The U.S. swaps watchdog is preparing to adopt the Volcker rule, which bans banks from gambling in financial markets with their own money, but has yet to reach agreement with four other agencies working on the provision, the agency's head said on Monday.
The rule, named after former U.S. Federal Reserve Chairman Paul Volcker, is one of the most controversial pieces of post-crisis Wall Street reform. Treasury Secretary Jack Lew is pushing for it to be finished this year.
The five regulatory banking and financial market agencies, herded by the Treasury Department, have struggled to write a rule that allows healthy financial market activities to help clients, while banning irresponsible trading.
Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler, and a second source familiar with the talks over the Volcker rule, said regulators are hopeful a final rule will be adopted before the end of the year.
"I'm going to be providing the commissioners with a document by tomorrow," Gensler told journalists on the sidelines of an industry conference on Monday.
"That's not to say there aren't going to be still really important dialogues amongst commissioners, and amongst the agencies," Gensler added.
Meanwhile, the members of the Securities and Exchange Commission have been pouring over a draft since the first week of November that is estimated to be at least 1,000 pages, one person familiar with the matter said.
At this point there is no plan to repropose any portion of the Volcker rule, and the differences of opinion between the regulators over how to craft a final rule have narrowed over time, the person said.
The fact that the rule will not be reproposed means the SEC's two Republican commissioners will almost certainly oppose it.
SEC Commissioner Daniel Gallagher has been particularly critical of the rule since it was first proposed, saying it is unworkable and should be scrapped.
The three banking regulators, including the Federal Reserve, and the CFTC are both tentatively eyeing the week of Dec. 9 for a final vote, the person said.
The SEC is considering holding a vote the week of Dec.16, though that is still up in the air, the person added.
Wall Street banks have long complained that the Volcker rule would eat into profits and depress client trading. They are worried it would hamper legitimate activities that are beneficial to customers, such as market-making.
In the heady days before the financial crisis, large banks ran so-called proprietary trading desks that played financial markets to make money, but the desks have largely disappeared, even ahead of the rule.
President Barack Obama earlier this year 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 three banking regulators and the two market regulators responsible for writing the rule don't necessarily have to agree on the wording of the text, but it is unlikely they will come out with wildly different versions.
All five are striving to come out with one unified rule, the person familiar with the process said, though they are still actively discussing how to draw the line when it comes to trading more illiquid instruments.
Banks have argued they may need to hold more illiquid assets on their books for longer periods of time until a buyer comes along. Regulators still need to decide how to tell the difference between market-making versus positions held for proprietary trading.
Gensler has been rushing through a raft of rules before his term expires at the end of the year, and has announced he was gunning for a vote on the 1,000-page Volcker rule by the full commission in the second or third week of December.
"I feel that we're far enough along that I want to provide my fellow commissioners with the document," Gensler said at the conference of derivatives brokers.
He said the draft for discussion among the commissioners would be a so-called "pens-down" version, which means that the agency's staff would have stopped working on it.
Gensler has said the main difficulty with the proposal 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.
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