Stroock Special Bulletin
"Volcker Rule’s Impact on Securitization"
On December 10, 2013, final regulations implementing the Volcker Rule (the "Rule") were released jointly by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission and the Commodity Futures Trading Commission (each an "Agency" and collectively, the "Agencies"). The Rule, first proposed by former Federal Reserve Chairman Paul Volcker, was added by the Dodd-Frank Wall Street Reform and Consumer Protection Act and is part of the myriad of laws and regulations enacted by Congress and the Agencies in the aftermath of the 2008 – 2009 financial crisis.
The Rule contains two main restrictions. Subject to various exceptions, a "banking entity" is prohibited from (i) engaging in proprietary trading and (ii) acquiring or retaining an ownership interest it, or engaging in specified transactions with, certain hedge funds and private equity funds – defined as "covered funds" in the Rule. This Stroock Special Bulletin discusses the impact of the second prohibition on securitization transactions.