On February 9, 2011, the Federal Reserve Board approved a final rule implementing the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) that give banking firms time to conform their activities and investments to the prohibitions and restrictions of the so-called Volcker Rule. Section 619 of the Dodd-Frank Act (to be codified at 12 U.S.C. § 1851) generally prohibits banking entities from engaging in proprietary trading or from investing in, sponsoring, or having certain relationships with a hedge fund or private equity fund. Non-bank financial companies supervised by the Federal Reserve Board that engage in such activities or have such investments will be subject to additional capital requirements, quantitative limits, or other restrictions. Section 619 is commonly known as “the Volcker Rule,” after former Federal Reserve Board chair, Paul Volcker.
The final rule implementing the Volcker Rule’s conformance periods requires that banking entities bring their activities and investments into compliance within two years from the effective date of the Volcker Rule’s prohibitions becoming effective. The Federal Reserve Board may extend the conformance period under certain conditions provided the banking entity requests an extension at least 180 days in advance. The Federal Reserve Board may provide an additional extension of time for conforming investments in illiquid funds.
The final rule is effective April 1, 2011. The complete text of the rule can be found at 76 Fed. Reg. 8265 (Feb. 14, 2011) (to be codified at 12 C.F.R. pt. 225).