US swaps regulator plans Dec. 10 Volcker rule vote

Paul Volcker
Joshua Roberts | Bloomberg | Getty Images

Wall Street banks will finally get clarity about a controversial ban on betting with their own money, as the U.S. Commodity Futures Trading Commission announced a meeting for next week to vote on the so-called Volcker rule.

The swaps regulator—one of five different regulatory agencies that each need to approve the rule—said on Tuesday it planned to hold a public meeting on Dec. 10, in line with what the CFTC had indicated earlier.

Treasury Secretary Jack Lew is pushing for the rule to be finished this year. But the finance watch-dogs have been struggling to hammer out a compromise on the complexities of the text, which has now mushroomed to a 1,000 pages.

Investment banks such as Goldman Sachs, JPMorgan Chase and Morgan Stanley will be eager to see how much the rule has changed from when the watch-dogs first proposed it two years ago.

The rule bans proprietary trading, a common practice in the heady days before the 2007-09 financial crisis, when banks played financial markets for profit. It also limits banks' holdings in hedge funds and private equity funds.

The Volcker rule—named after former Federal Reserve Chairman Paul Volcker—is the last major piece of unfinished business in the 2010 Dodd-Frank law, which aims to prevent a repeat of the 2008 taxpayer bail-out of Wall Street.

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Regulators had a hard time distinguishing proprietary trading from healthy activities such as market making, in which banks hold risky securities to ease markets for client orders and not for their own accounts.

Banks have long been complaining that the rule would eat into profits. But JP Morgan's $6 billion so-called London Whale loss in 2012—in a poorly known part of its business—did away with any notion the rule would be watered down.

We're ready for Volcker Rule: Morgan Stanley

Federal Reserve Governor Dan Tarullo said last month that the loss—named for the huge trading positions JP Morgan took—had been a reality check and that regulators had been mandated to ensure such a fiasco would not be repeated.

Securities and Exchange Commission Chair Mary Jo White said separately that she expected her agency to act around the same day as the CFTC. The Fed, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. also need to adopt the rule.

The CFTC meeting is almost certainly the last under Chairman Gary Gensler, who is leaving at the end of the year, when his term expires. President Barack Obama has nominated Timothy Massad, a Treasury official, to succeed him.

That would leave Democrat Mark Wetjen and Republican Scott O'Malia as the other two commissioners to vote on the rule, after Democrat Bart Chilton, who is also leaving, said he would not take part in further public meetings.

(Read more: Fed could be about to make a major policy change)

The fact that the agency is scheduling a meeting ordinarily means a majority is in favor. The agency said it would also vote on two other pieces of unfinished business, including block trades for futures, a hot issue in that market.

A source told Reuters last month that there were no plans to re-propose any portion of the rule, and that differences of opinion between the regulators over how to craft the final wording had narrowed.

The fact that the rule will not be re-proposed means the SEC's two Republican commissioners will almost certainly oppose it, with SEC Commissioner Daniel Gallagher particularly critical, having said the rule should be scrapped.

—By Reuters