The Volcker rule, and the need for clarity.

• Author: Hollein, Marie N.
• Position: FROM THE PRESIDENT - Legislation

We've heard so much in recent months about the so-called "Volcker Rule,' that part of the Dodd-Frank Wall Street Reform and Consumer Protection Act named for former Federal Reserve Chairman Paul Volcker. The rule is designed to preclude banking entities from participating in proprietary trading for their own accounts, which may affect how businesses operate.

As with most complicated--and controversial--regulatory proposals, it appears that the devil in the implementation phase is in the details.

In this case, the Volcker Rule leaves something to be desired. The proposed rule itself--at nearly 300 pages--is quite lengthy and involved. It seems so much of the recent federal regulation of business is coming at us in waves of hundreds, if not thousands, of pages at a time, courtesy of the Obama administration and the Halls of Congress.

With the advent of the Volcker Rule, many market participants are anxious about the potential impact of this regulation. They suggest that its language does not provide the kind of clarity required to ensure that banks and dealers will be able to take part in the market-making activities that corporate treasurers and other senior-level financial executives depend upon to operate successfully. Now, more than ever, business leaders need market flexibility and smart, practical oversight - not more federal constraints that may well prove to be a continua I drag on the economy and its recovery.

The fear persists that this aspect of regulation would reduce liquidity in the corporate bond market and increase costs for issuers and investors alike. A number of recent studies substantiate that point of view. Additionally, companies are expressing concern that their ability to hedge risk through derivatives may be seriously impeded, due to the fact that dealers may be prohibited from assuming the risk of certain customized trades.

In fact, corporations that own banks or their finance arms may find themselves forced to establish compliance...