What is proprietary trading under the Volcker Rule?

What is proprietary trading under the Volcker Rule?

The Volcker Rule prohibits a banking entity from engaging in proprietary trading, subject to certain exceptions discussed below. Proprietary trading is defined as engaging as principal for the trading account of the banking entity in the purchase or sale of a financial instrument.

Does the Volcker Rule prohibit proprietary trading?

The Volcker rule generally prohibits banking entities from engaging in proprietary trading or investing in or sponsoring hedge funds or private equity funds.

What did the Volcker Rule do?

The Volcker Rule is a federal regulation that generally prohibits banks from conducting certain investment activities with their own accounts and limits their dealings with hedge funds and private equity funds, also called covered funds.

Is proprietary trading still allowed?

Because of recent financial regulations like the Volcker Rule in particular, most major banks have spun off their prop trading desks or shut them down altogether. However, prop trading is not gone. It is carried out at specialized prop trading firms and hedge funds.

What was the effect of the Volcker Rule?

Under the Volcker Rule’s proprietary trading prohibition, banking entities generally may not engage as principal for the “trading account” of the banking entity in any purchase or sale of certain financial instruments.

What is the definition of a trading account under the Volcker Rule?

“Trading Account” Definition Under the Volcker Rule’s proprietary trading prohibition, banking entities generally may not engage as principal for the “trading account” of the banking entity in any purchase or sale of certain financial instruments.

How are covered funds exempt from the Volcker Rule?

The Final Rule adds four new exclusions to the definition of “covered fund”—credit funds, venture capital funds, family wealth management vehicles and customer facilitation vehicles—thereby exempting them from the scope of the Volcker Rule.

When is the grace period for the Volcker Rule?

Banking entities will have a one-year grace period, until January 1, 2021, to fully comply with the final rule’s amendments, but may also voluntarily comply, in whole or in part, with the amendments prior to such compliance date. Following is a high-level summary of certain key features of the final rule.

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