Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds; Correction (2024)

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Office of the Comptroller of the Currency, Treasury (OCC); Board of Governors of the Federal Reserve System (Board); Federal Deposit Insurance Corporation (FDIC); Securities and Exchange Commission (SEC); and Commodity Futures Trading Commission (CFTC).

Notification of correction.

The OCC, Board, FDIC, SEC, and CFTC (together, the agencies) are issuing this correction to make technical corrections to the Federal Register rule adopting amendments to the regulations implementing section 13 of the Bank Holding Company Act published on July 31, 2020.

Effective October 1, 2020.

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OCC: Tabitha Edgens, Counsel; Mark O'Horo, Senior Attorney, Chief Counsel's Office, (202) 649–5490; for persons who are deaf or hearing impaired, TTY, (202) 649–5597, Office of the Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219.

Board: Sarah Podrygula, Attorney, (202) 912–4658, or Kirin Walsh, Attorney, (202) 452–3058, Legal Division, Board of Governors of the Federal Reserve System, 20th and C Streets NW, Washington, DC 20551. For users of Telecommunication Device for the Deaf (TDD), (202) 263–4869.

FDIC: Michael B. Phillips, Counsel, (202) 898–3581, or Annmarie H. Boyd, Counsel, (202) 898–3714, Legal Division, Federal Deposit Insurance Corporation, 550 17th Street NW, Washington, DC 20429.

CFTC: Cantrell Dumas, Special Counsel, (202) 418–5043, cdumas@cftc.gov, Division of Swap Dealer and Intermediary Oversight; Mark Fajfar, Assistant General Counsel, (202) 418–6636, mfajfar@cftc.gov, Office of the General Counsel; Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW, Washington, DC 20581.

SEC: William Miller, Senior Counsel, or Jennifer Songer, Branch Chief at (202) 551–6787 or IArules@sec.gov, Investment Adviser Regulation Office, Division of Investment Management, U.S. Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549.

You may also contact any of the individuals for these agencies named in the final rule published on July 31, 2020, at 85 FR 46422.

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The agencies are issuing this correction to make technical corrections to the final rule adopting amendments to the regulations implementing section 13 of the Bank Holding Company Act published on July 31, 2020 (the 2020 amendments).[1] Two of the amendatory instructions of the 2020 amendments did not accurately reflect changes to the agencies' rules as described in the Supplementary Information section of the 2020 amendments. This correction corrects the agencies' Federal Register notice consistent with the Supplementary Information section of the 2020 amendments. Specifically, this correction corrects an instruction stating that the agencies were revising paragraph (d)(1) of section __.20 of the 2020 amendments when the agencies intended to revise the introductory text to paragraph (d)(1). This correction also corrects instructions concerning 17 CFR 255.10(c)(11) and 75.10(c)(11) to retain the introductory text for those paragraphs. The agencies note that the effective date for the 2020 amendments is unchanged and continues to be October 1, 2020.

Correction

In the Federal Register of July 31, 2020, FR Rule Doc. 2020–15525, beginning on page 46422, is corrected as follows:

Title 12

§ 44.20

[Corrected]

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1. On page 46502, in the third column, in 12 CFR 44.20, in amendment 7b., add the words “introductory text” after the words “paragraph (d)(1)”.

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§ 248.20

[Corrected]

Start Amendment Part

2. On page 46509, in the second column, in 12 CFR 248.20, in amendment 14b., add the words “introductory text” after the words “paragraph (d)(1)”.

End Amendment Part

§ 351.20

[Corrected]

Start Amendment Part

3. On page 46516, in the first column, in 12 CFR 351.20, in amendment 21b., add the words “introductory text” after the words “paragraph (d)(1)”.

End Amendment Part

Title 17

§ 75.10

[Corrected]

Start Amendment Part

4. On page 46517, third column, in 17 CFR 75.10, remove “(11) * * *” and add in its place “(11) SBICs and public welfare investment funds. An issuer:”

End Amendment Part

§ 75.20

[Corrected]

Start Amendment Part

5. On page 46522, in the second column, in 17 CFR 75.20, in amendment Start Printed Page 60356 28b., add the words “introductory text” after the words “paragraph (d)(1)”.

End Amendment Part

§ 255.10

[Corrected]

Start Amendment Part

6. On page 46524, second column, in 17 CFR 255.10, remove “(11) * * *” and add in its place “(11) SBICs and public welfare investment funds. An issuer:”

End Amendment Part

§ 255.20

[Corrected]

Start Amendment Part

7. On page 46529, in the first column, in 17 CFR 255.20, in amendment 35b., add the words “introductory text” after the words “paragraph (d)(1)”.

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Jonathan V. Gould,

Senior Deputy Comptroller and Chief Counsel, Office of the Comptroller of the Currency.

Board of Governors of the Federal Reserve System.

Ann E. Misback,

Secretary of the Board.

Federal Deposit Insurance Corporation.

Dated at Washington, DC, on or about September 18, 2020.

James P. Sheesley,

Acting Assistant Executive Secretary.

Commodity Futures Trading Commission.

Dated: September 21, 2020.

Robert Sidman,

Deputy Secretary of the Commission.

