The Volker Rule is an attempt to prohibit banks from trading on their own behalf. The US regulations are encapsulated in the Dodd Frank Act. The deadline for reporting is July 21st 2015. … 

This means that all trades must identify the customer. This would be simple[1] except that there have to be exceptions; the key exceptions are market making, hedging and underwriting. So, the banks need to report their trades with customers and justify those without. (Simples!) The exceptions require the development of policy (the skills for which reside mainly within the Banks), and development of controls & control systems (which are more readily available amongst the consultancy firms).

The market making and hedging exceptions will be difficult to develop policy around. The difficulties will be exacerbated by the appetite for compliance. i.e. if you want to stop prop trading, it’ll be a lot easier. There is some speculation the a couple of the more radical, some might say scofflaw investment banks might try some regulatory arbitrage restructuring to minimise or avoid the regulation.

The regulations have a frequency requirement, (daily) and a retention period (five years). Some of the reports will require compute grids to process and data grids to store the data. We have seen in some places the use of consolidated reporting platforms to share the cost across multiple desks and asset classes but there are some dreadful customer systems and KYC is a challenge to all the banks.

Volker also requires the reporting of the whole bank state on market risk and liquidity.

George Bollenbacker writes at Tabbforum about the global reporting requirements here, listing the needs to record and report on Risk (Limits & Usage), VAR, P&L, Inventory and customer exposure. Bollenbacker has written a series of articles on Volker. For a complete list see here.

PWC on market making here.

For fun and a contrarian view I went to look at Zero Hedge, who seems to think we have a baby and bath water scenario, focusing on the difficulty in determining the difference between on the one hand, market making & hedging and prop trading and the stupidity of micro measurement in a world of strategy error. See “The Fallacy Of The Volcker Rule (Or “Fixing” The Banks In 5 Easy Steps)”


It took this article a long time to get into the blog, over four years.

[1] I say simple, it’s simple to define, but it would seem less easy to implement.

On the Volker Rule
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One thought on “On the Volker Rule

  • 6th December 2019 at 10:18 am

    I found this on my hard disk, and posted it today, back dated to the date created partly because I have not followed the story.

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