s version.

The rule bans banks from trading from their own accounts.

“You are asking me to read 1,000 pages of documents and I don’t even know if I have the right one,” Republican Commissioner Scott O’Malia said in an interview.

The CFTC move could make it difficult to have a finalised version in place before the end of the year, a deadline imposed on the five regulators by Treasury secretary Jack Lew.

Mr O’Malia said he had asked Mr Gensler’s office if he could have a written list of the differences between Mr Gensler’s version and the draft the other regulators have. He said he was offered an oral recitation but was told he could not have a written analysis.

The CFTC did not respond to a request for comment.

Mr O’Malia said he was not told that the draft he had was specific to the CFTC, and did not find out that the other regulators had a different version until he started asking questions about the document.

Mr Gensler hopes he can convince the other regulators to favour his version.

Even if the rule is finalised, there are questions over whether it would receive the necessary votes from members of the CFTC and the SEC to obtain approval. Some commissioners on the two agencies plan to vote against the rule because they believe it is not tough enough, while others say that the process of putting the rule together has been flawed.

The CFTC has gone its own way before over the rule. In 2011 the agency failed to join the four other regulators when they released a joint Volcker proposal. The CFTC ended up proposing its own version months later, which was largely similar to the other proposal.

The other regulators could decide to move forward again without the CFTC but that may hurt the credibility of the rule and leave opportunities for critics to challenge it.

On Monday, Mr Gensler said that of all the 67 rules the CFTC had written as part of the Dodd-Frank financial reform legislation mandates, the Volcker rule had been the most challenging.

The rule needs to prohibit proprietary trading but allow for legitimate activities such as market making and hedging, which banks say are often hard to distinguish from proprietary trading.

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