The Hedge Fund Law Report

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By Topic: Volcker Rule

  • From Vol. 10 No.9 (Mar. 2, 2017)

    Ways the Trump Administration’s Policies May Affect Private Fund Advisers

    With a Republican president and Republican-controlled Congress, there is the possibility for comprehensive changes in several areas of concern to private fund managers, including taxation, regulation and enforcement. In his first weeks in office, President Trump issued a series of sweeping, yet sometimes confusing, orders directed at fulfilling some of his campaign promises. A recent seminar presented by the Association for Corporate Growth (ACG) provided insight on the impact of the Trump executive orders regarding the pending fiduciary rule and other regulatory matters; developments at the SEC; the future of the Dodd-Frank Act and other laws that may affect the private fund industry; proposed tax reform; cybersecurity; and political contributions. Scott Gluck, special counsel at Duane Morris, moderated the discussion, which featured Langston Emerson, a managing director at advisory firm The Cypress Group; Basil Godellas, a partner at Winston & Strawn; Ronald M. Jacobs, a partner at Venable; and Michael Pappacena, a managing director at ACA Aponix. This article summarizes their insights. For coverage of other ACG webinars, see “SEC Staff Provides Roadmap to Middle-Market Private Fund Adviser Examinations” (May 16, 2014); and “SEC’s David Blass Expands on the Analysis in Recent No-Action Letter Bearing on the Activities of Hedge Fund Marketers” (Mar. 13, 2014). 

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  • From Vol. 9 No.33 (Aug. 25, 2016)

    Perspectives From In-House and Private Practice: Cadwalader Special Counsel Garret Filler Discusses Family Offices, Broker-Dealer Registration Issues and Impact of Capital, Liquidity and Margin Requirements (Part Two of Two)

    The Hedge Fund Law Report recently interviewed Garret Filler in connection with his recent return to Cadwalader, Wickersham & Taft. As special counsel in the firm’s New York office, Filler represents both start-up and established hedge funds and private equity funds, as well as family offices, banks and broker-dealers. This article, the second in a two-part series, sets forth Filler’s thoughts on family offices transitioning to asset managers; broker-dealer registration issues for fund managers; considerations when negotiating counterparty agreements; the implications to hedge funds of increased capital and liquidity requirements for banks and broker-dealers; and the impact of new margin requirements for uncleared derivatives. In the first installment, Filler discussed the cultures of private fund managers; selection of outside counsel, including law firm relationships with regulators and their willingness to enter into alternative fee arrangements; and counterparty risk. For additional insight from Cadwalader partners, see “Practical Guidance for Hedge Fund Managers on Preparing for and Handling NFA Audits” (Oct. 17, 2014).

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  • From Vol. 8 No.11 (Mar. 19, 2015)

    Recent Guidance Clarifies that a Foreign Banking Entity May Rely on the “SOTUS” Exemption to the Volcker Rule when Investing in a Covered Fund that Is Offered to U.S. Residents by an Unaffiliated Third Party

    The Volcker Rule, adopted as part of the Dodd-Frank Act, prohibits “banking entities” from engaging in proprietary trading or sponsoring or acquiring interests in so-called “covered funds.”  The Federal Reserve and other federal agencies recently added a new frequently asked question (FAQ) to their Volcker Rule FAQs.  The new FAQ clarifies that certain foreign banking entities may rely on an exemption from the Volcker Rule to invest in a covered fund solely outside of the U.S., even if the fund is offered to U.S. residents, so long as the foreign banking entity does not sponsor or serve in certain management or advisory roles for the fund and does not participate in that offering.  This article summarizes the relevant rules, the ambiguity they presented, the resolution provided by the new FAQ and an important remaining ambiguity.  For a discussion of the impact of the Volcker Rule on foreign managers, see “Dechert Partners Discuss Impact of Volcker Rule on European Hedge Fund Managers,” The Hedge Fund Law Report, Vol. 7, No. 12 (Mar. 28, 2014).  For a detailed overview of the Rule, see “Ropes & Gray Attorneys Discuss the Impact on Private Fund Managers of Final Regulations Under the Volcker Rule,” The Hedge Fund Law Report, Vol. 7, No. 10 (Mar. 13, 2014).

