presumption would raise costs, why, and to what extent? How could these
compliance costs be addressed or reduced?
    Question 305. What costs do commenters anticipate a banking entity
subject to presumed compliance would bear to respond to possible
questions from the Agencies about the banking entity's compliance with
the statute and the sections of the regulation that remain applicable
to it? In general, how and to what extent does a shifting of the burden
from banking entity to Agencies affect compliance costs? What steps
could the Agencies take to appropriately reduce compliance burdens in
this regard--especially for banking entities that engage in less
trading activity?
    The Agencies are also proposing two changes related to the 2013
final rule's definition of ``trading account'' that are expected to
simplify the analysis associated with determining whether or not a
banking entity's purchase or sale of a financial instrument is for the
trading account, and thereby are expected to reduce the costs
associated with complying with the rule. Specifically, the Agencies are
proposing to add an accounting prong to the definition of ``trading
account'' and to remove the short-term intent prong and the 60-day
rebuttable presumption. The Agencies expect that the removal of the
short-term intent prong will substantially reduce the costs of
complying with the rule.
    In the case of the short-term intent prong and the 60-day
rebuttable presumption, the Agencies' experience with implementing the
2013 final rule strongly suggests that application of the short-term
intent prong resulted in a variety of analyses to determine if a
financial position was taken with the ``intent'' of generating short-
term profits, or benefitting from short-term price movements. Assessing
intent is qualitative and can be subject to significant interpretation.
Accordingly, experience suggests that banking entities engage in a
number of lengthy analyses to determine whether or not a financial
position needs to be included in the trading account, and that these
analyses may not always result in a clear indication.
    In the case of the 60-day rebuttable presumption, the Agencies'
experience suggests that the 60-day rebuttable presumption may be an
overly inclusive instrument to determine whether a financial instrument
is in the trading account. Many financial positions are scoped into the
trading account automatically due to the 60-day presumption, and
banking entities routinely conduct detailed and lengthy assessments of
transactions to document that these positions should not be included in
the trading account. However, experience indicates that there is no
clear set of analyses that may be conducted to rebut the presumption
and a clear standard for successfully rebutting the presumption has
been difficult to establish in practice. Accordingly, the Agencies
expect that removing the 60-day rebuttable presumption would materially
reduce the costs associated with complying with the rule and
determining whether a financial instrument is in the trading account.
    The Agencies expect that this proposal would reduce the costs of
rule compliance since banking entities are already familiar with
accounting standards and use these standards to classify financial
instruments on a regular basis to satisfy reporting and related
requirements. The Agencies would expect that no new compliance costs
would result from using accounting concepts that are already familiar
to banking entities for purposes of identifying activity in the trading
account.
    The Agencies are also proposing to include a presumption of
compliance for trading desks, the positions of which are included in
the trading account due to the accounting prong, so long as the profit
and loss of the desk does not exceed a certain threshold. Specifically,
the trading activity conducted by a trading desk is presumed to be in
compliance with the prohibition on proprietary trading if (i) none of
the financial instruments of the desk are included in the trading
account pursuant to the market risk capital prong, (ii) none of the
financial instruments of the desk are booked in a dealer, swap dealer,
or security-based swap dealer, and (iii) the sum over the preceding 90-
calendar-day period of the absolute values of the daily net realized
and unrealized gains and losses of the desk's portfolio of financial
instruments does not exceed $25 million. Banking entities and
supervisors will only need to consider cases in which the size of
trading activity exceeds the $25 million threshold for these desks.
Moreover, this analysis draws on profit and loss metrics that banking
entities already regularly maintain and consequently would not be
expected to contribute to any increased regulatory costs.
    The Agencies recognize that implementing the new definition of
``trading account'' and the presumption of compliance would result in
some amount of compliance costs. However, the Agencies expect that the
compliance costs associated with this new definition and presumption of
compliance would be significantly less than the compliance costs of
either the short-term intent prong or the 60-day rebuttable
presumption. As noted above, the new trading account definition ties to
accounting concepts that are already familiar to banking entities.
Similarly, the new presumption of compliance ties to profit and loss
metrics that banking entities already maintain. As such, the Agencies
expect that the new trading account definition and the presumption of
compliance would materially reduce the costs of rule compliance
relative to the 2013 final rule's existing requirements.
