On November 20, 2015, the US Federal Reserve Board, Office of the Comptroller of the Currency, FDIC, Securities and Exchange Commission and Commodity Futures Trading Commission (collectively, the Agencies) released two new Frequently Asked Questions in respect of the Volcker Rule. FAQ 19 relates to a banking entity’s residual marketmaking positions following termination of its market-making business. FAQ 20 clarifies the applicability of the Volcker Rule’s so-called “Super 23A” provisions to covered transactions entered into before and after the Volcker Rule’s conformance period. FAQ 19 refers to situations where a banking entity terminates its market-making business and holds residual positions from its prior market-making activities. The FAQ states that the banking entity may hold and dispose of such residual market-making positions, provided that: (i) the banking entity hedges the risks of any such positions in accordance with the requirements of the Volcker Rule’s risk-mitigating hedging exemption; and (ii) the banking entity sells or unwinds the residual market-making positions as soon as commercially practicable. In the event that a banking entity holds residual market-making positions but does not hedge the risks of such positions, the subsequent sales of those residual positions would generally be considered proprietary trading under the Volcker Rule. FAQ 20 clarifies that on and after July 21, 2015, the general conformance period date for complying with the Volcker Rule, a banking entity and any of its affiliates are generally prohibited from entering into a “Super 23A” covered transaction with a covered fund or with any other covered fund that is controlled by such fund, where the banking entity serves as investment manager, investment adviser, sponsor to the covered fund, or relies on the Volcker Rule’s asset management exemption for organizing and offering the covered fund. Additionally, the Agencies will treat any increase in the amount, extension of maturity or adjustment to the interest-rate or other material term of an existing extension of credit as entry into a covered transaction for purposes of the “Super 23A” restrictions. Further, a banking entity should evaluate whether any transaction guarantees, assumes or otherwise insures the obligations or performance of the covered fund (or of any covered fund in which such covered fund invests) in violation of the requirements of the exemption for organizing and offering covered funds. The conformance period for investments in and relationships with legacy covered funds (where investments were made in, or relationships were established with, such covered funds prior to December 31, 2013), currently ends on July 21, 2016. The Agencies expect a banking entity to engage in good faith efforts to conform to the “Super 23A” restrictions by the end of the conformance period.

The Volcker Rule FAQs are available at: http://www.federalreserve.gov/bankinforeg/volcker-rule/faq.htm