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  • From Vol. 7 No.43 (Nov. 13, 2014)

    How Is Goldman Unwinding Its Private Fund Investment Program in Light of the Volcker Rule?

    The Volcker Rule (Rule), adopted as part of the Dodd-Frank Act, prohibits banks from engaging in proprietary trading and from owning or sponsoring certain hedge funds and other private funds.  Final regulations under that Rule were issued at the end of 2013, and banks have been taking steps to assure that they comply with the Rule.  In a recent public filing, The Goldman Sachs Group, Inc. (Goldman) detailed the mechanics of its compliance with the Rule, including how it is divesting itself of ownership of covered funds; the role of secondary market transactions in Goldman’s divestiture program; how Goldman will treat uncalled capital commitments; its withdrawal of financial support for covered funds; its move away from proprietary trading; calculation of metrics required by the Rule; and the impact of Goldman’s reduction of covered fund interests on its supplementary leverage ratio.  For similarly situated institutions, Goldman’s approach to Volcker Rule compliance is a useful benchmark.  For hedge fund and fund of funds managers, Goldman’s explanation of its private fund divestiture program and its other disclosures may offer insight into secondary market purchase opportunities, inform prime brokerage agreement negotiations and provide other useful insight.  See “Key Structuring and Negotiating Points in Secondary Sales of Private Fund Interests,” The Hedge Fund Law Report, Vol. 7, No. 11 (Mar. 21, 2014).  This article provides background on the Rule and summarizes the sections of Goldman’s recent disclosure relevant to its compliance with the Rule.  For a discussion of the types of funds that banking entities may still invest in, see “Options Under the Volcker Rule for Bank Investment in Unaffiliated Private Equity and Hedge Funds,” The Hedge Fund Law Report, Vol. 7, No. 9 (Mar. 7, 2014).  See also “Aligning Employee and Investor Interests under the Volcker Rule,” The Hedge Fund Law Report, Vol. 7, No. 21 (Jun. 2, 2014).

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  • From Vol. 7 No.36 (Sep. 25, 2014)

    Sidley Partners Discuss Evolving Hedge Fund Fee Structures, Seed Deal Terms, Single Investor Hedge Funds, Risk Aggregators, Expense Allocations, Co-Investments and Fund Liquidity (Part One of Two)

    Sidley Austin recently hosted its annual private funds event in New York City.  This article is the first in a two-part series covering that event.  This article highlights the most useful points made during a discussion entitled “Hedge Fund Terms and Trends,” featuring Sidley partners Benson R. Cohen, Janelle Ibeling, William D. Kerr and Christopher P. Lokken.  The partners addressed registered funds; challenges presented by single investor or single relationship hedge funds; use of and resistance by managers to risk aggregators; seed deal terms and trends; structures for aligning fund liquidity with investment duration; expense allocations; developments in fund structuring; and the impact of the Volcker Rule on hedge fund investments by bank aggregator platforms.  The discussion also provided a uniquely candid and relevant discussion of evolving fee structures and models for hedge funds and other entities used to offer alternative investment strategies.  Sidley sees and structures hedge funds and related vehicles across a wide range of strategies, sizes and geographies.  Accordingly, insight from Sidley partners on fees is generally relevant to hedge fund managers launching new products or justifying or amending fee structures on existing products.  The Hedge Fund Law Report previously covered Sidley’s 2013 private funds conference in three parts.  See Part One, Part Two and Part Three.

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  • From Vol. 7 No.21 (Jun. 2, 2014)

    Aligning Employee and Investor Interests Under the Volcker Rule

    The Volcker Rule limits the extent to which bank-affiliated asset managers and their employees may invest in hedge funds that they sponsor.  As a result, such managers need to ensure that any arrangements that allow for employee participation, including compensation arrangements, comply with the final Volcker Rule.  In a guest article, Tram N. Nguyen and Steven W. Rabitz, both partners at Stroock & Stroock & Lavan LLP, examine the different options that managers have under the final Volcker Rule in designing such arrangements.