    Question 306. Do commenters believe that the proposed changes to
the trading account definition would materially reduce costs associated
with rule compliance relative to the final rule? Why or why not?
    Question 307. Do commenters have any specific data or information
that could be used to quantify the extent to which such costs would be
reduced under the proposal?
    Question 308. Do commenters believe that any aspect of the proposed
changes to the trading account definition increase the costs associated
with rule compliance? If so, which aspects of the proposed changes
raise costs, why, and to what extent?
    As described in section 1(d)(3) of this Supplementary Information,
the Agencies are proposing a specific alternative to allow banking
entities to define trading desks in a manner consistent with their own
internal business unit organization. The Agencies request comment
regarding the relative costs and benefits of this possible alternative.
    Question 309. Do commenters believe that the relative benefits of
the definition of ``trading desk'' in the current 2013 final rule
outweigh any

potential cost reductions for banking entities under the alternative?
    Question 310. Do commenters have any specific data or information
that could be used to quantify the extent to which such costs would be
reduced?
    Question 311. Do commenters think that any aspect of the proposed
changes to the trading desk definition increases the regulatory burden
associated with rule compliance? If so which aspects of the proposed
changes raise the regulatory burden, why, and to what extent?
    A key statutory exemption from the prohibition on proprietary
trading is the exemption for underwriting. The 2013 final rule contains
a number of complex requirements that are intended to ensure that
banking entities comply with the underwriting exemption and that
proprietary trading activity is not conducted under the guise of
underwriting. Since adoption of the 2013 final rule, banking entities
have communicated to the Agencies that complying with all of the 2013
final rule's underwriting requirements can be difficult and costly
relative to the underlying activities. In particular, banking entities
have communicated that they believe they must engage in a number of
complex and intensive analyses to gain comfort that their underwriting
activities meets all of the 2013 final rule's requirements. Moreover,
banking entities have communicated that they find the requirements of
the 2013 final rule ambiguous to apply in practice and do not provide
sufficiently bright-line conditions under which trading activity can
clearly be classified as permissible underwriting.
    The Agencies are proposing to establish the articulation and use of
internal risk limits as a key mechanism for conducting trading activity
in accordance with the underwriting exemption. These risk limits would
be established by the banking entity at the trading desk level and
designed not to exceed the reasonably expected near term demands of
clients, customers, or counterparties. The proposed risk limits would
not be required to be based on any specific or mandated analysis.
Rather, a banking entity would be permitted to establish the risk
limits according to its own internal analyses and processes around
conducting its underwriting activities. Banking entities would be
expected to maintain internal policies and procedures for setting and
reviewing desk-level risk limits in a manner consistent with the
applicable statutory factor. A banking entity's risk limits would be
subject to general supervisory review and oversight, but the limit-
setting process would not be required to adhere to specific, pre-
defined requirements beyond adherence to the banking entity's own
ongoing and internal assessment of the reasonably expected near-term
demands of clients, customers, or counterparties. So long as a banking
entity maintains an ongoing and consistent process for setting such
limits in accordance with the proposal, then the Agencies anticipate
that trading activity conducted within the limits would generally be
presumed to be underwriting.
    The Agencies expect that the proposed reliance on risk limits to
satisfy the underwriting exemption will materially reduce the costs of
complying with the final rule's underwriting exemption. In particular,
the limit-setting process is intended to leverage a banking entity's
existing internal risk management and capital allocation processes, and
would not be required to conform to any specific or pre-defined
requirements other than being set in accordance with RENTD. The
Agencies expect that reliance on risk limits would therefore align with
the firm's internal policies and procedures for conducting underwriting
in a manner consistent with the requirements of section 13 of the BHC
Act. Accordingly, the Agencies expect that this proposed approach would
generally be more efficient and less costly than the practices required
by the 2013 final rule as they rely to a greater extent on the banking
entity's own internal policies, procedures, and processes.
    Question 312. The Agencies are also proposing to further tailor the
requirements for banking entities with moderate trading activities and
liabilities. In particular, the compliance program requirements that
are part of the underwriting exemption would not apply to these firms.
