SIFMA: 'Volcker Rule' would hurt market liquidity

The following is from SIFMA...

New York, NY, October 11, 2011 —SIFMA today released the following statement from President and CEO Tim Ryan in reaction to the Volcker Rule proposal discussed at today’s Federal Deposit Insurance Corporation (FDIC) meeting. The proposal was co-drafted by the U.S. Department of Treasury’s Office of the Comptroller of the Currency (OCC), the Federal Reserve Board (FRB), FDIC and the Securities and Exchange Commission (SEC).

“While we will continue to review this expansive proposal in more detail, upon first read it seems that in trying to address the challenging problem of differentiating between market-making and proprietary trading, regulators have proposed a framework which may adversely impact market liquidity.

“SIFMA’s primary concern is the potential negative impact of the proposed rule on market liquidity. As proposed, the rule's narrowly-crafted exemption for permitted market making activity exceeds Congressional intent and overly prescriptive and burdensome compliance requirements could well depress the market making functions of banks and their affiliated broker-dealers as well as the asset management alternative fund business. Restrictions on the ability of firms to make markets will reduce market liquidity, discourage investment, limit credit availability and increase the cost of capital for companies. This will have the cumulative effect of stifling economic growth and job creation.

“The proposal appropriately raises important questions related to the costs and burdens of complying with certain aspects of the proposal and SIFMA appreciates the opportunity to work with regulators to ensure proper economic analysis is undertaken.

“Importantly from a process standpoint this is a proposed rule, and given its magnitude and impact on U.S. markets, it will be subject to significant comment and hopefully consideration by the regulators to insure against undermining the depth, liquidity, and viability of U.S. financial markets.

“SIFMA also notes that coordination among regulators is critical for ensuring efficient implementation of the Volcker Rule and avoiding confusion in the marketplace. SIFMA believes that review of any separate rulemaking effort by the Commodity Futures Trading Commission (CFTC) is critical for assessing and commenting on today’s rule proposal, and we urge regulators to coordinate the respective comment periods.”

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