* Gensler waiting to see reaction from lawmakers first
* Volcker rule has potential to cost Wall Street billions
* FDIC, SEC may vote on Volcker rule proposals next week
By Christopher Doering
WASHINGTON, Oct 7 The U.S. futures regulator
may break with other agencies on a much-anticipated plan to ban
most proprietary trading by banks, and could opt to put forth a
slightly different version of the Volcker rule.
An independent approach from the Commodity Futures Trading
Commission could raise questions about coordination and
embolden banks to challenge the Volcker rule, although the
agency -- which polices futures and derivatives markets -- is
not believed to play a central role in implementing it.
Gary Gensler, the head of CFTC, is taking a "wait and see"
approach to the rule, a key provision in last year's Dodd-Frank
oversight law that would prohibit banks from trading for their
own profit in securities, derivatives and certain other
It also would prohibit banks from investing in or
sponsoring hedge funds or private equity funds.
"He said we might, if it's the will of the commission, put
forward ... a virtually identical proposal with the other
regulators, or we could go it alone," said Scott O'Malia, a
Republican commissioner at the CFTC, who said he had spoken to
Chairman Gensler on Friday. "He's not committing either way."
Both the Federal Deposit Insurance Corp and the SEC are
scheduled to vote next week on the Volcker rule, which has
already forced banks to scale back previously lucrative
O'Malia said the decision was a bit of a surprise because
in past rules, such as financial product definitions with the
SEC and documentation with the FDIC, the CFTC worked with the
regulators on the rules.
"It is odd when you look at in the past when there's been a
kind of a negotiated solution of other regulatory agencies that
we must do this," he said.
A source familiar with the CFTC's thinking said Gensler is
waiting to see how Congressional lawmakers react to the Volcker
rule proposal before deciding how to move forward.
A CFTC spokesman could not be reached for comment.
A person familiar with the rulemaking process said the CFTC
is only tangentially mentioned in the Volcker rule, and it is
unclear what the implications would be if the CFTC takes an
The futures regulator could chose to define a hedge fund
and private equity fund in a rulemaking with the Securities and
Exchange Commission, or it could chose to embrace the rule
drafted by the SEC, this person said.
A Sept. 30 draft of the rule that was leaked earlier this
week listed the staff of 4 different regulators that had worked
on the plan, but the CFTC was not among them. It later said the
staff had consulted the CFTC on the proposal.
Supporters such as Democratic Senators Carl Levin and Jeff
Merkley say the Volcker rule, will prevent banks, which enjoy
government support through deposit insurance and access to Fed
funding, from engaging in risky trades and force them to focus
more on their customers' needs.
Wall Street banks such as Goldman Sachs and Morgan
Stanley are watching whether the rule will still give
them flexibility to hedge risk, and whether it will have a
broad enough exemption for market makers.
Banks have said that if the regulations written to enforce
the Volcker rule are too stringent, it could strip billions of
dollars from Wall Street profits, hurt market liquidity and
place U.S. financial companies at a disadvantage .