Democratic CFTC member becomes first regulator to oppose proposed Volcker changes

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WASHINGTON — A Democratic member of the Commodity Futures Trading Commission became the first regulator to oppose proposed changes to Volcker Rule already issued by the Federal Reserve, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency.

Rostin Behnam, the CFTC’s only current Democratic commissioner, announced his dissent a day before the Securities and Exchange Commission is set to become the final regulator to vote on the proposed changes to the proprietary trading ban. His opposition are unlikely to stop the SEC from issuing the plan, which is expected to be supported by the two Republican members of the board.

“Unfortunately, the concerns I have outlined, and my exclusion from the process, leave me unable to support this proposal,” Behnam said about his vote. “I look forward to hearing from the commenters on my concerns and I’m sure many others, and I hope that we can have a fulsome dialogue that leads to agreement on a sensible final rule.”

He warned that the proposal's expansion of what constitutes risk-mitigating hedging activities potentially provides a method to evade oversight.

“Specifically here at the CFTC, we need to think very carefully about how the definition of hedging activity in the proposal compares to our definitions of hedging activity in the context of other critical rules like the de minimis threshold or position limits,” Behnam said.

He also criticized the process for the proposal, saying he was given little notice of it before voting on it at a meeting scheduled for Tuesday.

Though the proposal has been criticized by some Democratic lawmakers, it has been supported by other Democrats, including FDIC Chairman Martin Gruenberg and Fed Gov. Lael Brainard.

CFTC Chairman Chris Giancarlo and Republican Commissioner Brian Quintenz have both said they support the changes.

Giancarlo cited Former Fed Chairman Paul Volcker’s support as part of his rationale for backing the proposal.

“Chairman Volcker said that he was proud of the rule that bears his name,” Giancarlo said. “But he also said told me that regulators should have come up with something more straightforward than what is currently in place, especially for smaller banks. The amendments to the Volcker Rule in the proposal before us today address that concern. The proposal seeks to simplify and tailor the Volcker Rule to increase efficiency, rightsize firms’ compliance obligations, and allow banking entities — especially smaller ones — to more efficiently provide services to clients.”

The changes come as some Republicans in Congress are pushing for additional changes to the regulation, including giving the Fed full rulemaking authority over the regulation. That legislation could face pushback from the other regulators, particularly the CFTC and SEC, which have their own jurisdiction over the rule.

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