By the Securities and Exchange Commission.

Vanessa A. Countryman,

Secretary.

End Signature End Supplemental Information

1.  85 FR 46422 (July 31, 2020).

Back to Citation

[FR Doc. 2020–21100 Filed 9–24–20; 8:45 am]

BILLING CODE P

Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds; Correction (2024)

FAQs

Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds; Correction? ›

Section 13 of the Bank Holding Company Act of 1956 (BHC Act), also known as the Volcker Rule, generally prohibits any banking entity from engaging in proprietary trading or from acquiring or retaining an ownership interest in, sponsoring, or having certain relationships with a hedge fund or private equity fund (covered ...

What is the prohibition of proprietary trading? ›

Essentially, it prohibits banks from using their own accounts (customer funds) for short-term proprietary trading of securities, derivatives, and commodity futures, as well as options on any of these instruments.

What are the restrictions on hedge funds? ›

“Hedge funds are restricted under Regulation D under the Securities Act of 1933 to raising capital only in non-public offerings and only from “accredited investors,” or individuals with a minimum net worth of $1,000,000 or a minimum income of $200,000 in each of the last two years and a reasonable expectation of ...

What prohibited banks from essentially acting like investment funds or prop trading? ›

The Volcker rule generally prohibits banking entities from engaging in proprietary trading or investing in or sponsoring hedge funds or private equity funds.

What is the conflict of interest in proprietary trading? ›

Conflicts of Interest in Proprietary Trading

Another conflict that might occur is that when the proprietary traders buy securities that have been performing badly. In this instance, the investment bank might instruct their institutional sales staff to call clients to try and convince them to purchase these securities.

What is the difference between prop trading and hedge funds? ›

Hedge funds invest in the financial markets using their clients' money. They are paid to generate gains on these investments. Proprietary traders use their firm's own money to invest in the financial markets, and they retain 100% of the returns generated.

What is an example of proprietary trading? ›

Let's consider an example of a proprietary trading desk at a major investment bank. The desk is staffed by a team of skilled traders and supported by advanced technology and research resources. They employ a range of strategies, including market making and statistical arbitrage, to generate profits.

What is the difference between hedge funds and private equity? ›

Private equity firms typically invest in private companies and see returns on investment by improving the company's profits. On the other hand, hedge funds use complex investing techniques, like hedging and leveraging, to see returns on investments in the market via securities like stocks, options, and futures.

Are hedge funds illegal in the US? ›

Specifically, hedge funds are restricted under Regulation D under the Securities Act of 1933 to raising capital only in non-public offerings and only from “accredited investors,” or individuals with a minimum net worth of $1,000,000 or a minimum income of $200,000 in each of the last two years and a reasonable ...

Can hedge funds restrict withdrawals? ›

In contrast to traditional open-end investment funds, which provide daily liquidity for investors, hedge funds are well known for having complicated redemption restrictions. Moreover, various combinations of these restrictions further mask the true vulnerability of hedge funds to investor withdrawals.

Can banks still do proprietary trading? ›

Institutions such as brokerage firms, investment banks, and hedge funds frequently have proprietary trading desks. However, there are restrictions against large banks engaging in prop trading, designed to limit the speculative investments that contributed the 2007-2008 financial crisis.

Are investment banks allowed to do proprietary trading? ›

The Volcker Rule generally restricts banking entities from engaging in proprietary trading and from owning, sponsoring, or having certain relationships with a hedge fund or private equity fund.

Which of the following banned most proprietary trading by commercial banks? ›

Named after former Federal Reserve Chairman Paul Volcker, the Volcker Rule disallows short-term proprietary trading of securities, derivatives, commodity futures and options on these instruments for banks' own accounts under the premise that these activities do not benefit banks' customers.

Why is proprietary trading risky? ›

Limited Control Over Capital and Payouts:

- Traders in prop firms often have limited control over the firm's capital. They may need to deposit their own money as collateral or risk management. - Additionally, payouts are subject to the firm's rules, which may restrict a trader's access to profits.

What is the meaning of proprietary interest? ›

A proprietary interest is a property right; an interest held by a property owner together with all appurtenant rights; the interest in something held by the owner such as a shareholder in a corporation, a farmer in a crop, or a storekeeper in store inventory.

What is considered the most common type of conflict of interest in investment? ›

Self-dealing is the most common type of conflict of interest in the business world. It occurs when a management-level professional accepts a transaction from another organization that benefits the manager and harms the company or the company's clients.

What is the meaning of proprietary trading? ›

Proprietary trading occurs when a financial institution trades financial instruments using its own money rather than client funds. This allows the firm to maintain the full amount of any gains earned on the investment, potentially providing a significant boost to the firm's profits.

What is proprietary trading? ›

Proprietary trading (also known as prop trading) occurs when a trader trades stocks, bonds, currencies, commodities, their derivatives, or other financial instruments with the firm's own money (instead of using depositors' money) to make a profit for itself.

What is the difference between proprietary trading and trading? ›

Both proprietary trading firms and traditional trading offer opportunities for individuals to make profits from markets. Proprietary trading firms provide traders with access to capital, training, and support, while traditional traders have independence and control over their trading decisions.

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