Two new Volcker Rule FAQs has been issued. The first addresses an issue where a banking entity terminates a market-making business that it conducted as a Volcker Rule permitted activity, and how the bank can exit residual positions from its prior market-making activity. According to the FAQ, the banking entity may hold and dispose of these residual market-making positions, provided (i) the banking entity hedges the risks of any such positions in accordance with the risk-mitigating hedging exemption and (ii) the banking entity sells or unwinds the residual market-making positions as soon as commercially practicable.
The second FAQ establishes at what point in time a banking entity becomes subject to the final rule with respect to a covered transaction with a covered fund, and provides guidance regarding existing covered transactions. The FAQ states as a general matter, on or after July 21, 2015, a banking entity may not enter into a covered transaction with a covered fund where the banking entity serves as investment manager, investment adviser, or sponsor to the covered fund. The conformance period for legacy investments in and relationships with a covered fund (i.e., investments made and relationships entered into by a banking entity prior to December 31, 2013) currently ends on July 21, 2016. Staffs of the Agencies would expect a banking entity to engage in good-faith efforts during the conformance period to ensure that its investments in and relationships with legacy covered funds conform to the final rule by the end of the applicable conformance period.