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  • From Vol. 7 No.19 (May 16, 2014)

    Can a Non-U.S. Banking Entity Invest in a Foreign Fund Organized by a Private Equity or Hedge Fund Manager That Offers a Parallel Fund to U.S. Persons?

    Can a non-U.S. banking entity invest in a foreign fund organized by a non-bank sponsor (such as a private equity or hedge fund manager) that contemporaneously offers a parallel covered fund to U.S. persons?  The short answer – according to 15 of the top law firms active in the private funds space – is yes.  Here is why.

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  • From Vol. 7 No.12 (Mar. 28, 2014)

    Dechert Partners Discuss Impact of Volcker Rule on European Hedge Fund Managers

    On December 10, 2013, federal agencies issued final regulations under the Volcker Rule (Rule), which is part of the Dodd-Frank Act.  The Rule’s primary goal is to limit systemic risk by prohibiting proprietary trading by banks.  In short, the Rule prohibits “banking entities” from engaging in proprietary trading and from holding interests in certain “covered funds.”  Given the broad definitions of “banking entity” and “covered fund,” many European funds and other foreign financial institutions are likely to be affected by the Rule.  A recent program presented by the financial services group of law firm Dechert LLP and the European Fund and Asset Management Association (EFAMA) discussed the potential impact of the Rule on European fund managers.  The program featured Jarkko Syyrilä, Deputy Director General of EFAMA, and Dechert LLP partners Karen L. Anderberg, Julien Bourgeois, David J. Harris and David A. Vaughan.  For insight from Vaughan previously published in the HFLR, see “A Practical Guide to AIFMD Reporting for Non-U.S. Fund Managers: Reporting Under AIFMD versus Form PF,” The Hedge Fund Law Report, Vol. 6, No. 20 (May 16, 2013); and “Form PF: Operational Challenges and Strategic, Regulatory and Investor-Related Implications for Hedge Fund Managers,” The Hedge Fund Law Report, Vol. 5, No. 4 (Jan. 26, 2012).

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  • From Vol. 7 No.10 (Mar. 13, 2014)

    Ropes & Gray Attorneys Discuss the Impact on Private Fund Managers of Final Regulations Under the Volcker Rule

    On December 10, 2013, federal agencies issued final regulations for the Volcker Rule (Rule) under the Dodd-Frank Act, which generally prohibits banks from engaging in proprietary trading and from sponsoring or owning interests in certain private funds.  See “Key Legal Considerations in Connection with the Movement of Talent from Proprietary Trading Desks to Start-Up or Existing Hedge Fund Managers: The Talent Perspective (Part One of Three),” Vol. 3, No. 49 (Dec. 17, 2010).  A recent webinar presented by Ropes & Gray LLP provided an overview of key provisions of the Rule, as supplemented by those regulations.  The speakers were Ropes & Gray partners Sarah Davidoff and Mark Nuccio, and associate Richard Loewy.  Nuccio and other colleagues first addressed the Rule in the HFLR when the Rule was in its proposed form.  See “Proposed Volcker Rule and the Effect on Private Fund Sponsors and Investors,” The Hedge Fund Law Report, Vol. 4, No. 38 (Oct. 27, 2011).