Do commenters believe that the proposed changes related to the use of
risk limits in satisfying the underwriting exemption would materially
reduce the costs associated with rule compliance relative to the 2013
final rule?
    Question 313. Do commenters believe there are any benefits of the
approach in the 2013 final rule that would be forgone with the proposed
changes related to the use of risk limits in satisfying the
underwriting exemption?
    Question 314. Do commenters have any specific data or information
that could be used to quantify the extent to which such costs are
reduced?
    Question 315. Do commenters believe that any aspect of the proposed
changes related to the use of risk limits in satisfying the
underwriting exemption increases the costs associated with rule
compliance? If so which aspects of the proposed changes raise
compliance costs, why, and to what extent?
    Question 316. Do commenters believe that the proposed changes
related to the reduced compliance program requirements for banking
entities with moderate trading assets and liabilities to satisfy the
underwriting exemption would materially reduce the costs associated
with rule compliance relative to the 2013 final rule?
    Question 317. Do commenters believe there are any benefits to the
approach in the 2013 final rule that would be forgone with the proposed
changes related to the compliance requirements in satisfying the
underwriting exemption?
    Question 318. Do commenters have any specific data or information
that could be used to quantify the extent to which such costs are
reduced?
    Question 319. Do commenters think that any aspect of the proposed
changes related to the use of compliance program requirements in
satisfying the underwriting exemption would increase the costs
associated with rule compliance? If so, which aspects of the proposed
changes would increase compliance costs, why, and to what extent?
    Another key statutory exemption from the prohibition on proprietary
trading is the exemption for market making. The 2013 final rule
contains a number of complex requirements that are intended to ensure
that proprietary trading activity is not conducted under the guise of
market making. Since adoption of the 2013 final rule, banking entities
have communicated that complying with all of the 2013 final rule's
market making requirements can be difficult and costly. In particular,
banking entities have communicated that they believe they must engage
in a number of complex and intensive analyses to gain comfort that
their bona fide market making activity meets all of the 2013 final
rule's requirements. Moreover, banking entities have communicated that
they view the requirements of the 2013 final rule as ambiguous and not
providing sufficiently bright-line conditions under which trading
activity can clearly be classified as permissible market making.
    The Agencies are proposing to establish the articulation and use of
internal risk limits as the key mechanism for conducting trading
activity in accordance with the rule's exemption for market making-
related activities. These risk limits would be established by the
banking entity at the trading desk level and be designed not to exceed
the reasonably expected near

term demands of clients, customers, or counterparties. Banking entities
would be expected to maintain internal policies and procedures for
setting and reviewing desk-level risk limits in a manner consistent
with the applicable statutory factor. Moreover, the proposed risk
limits would not be required to be based on any specific or mandated
analysis. Rather, a banking entity would be permitted to establish the
risk limits according to its own internal analyses and processes around
conducting its market making activities as market making is defined by
the applicable statutory factor. A banking entity's risk limits would
be subject to supervisory review and oversight, but the limit-setting
process would not be required to adhere to any specific, pre-defined
requirements beyond adherence to the banking entity's own ongoing and
internal assessment of the reasonably expected near-term demand of
clients, customers, or counterparties. So long as a banking entity
maintains an ongoing and consistent process for setting such limits in
accordance with the proposal, then the Agencies anticipate that trading
activity conducted within the limits would generally be presumed to be
market making.
    The Agencies expect that the proposed reliance on internal risk
limits to satisfy the statutory requirement that market making-related
activities be designed not to exceed the reasonably expected near term
demands of clients, customers, or counterparties would materially
reduce the costs of complying with the 2013 final rule's market making
exemption. In particular, the limit-setting process would be intended
to leverage a banking entity's existing internal risk management and
capital allocation processes and would not be required to conform to
specific or pre-defined requirements. The Agencies expect that reliance
on risk limits would therefore align with the firm's internal policies
and procedures for conducting market making in a manner consistent with
the requirements of section 13 of the BHC Act. Accordingly, the
agencies expect that this proposed approach would generally be more
efficient and less costly than the practices required by the 2013 final
rule as they rely to a greater extent on the banking entity's own
internal policies, procedures, and processes.
