UPDATE 1-U.S. CFTC prepared to adopt Volcker rule -chairman

Douwe Miedema
Monday, 18 Nov 2013 | 12:49 PM ET

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NEW YORK, Nov 18 (Reuters) - The U.S. swaps watchdog is preparing to adopt the Volcker rule, which would ban banks from gambling in financial markets with their own money, but has not yet reached agreement with four other agencies also working on the provision, the agency's head said on Monday.

The rule, named after former U.S. Federal Reserve Chairman Paul Volcker, is one of the most controversial pieces of post-crisis Wall Street reform. Treasury Secretary Jack Lew is pushing for it to be finished this year.

The five regulatory agencies, herded by the Treasury Department, have struggled to write a rule that allows healthy financial market activities to help clients, while banning risky and irresponsible trading.

"I'm going to be providing the commissioners with a document by tomorrow," Commodity Futures Trading Commission Chairman Gary Gensler told journalists on the sidelines of an industry conference on Monday.

"That's not to say there aren't going to be still really important dialogues amongst commissioners, and amongst the agencies," Gensler added.

Wall Street banks have complained that the Volcker rule would eat into profits and depress client trading, and are worried it would hamper legitimate activities that are beneficial to customers, such as market-making.

In the heady days before the financial crisis, large banks ran so-called proprietary trading desks that played financial markets to make money, but the desks have largely disappeared, even ahead of the rule.

President Barack Obama earlier this year called top U.S. financial regulators to the White House, instructing them to speed up the reforms in the face of intense lobbying by banks and politicians from the right.

The three banking regulators and the two market regulators responsible for writing the rule don't necessarily have to agree on the wording of the text, but it was unlikely they would come out with wildly different versions.

Gensler has been rushing through a raft of rules before his term expires at the end of the year, and has announced he was gunning for a vote on the 1,000-page Volcker rule by the full commission in the second or third week of December.

"I feel that we're far enough along that I want to provide my fellow commissioners with the document," Gensler said at the conference of derivatives brokers.

He said the draft for discussion among the commissioners would be a so-called "pens-down" version, which means that the agency's staff would have stopped working on it.

Gensler has said the main difficulty with the proposal was how to define proprietary trading and distinguish it from market-making, in which banks use their own money to support client trading, or hedging risk.

(Reporting by Douwe Miedema; Editing by Gerald E. McCormick and Jeffrey Benkoe)