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  • From Vol. 7 No.9 (Mar. 7, 2014)

    Options Under the Volcker Rule for Bank Investment in Unaffiliated Private Equity and Hedge Funds

    On December 10, 2013, the federal banking agencies, the SEC and the CFTC adopted final regulations to implement Section 13 of the Bank Holding Company Act (commonly known as the “Volcker Rule”).  A key question for sponsors of private equity and hedge funds not affiliated with “banking entities” is the extent to which banking entities will be permitted to invest in those unaffiliated private funds.  Because one purpose of the Volcker Rule was to limit investment by banking entities of their own capital in private funds, not surprisingly, such investment is severely limited.  Nonetheless, a “U.S. Banking Entity” may invest in third-party sponsored private funds under limited circumstances.  A Non-U.S. Banking Entity with a U.S. banking presence has somewhat greater flexibility.  And a Non-U.S. Banking Entity with no U.S. banking presence is not affected by the Volcker Rule.  In a guest article, Satish M. Kini and Michael P. Harrell, both partners at Debevoise & Plimpton LLP, and Gregory T. Larkin, an associate at Debevoise, outline the available options.

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  • From Vol. 7 No.4 (Jan. 30, 2014)

    Ropes & Gray Partners Share Experience and Best Practices Regarding the JOBS Act, the Volcker Rule, Broker Registration, Information Barriers, Examination Priorities, Multi-Year Incentive Fees and Swap Execution Facilities

    On February 4, 2014 – this coming Tuesday – the New York office of Ropes & Gray will host GAIM Regulation 2014.  The event will feature an all-star speaking faculty including general counsels and chief compliance officers from leading hedge fund managers, top partners from Ropes and other law firms and officials from the SEC, CFTC, FINRA and other U.S. and global regulators.  The intent of the event is to share best practices in a private setting, and to hear directly from relevant regulators.  For a fuller description of the event, click here.  To register, click here.  The Hedge Fund Law Report recently interviewed three Ropes partners on some of the more noteworthy topics expected to be discussed at GAIM Regulation 2014.  Generally, we discussed SEC and regulatory issues with Laurel FitzPatrick, co-leader of Ropes’ hedge funds practice and co-managing partner of its New York office; CFTC and derivatives issues with Deborah A. Monson, a partner in Ropes’ Chicago office; and enforcement issues with Zachary S. Brez, co-chair of Ropes’ securities and futures enforcement practice.  Specifically, our long form interview with these partners included detailed discussions of the future of hedge fund advertising following the JOBS Act; the impact of the Volcker rule on hedge fund hiring and trading; fund manager responses to the SEC’s focus on broker registration of in-house marketing personnel; best practices for preparing for and navigating SEC examinations; structuring multi-year incentive fees; the impact of swap execution facilities on hedge fund manager obligations and cleared derivatives execution agreements; recent National Futures Association developments relevant to hedge fund managers; design and enforcement of robust information barriers; measures that managers can take to preserve the firm before and after initiation of an enforcement action; government enforcement priorities for hedge fund managers; and specific financial products likely to face government scrutiny in the next two years.

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  • From Vol. 5 No.34 (Sep. 6, 2012)

    Grant Thornton Broker-Dealer Industry Symposium Focuses on Capital Requirements, Fiduciary Standards, the JOBS Act, the Volcker Rule and Use of Social Media

    On June 19, 2012, Grant Thornton hosted a symposium that highlighted recent regulatory developments impacting brokerage firms, including brokers that have hedge funds as clients.  The aim of the symposium was to arm broker-dealers with valuable information and tools to help them do business in an increasingly regulated industry.  The panelists addressed a number of current issues facing the broker-dealer industry, including: capital requirements for broker-dealers; new fiduciary standards for broker-dealers; the impact of the Jumpstart Our Business Startups (JOBS) Act; regulatory uncertainty surrounding the Volcker Rule; new rule changes impacting broker-dealers; best execution; and the use of social media.  This article summarizes highlights from the symposium on the foregoing topics.  For hedge fund managers, this discussion is relevant for at least two reasons.  First, hedge fund managers routinely interact with broker-dealers in connection with prime brokerage activities, obtaining leverage, borrowing shares to sell short, custody, derivatives transactions and a wide range of other activities.  Second, some hedge fund managers have affiliated broker-dealers.  See “Is the In-House Marketing Department of a Hedge Fund Manager Required to Register as a Broker?,” The Hedge Fund Law Report, Vol. 4, No. 10 (Mar. 18, 2011).