    The Agencies are also proposing to further tailor the requirements
for banking entities with moderate trading activities and liabilities.
In particular, the compliance program requirements that are part of the
market making exemption would not apply to these firms.
    Question 320. Do commenters believe that the proposed changes
related to the use of risk limits in satisfying the market making
exemption would materially reduce the costs associated with rule
compliance relative to the 2013 final rule?
    Question 321. Do commenters believe there are any benefits of the
approach in the 2013 final rule that would be forgone with the proposed
changes related to the use of risk limits in satisfying the market
making exemption?
    Question 322. Do commenters have any specific data or information
that could be used to quantify the extent to which such costs are
reduced?
    Question 323. Do commenters believe that any aspect of the proposed
changes related to the use of risk limits in satisfying the market
making exemption increases the costs associated with rule compliance?
If so, which aspects of the proposed changes raise compliance costs,
why, and to what extent?
    Question 324. Do commenters agree that the proposed changes related
to the reduced compliance program requirements for banking entities
with moderate trading assets and liabilities to satisfy the market
making exemption materially reduce the costs associated with rule
compliance relative to the 2013 final rule?
    Question 325. Do commenters believe there are any benefits of the
approach in the 2013 final rule that would be forgone with the proposed
changes related to the compliance requirements in satisfying the market
making exemption?
    Question 326. Do commenters have any specific data or information
that could be used to quantify the extent to which such costs are
reduced?
    Question 327. Do commenters believe that any aspect of the proposed
changes related to the use of risk limits in satisfying the market
making exemption increases the costs associated with rule compliance?
If so, which aspects of the proposed changes raise compliance costs,
why, and to what extent?
    The agencies are proposing a number of changes to the requirements
of the 2013 final rule's exemption for risk-mitigating hedging
activities that are expected to reduce the costs associated with
complying with the final rule's requirements.
    First, for banking entities with significant trading assets and
liabilities, the 2013 final rule's requirement in the risk mitigating
hedging exemption to conduct a correlation analysis would be removed.
Since adoption of the 2013 final rule, banking entities have
communicated that this requirement has in practice been unclear and
often not useful in determining whether or not a given transaction
provides meaningful hedging benefits. The Agencies expect that the
proposed removal of this requirement from the final rule would
materially reduce the costs of rule compliance since larger banking
entities would not be required to conduct a specific analysis that is
currently required under the 2013 final rule.
    Second, for these banking entities with significant trading assets
and liabilities, the Agencies are proposing that the requirement that
the hedging transaction ``demonstrably reduce (or otherwise
significantly mitigate)'' risk be removed. Banking entities have
communicated that these requirements can be unclear and these banking
entities must often engage in a number of complex and time-intensive
analyses to assess whether these standards have been met. Moreover, the
above hedging standards have not aligned well with banking entities'
internal processes for assessing the economic value of a hedging
transaction. Accordingly, the Agencies expect that eliminating these
requirements would materially reduce the costs associated with
complying with the requirements of the rule's hedging exemption.
    Third, for banking entities with moderate trading assets and
liabilities, the Agencies are proposing to remove all of the hedging
requirements under the 2013 final rule except for the requirement that
the transaction be designed to reduce or otherwise significantly
mitigate one or more specific, identifiable risks in connection with
and related to one or more identified positions and that the hedging
activity be recalibrated to maintain compliance with the rule. The
Agencies expect this proposed change to materially reduce the costs of
rule compliance since no additional documentation or prescribed
analyses would be required beyond a banking entity's already existing
practices and whatever analyses are required to ascertain that the
remaining factors are satisfied, consistent with the statute. In light
of Agency experience with the hedging requirements of the 2013 final
rule, the Agencies expect that this proposed change would result in a
material reduction in the costs associated with complying with the
rule's hedging requirements.
    Question 328. Do commenters believe that the proposed changes that
streamline the hedging requirements of the rule materially reduce the
costs associated with rule compliance relative to the 2013 final rule?

    Question 329. Do commenters have any specific data or information
that could be used to quantify the extent to which such costs are
reduced?
