UPDATE 2-U.S. regulator aims for December vote on Volcker

Wed Oct 30, 2013 4:53pm EDT

By Douwe Miedema

WASHINGTON Oct 30 (Reuters) - U.S. regulators hope to vote in December on a rule that would bar banks from gambling with their own money, the nation's top derivatives regulator said on Wednesday, a sign that the controversial Volcker rule may soon become law.

The rule, which was devised by former Federal Reserve Chairman Paul Volcker, would prohibit Wall Street banks from risky trades in financial markets using their own capital, a practice known as proprietary trading.

The six agencies working on the rule still have not agreed on a final text of more than 1,000 pages, said Gary Gensler, chairman of the Commodity Futures Trading Commission, though he indicated a consensus was nearing.

"I am hopeful to try to schedule a public Commission meeting in the second week of December or third week of December," Gensler said, speaking at an unrelated public meeting of the agency.

The Volcker rule is one of the most prominent reforms under the 2010 Dodd-Frank Wall Street reform law, but writing it has proven to be an acrimonious and drawn-out process because of the complexity of the matter. It was first proposed in October 2011.

Gensler said the main difficulty with the law 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.

Wall Street banks have complained 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.

They say that some of the main excesses the rule aims to prohibit have already gone after the dark days of the financial crisis, and the proprietary trading desks no longer exist.

Lobbyists have said that JPMorgan's $6.2 billion loss on derivatives trades put the issue back high on the agenda of regulators and politicians last year.

"VERY CONSTRUCTIVE DISCUSSIONS"

Treasury Secretary Jack Lew in July singled out the Volcker rule as a particularly important piece of legislation, and said he was pushing the other regulators for it to come out before the end of the year.

President Barack Obama a month later 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 Volcker provisions of law are some of the most challenging, prohibit proprietary trading ... but at the same time permit market making, hedging, underwriting et cetera," Gensler told journalists after the Wednesday meeting.

He was responding to a request from fellow Commissioner Scott O'Malia, who was urging him to disseminate the text in time for the meeting, to give the CFTC enough time to read the law and comment on it.

"I don't have a document to send at this point in time but if I do in the next couple of days I will share it," Gensler told O'Malia, a Republican.

Gensler is the first person directly involved in the process to set a tentative date for a decision.

"I think this can get done," he also said, adding that there were still "lots of very constructive discussions" on the issue between the regulators.

Adoption of the Volcker rule almost certainly be one of Gensler's final acts at the helm of the derivatives regulator. He is in the last year of his tenure, and has to leave the job by the middle of December.

Once a final joint wording is reached, for the text, it must be agreed by the three federal banking regulators, the Securities and Exchange Commission, the CFTC, and the Treasury Department.

The various agencies will then need to individually approve the text. In the CFTC's case, there will be a public vote by its politically-appointed commissioners.

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