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  • From Vol. 4 No.38 (Oct. 27, 2011)

    Proposed Volcker Rule and the Effect on Private Fund Sponsors and Investors

    The federal banking agencies and the SEC recently proposed regulations to implement Section 13 of the Bank Holding Company Act, also known as the Volcker Rule, adopted as part of the Dodd-Frank Act.  The Volcker Rule prohibits proprietary trading and private fund investments and sponsorship by banking entities, subject to certain exceptions.  In a guest article, Ropes & Gray LLP Partners Joel Wattenbarger, Jason E. Brown and Mark Nuccio, along with Ropes Associate Alyssa Clough, address the restrictions on investments into private funds and the effect they will have on private fund sponsors, highlight certain issues and potential structuring opportunities that are applicable to private fund sponsors and identify some issues that require further clarification.

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  • From Vol. 3 No.49 (Dec. 17, 2010)

    Key Legal Considerations in Connection with the Movement of Talent from Proprietary Trading Desks to Start-Up or Existing Hedge Fund Managers: The Talent Perspective (Part One of Three)

    Talent has always been mobile in the hedge fund industry.  But at least seven factors are increasing the pace with which hedge fund talent − investment talent (portfolio managers, analysts, traders) as well as non-investment talent (professionals focusing on marketing, operations, law, accounting, compliance and technology) − is moving from proprietary trading desks at investment or commercial banks (prop desks) to a range of other entities, most notably, start-up and existing hedge fund managers.  First, the Volcker Rule generally prohibits U.S. banking institutions and non-U.S. banking institutions with U.S. banking operations from: (1) proprietary trading unrelated to customer-driven business; and (2) sponsoring or investing in hedge funds or private equity funds, or engaging in certain covered transactions with advised or managed hedge funds or private equity funds.  See "Implications of the Volcker Rule – Managing Hedge Fund Affiliations with Banks," The Hedge Fund Law Report, Vol. 3, No. 10 (Mar. 11, 2010).  Second, many of the investment and commercial banks that house proprietary trading desks have been subject to explicit or implicit restrictions on or reviews of compensation of key personnel.  Third, the availability of hedge fund seed funding has increased.  For example, a December 2010 survey conducted by private fund data provider Preqin found that the number of hedge fund investors expressing an interest in seed investments has almost doubled, from 11 percent in 2009 to 21 percent in 2010.  See also "How to Structure Exit Provisions in Hedge Fund Seeding Arrangements," The Hedge Fund Law Report, Vol. 3, No. 40 (Oct. 15, 2010).  Fourth, many existing hedge fund managers have renegotiated, reset or regained their high water marks.  See "How Are Hedge Fund Managers with Funds Under their High Water Marks Renegotiating Performance Fees or Allocations?," The Hedge Fund Law Report, Vol. 2, No. 33 (Aug. 19, 2009).  Fifth, many hedge fund industry professionals have no choice: they have been fired from prop desks, and plying their trade at a new institution is their highest value opportunity.  Sixth, according to a Fall 2010 Institutional Investor Survey conducted by Bank of America Merrill Lynch Capital Introductions, institutional investors are considerably more “bullish” on alternative investments than they are about traditional equities and fixed income investments.  Seventh, and finally, there is a considerable volume of dormant savings, particularly in the developing world (especially the so-called BRIC countries) and parts of developed Asia; many of the new funds being launched (by new or existing managers) are intended to tap this well of savings.  See "Local Currency Hedge Funds Expand Marketing and Investment Opportunities, but Involve Currency Hedging and Other Challenges," The Hedge Fund Law Report, Vol. 3, No. 1 (Jan. 6, 2010).  Despite these seven factors (and there are likely others) motivating and hastening the movement of talent into and within the hedge fund industry, talent does not move in an entirely free market.  Rather, the mobility of talent is bound up in a web of legal and practical restrictions.  The basic purpose of this article − the first in a three-part series − is to identify relevant legal issues and offer practical suggestions to help talent negotiate the transition from a prop desk to the next hedge fund opportunity.  (The second article in this series will look at talent moves from the bank perspective, and a third article will look at talent moves from the perspective of the hedge fund management company to which the talent moves.)  To serve its purpose, this article discusses the following: the definition of "talent" (we are using the word as shorthand for a variety of typical job descriptions); the working definition of proprietary trading; the various types of entities from which and to which talent may move; which types of entities are likely to be the biggest winners in the movement of talent away from prop desks, and why; examples of recent talent moves from prop desks to other institutions; key legal considerations applicable to all moving hedge fund talent, whether such talent is moving to an existing hedge fund manager or starting its own shop (this discussion includes subtopics such as non-competition agreements, non-solicitation agreements, ownership of performance data and intellectual property, etc.); the key legal considerations specific to talent leaving a prop desk to start a new hedge fund management company; and the chief practical and cultural issues faced by talent that departs a prop desk to start or participate in running a hedge fund management company.