    Question 330. Do commenters believe that any aspect of the proposed
changes to streamline the hedging requirements of the rule increases
the costs associated with rule compliance? If so, which aspects of the
proposed changes raise costs, why, and to what extent?
    The Agencies are proposing to eliminate a number of requirements
related to the foreign trading exemption. These proposed changes are
intended to respond to concerns raised by FBOs subject to the 2013
final rule that they find its foreign trading exemption to be difficult
to comply with in practice.
    The Agencies are proposing to modify the requirement of this
exemption that personnel of the banking entity who arrange, negotiate,
or execute a purchase or sale must be outside the United States and to
eliminate the requirements that: (1) No financing be provided by a U.S.
affiliate or branch, and (2) a transaction with a U.S. counterparty
must be executed through an unaffiliated intermediary and an anonymous
exchange.
    The Agencies expect that the modification and removal of these
requirements would materially reduce the compliance costs associated
with the foreign trading exemption.
    In addition, banking entities have communicated that the
requirement that any transaction with a U.S. counterparty be executed
without involvement of U.S. personnel of the counterparty or through an
unaffiliated intermediary and an anonymous exchange may in some cases
significantly reduce the range of counterparties with which
transactions can be conducted as well as increase the cost of those
transactions, including with respect to counterparties seeking to do
business with a foreign banking entity in foreign jurisdictions.
Therefore, the Agencies also expect that removing this requirement
would materially reduce the costs associated with rule compliance.
    Question 331. Do commenters believe that the proposed changes to
modify and eliminate certain requirements from the foreign trading
exemption would materially reduce the regulatory burden associated with
rule compliance relative to the 2013 final rule?
    Question 332. Do commenters have any specific data or information
that could be used to quantify the extent to which such costs are
reduced?
    Question 333. Do commenters believe that any aspect of the proposed
changes to eliminate certain requirements from the foreign trading
exemption increases the costs associated with rule compliance? If so
which aspects of the proposed changes raise costs, why, and to what
extent?
    The Agencies are proposing to make a number of changes to the
metrics reporting requirements that are intended to improve the
effectiveness of the metrics. On the whole, these changes are also
expected to reduce the compliance costs associated with the metrics
reporting requirements. In particular, the Agencies are proposing to
add qualitative information schedules that would improve the Agencies'
ability to understand and analyze the quantitative measurements. The
Agencies are also proposing to remove certain metrics, such as
inventory aging for derivatives and stressed value-at-risk for risk
mitigating hedging desks, that based on experience with implementing
the 2013 final rule, are not effective for identifying whether a
banking entity's trading activity is consistent with the requirements
of the 2013 final rule. In addition, the Agencies are proposing to
switch to a standard XML format for the metrics data file. The Agencies
expect this to improve consistency and data quality by both clarifying
the format specification and making it possible to check the validity
of data files against a published template using generally available
software. Finally, the Agencies are proposing to make a number of
changes to the technical calculation guidance for a number of metrics
that should make the required calculations clearer and less
complicated.
    The Agencies are also proposing to provide certain banking entities
that must report metrics with additional time to report metrics.
Specifically, the firms with $50 billion in trading assets and
liabilities would have 20 days instead of 10 days to report metrics to
the Agencies. This change is expected to reduce compliance costs as the
additional time would allow the required workflow to be conducted under
less time pressure and with greater efficiency and accuracy.
    Question 334. Do commenters believe that the proposed changes to
the metrics reporting requirements would materially reduce the costs
associated with rule compliance relative to the 2013 final rule?
    Question 335. Do commenters have any specific data or information
that could be used to quantify the extent to which such costs are
reduced?
    Question 336. Do commenters believe that any aspect of the proposed
changes to the metrics reporting requirements would increase the costs
associated with rule compliance? If so, which aspects of the proposed
changes increase costs, why, and to what extent?
    The Agencies are proposing to modify certain requirements regarding
the ability of banking entities to engage in underwriting and market-
making of third-party covered funds that would remove some of the
restrictions on activities with respect to covered fund interests. The
Agencies expect that this proposed change would reduce the costs of
compliance with the 2013 final rule's requirements. In particular, the
2013 final rule places a number of restrictions on underwriting and
market-making of covered fund interests that banking entities have
indicated are costly to comply with and view as unduly limiting
activity that is otherwise consistent with bona fide underwriting and
market-making activity that would be allowed with respect to any other
type of financial instrument, consistent with the statutory factors
defining these activities.
