The comment period for the proposed regulations to be promulgated under the Volcker Rule expired on February 13, 2012. The rulemakers received over 16,000 comments during that period, in what one commentator described as a "fecal storm." Though that description is hopefully an exaggeration, it is safe to say that the Rule's implementation has been contentious. The Volcker Rule, named for former chairman of the Federal Reserve Paul Volcker, is a component of the Dodd-Frank Act, which Congress passed in response to the recent financial crisis. The Rule's statutory provision charges the nation's financial regulators with issuing a body of regulations that expand upon the statutory provision. The rulemakers have issued a set of proposed regulationswhich were meant to go into effect no later than July 21, 2012, but were overdue as of the publication of this Essay. In this Essay, I briefly discuss potential applications of the Volcker Rule's hedging exemption. In Part I, I make note of the fact that many hedges put on by banking entities will not be "proprietary trades" in the first instance because they will be long-term hedges. Although these long-term hedges need not rely on the hedging exemption to be lawful, short-term hedges must. In Part II, I argue that the no-new-risks requirement, if read literally, would render the hedging exemption inert because all hedges create new risks. In Part III, I propose a simple fix to the no-new-risks requirement that either the rulemakers should incorporate into the regulations before promulgation or that decisionmakers should read into the regulations after promulgation.
Spencer A. Winters,
The Volcker Rule's Hedging Exemption,
Mich. L. Rev. First Impressions
Available at: https://repository.law.umich.edu/mlr_fi/vol111/iss1/2