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  • From Vol. 3 No.10 (Mar. 11, 2010)

    Implications of the Volcker Rule – Managing Hedge Fund Affiliations with Banks

    On January 21, 2010, President Obama proposed to limit the size and scope of banking institutions.  The proposal, named the “Volcker Rule” after its key proponent, Chairman of the President’s Economic Recovery Advisory Board and former Federal Reserve Chairman Paul Volcker, would prohibit depository institutions and their bank holding companies (collectively referred to herein as “BHCs”) from owning, investing in, or sponsoring hedge funds, private equity funds or proprietary trading operations.  If enacted into law, the Volcker Rule would require BHCs to divest their investments in hedge funds and would restrict BHC affiliations and transactions with hedge funds.  Accordingly, hedge fund managers could be faced with managing investor divestitures, including their own investments in the funds they manage, as well as managing limitations on their funds affiliating with BHC service providers going forward.  In a guest article, Genna N. Garver, an Associate at Bracewell & Giuliani LLP; Sanford M. Brown, Managing Partner of Bracewell & Giuliani’s Dallas office; Robert L. Clarke, a Senior Partner at Bracewell & Giuliani and former United States Comptroller of the Currency; and Cheri L. Hoff, a Partner at Bracewell & Giuliani, offer a comprehensive analysis of the implications of the Volcker Rule for hedge fund affiliations with banks.  In particular, the authors provide detailed discussions of: fiduciary duties, the withdrawal process and investor relations issues as they relate to withdrawals by BHC investors in hedge funds; the mechanics of and legal considerations involved in divestitures of hedge fund sponsorship interests; and limitations in the proposed Volcker Rule on the ability of hedge funds to affiliate with BHC service providers, such as BHCs providing prime brokerage services.

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  • From Vol. 3 No.10 (Mar. 11, 2010)

    Obama Administration Releases Text of “Volcker Rule” Legislation to Restrict Size and Risky Activities of Financial Firms

    On March 3, 2010, the United States Department of the Treasury delivered proposed legislative text to Capitol Hill to implement the “Volcker Rule” as previously announced by the Obama Administration on January 21, 2010.  See “What Is Proprietary Trading, and Why Does Its Definition Matter to Hedge Fund Managers?,” The Hedge Fund Law Report, Vol. 3, No. 8 (Feb. 25, 2010).  As discussed in this and previous issues of The Hedge Fund Law Report, the Volcker Rule is part of a comprehensive package of reforms intended to create a safer, more resilient financial system.  See “Implications of the Volcker Rule – Managing Hedge Fund Affiliations with Banks,” above, in this issue of The Hedge Fund Law Report.  The rule aims to limit the size and scope of banks and other financial institutions with the goals of “rein[ing] in excessive risk-taking and protect[ing] taxpayers.  See “Senate Banking Committee Hears Testimony from Hedge Fund Industry Experts and Academics on ‘Volcker Rule,’” The Hedge Fund Law Report, Vol. 3, No. 6 (Feb. 10, 2010); “Senate Banking Committee Holds Hearings on ‘Volcker Rule’ Designed to Limit Banks’ Ability to Own, Invest In or Sponsor Hedge or Private Equity Funds,” The Hedge Fund Law Report, Vol. 3, No. 5 (Feb. 4, 2010).  This new legislative language would add to existing activity restrictions applicable to banking firms by prohibiting the firms from engaging in proprietary trading and investing in or sponsoring hedge funds or private equity funds.  The text also supplements and strengthens existing financial sector concentration limits.  This article summarizes the most salient provisions of the Treasury Department’s proposal, which, if enacted, will take the form of new Sections 13 and 13a of the Bank Holding Company Act of 1956.