    Question 337. Do commenters believe that the proposed changes to
certain restrictions on covered fund related activities would
materially reduce the costs associated with rule compliance relative to
the 2013 final rule?
    Question 338. Do commenters have any specific data or information
that could be used to quantify the extent to which such costs are
reduced?
    Question 339. Do commenters believe that any aspect of the proposed
changes to certain restrictions on covered fund related activities
would increase the costs associated with rule compliance? If so, which
aspects of the proposed changes would raise costs, why, and to what
extent?
    The Agencies are proposing several changes to the required
compliance program requirements that are expected to materially reduce
the costs associated with complying with the rule's requirements.
Specifically, banking entities with significant trading assets and
liabilities would only need to maintain a standard six-pillar
compliance program (i.e., written policies and procedures, internal
controls, management framework, independent testing, training, and
records) and would not be required to maintain most aspects of the
enhanced compliance program that is required by the 2013 final rule for
such large banking entities. Agency experience with implementing the
2013 final rule indicates that the operation of the 2013 final rule's
enhanced compliance program can be costly and unrelated to other
compliance efforts that these banking entities routinely conduct.
Accordingly, eliminating this requirement would be expected to

materially reduce the costs of complying with the rule.
    In the case of banking entities with moderate trading assets and
liabilities, these banking entities would only be required to maintain
the simplified compliance program that is described in the 2013 final
rule. Namely, these entities would only be required to update their
existing compliance policies and procedures and would not be required
to maintain a standard six-pillar compliance program as is required
under the 2013 final rule. Since the simplified compliance program is
much less intensive and costly to implement than the standard six-
pillar compliance program, the Agencies expect that this proposed
change would materially reduce the costs associated with complying with
the 2013 final rule's compliance program requirements for these smaller
banking entities.
    Question 340. Do commenters agree that the proposed changes to the
compliance program requirements would materially reduce the costs
associated with rule compliance relative to the 2013 final rule?
    Question 341. Do commenters have any specific data or information
that could be used to quantify the extent to which such costs are
reduced?
    Question 342. Do commenters believe that any aspect of the proposed
changes to the compliance program requirements increases the costs
associated with rule compliance? If so which aspects of the proposed
changes would raise costs, why, and to what extent?
    The above discussion outlines the Agencies' views on the most
significant sources of cost reduction that arise from this proposal. At
the same time, the Agencies are aware that there may be other aspects
of the proposal that commenters view as either decreasing or increasing
costs associated with the 2013 final rule. Accordingly, the Agencies
seek broad comment on any other aspects of the proposal that would
either increase or decrease the costs associated with the rule.
Commenters are encouraged to be specific and to provide any data or
information that would help demonstrate their views as well as
potential ways to mitigate costs.

V. Administrative Law Matters

A. Solicitation of Comments on Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113
Stat. 1338, 1471, 12 U.S.C. 4809), requires the Federal banking
agencies to use plain language in all proposed and final rules
published after January 1, 2000. The Federal banking agencies have
sought to present the proposal in a simple and straightforward manner,
and invite your comments on how to make this proposal easier to
understand.
    For example:
     Have the agencies organized the material to suit your
needs? If not, how could this material be better organized?
     Are the requirements in the proposal clearly stated? If
not, how could the proposal be more clearly stated?
     Does the proposal contain language or jargon that is not
clear? If so, which language requires clarification?
     Would a different format (e.g., grouping and order of
sections, use of headings, paragraphing) make the proposal easier to
understand? If so, what changes to the format would make the proposal
easier to understand?
     Would more, but shorter, sections be better? If so, which
sections should be changed?
     What else could the agencies do to make the regulation
easier to understand?

B. Paperwork Reduction Act Analysis Request for Comment on Proposed
Information Collection

    Certain provisions of the proposed rule contain ``collection of
information'' requirements within the meaning of the Paperwork
Reduction Act (PRA) of 1995 (44 U.S.C. 3501-3521). In accordance with
the requirements of the PRA, the agencies may not conduct or sponsor,
and a respondent is not required to respond to, an information
collection unless it displays a currently valid Office of Management
and Budget (OMB) control number. The agencies reviewed the proposed
rule and determined that the proposed rule revises certain reporting
and recordkeeping requirements that have been previously cleared under
various OMB control numbers. The agencies are proposing to extend for
three years, with revision, these information collections. The
information collection requirements contained in this joint notice of
proposed rulemaking have been submitted by the OCC and FDIC to OMB for
review and approval under section 3507(d) of the PRA (44 U.S.C.
3507(d)) and section 1320.11 of the OMB's implementing regulations (5
CFR 1320). The Board reviewed the proposed rule under the authority
delegated to the Board by OMB. The Board will submit information
collection burden estimates to OMB and the submission will include
burden for Federal Reserve-supervised institutions, as well as burden
for OCC-, FDIC-, SEC-, and CFTC-supervised institutions under a holding
company. The OCC and the FDIC will take burden for banking entities
that are not under a holding company.
    Comments are invited on:
    a. Whether the collections of information are necessary for the
proper performance of the agencies' functions, including whether the
information has practical utility;
    b. The accuracy of the estimates of the burden of the information
collections, including the validity of the methodology and assumptions
used;
    c. Ways to enhance the quality, utility, and clarity of the
information to be collected;
    d. Ways to minimize the burden of the information collections on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
    e. Estimates of capital or startup costs and costs of operation,
maintenance, and purchase of services to provide information.
    All comments will become a matter of public record. Comments on
aspects of this notice that may affect reporting, recordkeeping, or
disclosure requirements and burden estimates should be sent to the
addresses listed in the ADDRESSES section. A copy of the comments may
also be submitted to the OMB desk officer for the Agencies by mail to
U.S. Office of Management and Budget, 725 17th Street NW, #10235,
Washington, DC 20503, by facsimile to<PHONE_NUMBER>, or by email to
[email protected], Attention, Commission and Federal Banking
Agency Desk Officer.
Abstract
    Section 619 of the Dodd-Frank Act added section 13 to the BHC Act,
which 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 covered
fund, subject to certain exemptions. The exemptions allow certain types
of permissible trading activities such as underwriting, market making,
and risk-mitigating hedging, among others. Each agency issued a common
final rule implementing section 619 that became effective on April 1,
2014. Section __.20(d) and Appendix A of the final rule require certain
of the largest banking entities to report to the appropriate agency
certain quantitative measurements.
Current Actions
    The proposed rule contains requirements subject to the PRA and the
changes relative to the current final rule are discussed herein. The
new and modified reporting requirements are

found in sections __.3(c), __.3(g), __.4(a)(8)(iii), __.4(a)(8)(iv),
__.4(b)(6)(iii), __.4(b)(6)(iv), __.20(d), and __.20(g)(3). The
modified recordkeeping requirements are found in sections __.5(c),
__.20(b), __.20(c), __.20 (d), __.20(e), and __.20(f)(2). The modified
information collection requirements \260\ would implement section 619
of the Dodd-Frank Act. The respondents are for-profit financial
institutions, including small businesses. A covered entity must retain
these records for a period that is no less than 5 years in a form that
allows it to promptly produce such records to the relevant Agency on
request.
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    \260\ In an effort to provide transparency, the total cumulative
burden for each agency is shown. In addition to the changes
resulting from the proposed rule, the agencies are also applying a
conforming methodology for calculating the burden estimates in order
to be consistent across the agencies.
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Reporting Requirements
    Section __.3(c) would require that under the revised short-term
prong, certain banking entities to report to the appropriate agency
when a trading desk exceeds $25 million in absolute values of the daily
net realized and unrealized gain and loss over the preceding 90 day
period if the banking entity chooses to perform this calculation for a
trading desk in order to meet the presumption of compliance. The
agencies estimate that the new reporting requirement would be collected
twice a year with an average hour per response of 1 hour.
    Section __.3(g) would require that notice and response procedures
be followed under the reservation of authority provision. The agencies
estimate that the new reporting requirement would be collected once a
year with an average hours per response of 2 hours.