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  • From Vol. 3 No.6 (Feb. 11, 2010)

    Senate Banking Committee Hears Testimony from Hedge Fund Industry Experts and Academics on “Volcker Rule”

    On February 4, 2010, the U.S. Senate Committee on Banking, Housing and Urban Affairs held a hearing entitled “Implications of the ‘Volcker Rule’ for Financial Stability.”  The hearing followed on the heels of the February 2, 2010 hearing in which Former Federal Reserve Chairman Paul Volcker testified on behalf of the his eponymous rule, which President Barack Obama proposed on January 21, 2010 as a means of curbing commercial banks’ proprietary trading if they also benefit from federal protection of consumer deposits and have access to the Federal Reserve’s discount window.  The proposal would also prevent those institutions from owning, sponsoring or investing in hedge or private equity funds.  For more on the February 2, 2010 hearing, see “Senate Banking Committee Holds Hearing on ‘Volcker Rule’ Designed to Limit Banks’ Ability to Own, Invest In or Sponsor Hedge or Private Equity Funds,” The Hedge Fund Law Report, Vol. 3, No. 5 (Feb. 4, 2010).  At the February 4, 2010 hearing, witnesses included Gerald Corrigan, a Managing Director at Goldman Sachs; Professor Simon Johnson, Ronald A. Kurtz Professor of Entrepreneurship, Sloan School of Management, Massachusetts Institute of Technology; John Reed, former Chairman and Chief Executive at Citigroup; Professor Hal Scott, Nomura Professor of International Financial Systems, Harvard Law School; and Barry Zubrow, Chief Risk Officer and Executive Vice President at JPMorgan Chase.  Panelists at the hearing expressed concern regarding the feasibility of enforcing the Volcker Rule as well as its potential impact.  This article details the testimony of lawmakers and panelists at the February 4, 2010 hearing.

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  • From Vol. 3 No.5 (Feb. 4, 2010)

    Senate Banking Committee Holds Hearing on “Volcker Rule” Designed to Limit Banks’ Ability to Own, Invest In or Sponsor Hedge or Private Equity Funds

    On February 2, 2010, Former Federal Reserve Chairman Paul Volcker testified before the U.S. Senate Committee on Banking, Housing and Urban Affairs on a key effort of the Obama Administration: to restrict commercial banking organizations from certain proprietary and speculative activities.  On January 21, 2010, the White House issued a press release endorsing the so-called Volcker Rule, which would seek to restrict the size and scope of financial institutions with the goals of reining in excessive risk-taking and protecting taxpayers.  With respect to scope, the proposal would seek to “ensure that no bank or financial institution that contains a bank will own, invest in or sponsor a hedge fund or a private equity fund, or proprietary trading operations unrelated to serving customers for its own profit.”  And with respect to size, the proposal would seek to “place broader limits on the excessive growth of the market share of liabilities at the largest financial firms, to supplement existing caps on the market share of deposits.”  At the hearing, Senate Banking Committee Chairman Christopher Dodd (D-CT) announced his support for the proposal, saying that the proposal was “borne out of fear that a failure to act would leave us vulnerable to another crisis, and of frustration at the refusal of financial firms to rein in their reckless behavior.”  We detail the key points from testimony at the hearing.

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