    Sections __.4(a)(8)(iii) and __.4(b)(6)(iii) would require that
banking entities report to the appropriate agency when their internal
risk limits under the RENTD framework for market-making and
underwriting have been exceeded. These reporting requirements would be
included in the section __.20(d) reporting requirements.
    Section __.20(d) would be modified by extending the reporting
period for banking entities with $50 billion or more in trading assets
and liabilities from within 10 days of the end of each calendar month
to 20 days of the end of each calendar month. The agencies estimate
that the current average hours per response would decrease by 14 hours
(decrease 40 hours for initial set-up).
    Sections __.3(c)(2), __.3(g)(2), __.4(a)(8)(iv), __.4(b)(6)(iv),
and __.20(g)(3) would set forth proposed notice and response procedures
that an agency would follow when exercising its reservation of
authority to modify what is in or out of the trading account. These
reporting requirements would be included in the section __.3(c)
reporting requirements for section __.3(c)(2); the section __.3(g)
reporting requirements for section __.3(g)(2); and the section __.20(d)
reporting requirements for section __.4(a)(8)(iv), __.4(b)(6)(iv), and
__.20(g)(3).
Recordkeeping Requirements
    Section __.5(c) would be modified by reducing the requirements for
banking entities that do not have significant trading assets and
liabilities and eliminating documentation requirements for certain
hedging activities. The agencies estimate that the current average
hours per response would decrease by 20 hours (decrease 10 hours for
initial set-up).
    Section __.20(b) would be modified by limiting the requirement only
to banking entities with significant trading assets and liabilities.
The agencies estimate that the current average hour per response would
not change.
    Section __.20(c) would be modified by limiting the CEO attestation
requirement to a banking entity that has significant trading assets and
liabilities or moderate trading assets and liabilities. The agencies
estimate that the current average hours per response would decrease by
1,100 hours (decrease 3,300 hours for initial set-up).
    Section __.20(d) would be modified by extending the time period for
reporting for banking entities with $50 billion or more in trading
assets and liabilities from within 10 days of the end of each calendar
month to 20 days of the end of each calendar month. The agencies
estimate that the current average hours per response would decrease by
3 hours.
    Section __.20(e) would be modified by limiting the requirement to
banking entities with significant trading assets and liabilities. The
agencies estimate that the current average hours per response would not
change.
    Section __.20(f)(2) would be modified by limiting the requirement
to banking entities with moderate trading assets and liabilities. The
agencies estimate that the current average hours per response would not
change.
    The Instructions for Preparing and Submitting Quantitative
Measurement Information, Technical Specifications Guidance, and XML
Schema are available for review on each agency's public website:
     OCC: http://www.occ.treas.gov/topics/capital-markets/financial-markets/trading/volcker-rule-implementation/index-volcker-rule-implementation.html;
     Board: https://www.federalreserve.gov/apps/reportforms/review.aspx;
     FDIC: https://www.fdic.gov/regulations/reform/volcker/index.html;
     CFTC: https://www.cftc.gov/LawRegulation/DoddFrankAct/Rulemakings/DF_28_VolckerRule/index.htm;
     SEC: https://www.sec.gov/structureddata/dera_taxonomies.
Proposed Revision, With Extension, of the Following Information
Collections
    Estimated average hours per response:
    Reporting
    Section __.3(c)--1 hour for an average of 2 times per year.
    Section __.3(g)--2 hours.
    Section __.12(e)--20 hours (Initial set-up 50 hours) for an average
of 10 times per year.
    Section __.20(d)--41 hours (Initial set-up 125 hours) for quarterly
and monthly filers.
    Recordkeeping
    Section __.3(e)(3)--1 hour (Initial set-up 3 hours).
    Section __.4(b)(3)(i)(A)--2 hours for quarterly filers.
    Section __.5(c)--80 hours (Initial setup 40 hours).
    Section __.11(a)(2)--10 hours.
    Section __.20(b)--265 hours (Initial set-up 795 hours).
    Section __.20(c)--100 hours (Initial set-up 300 hours).
    Section __.20(d) (entities with $50 billion or more in trading
assets and liabilities)--13 hours.
    Section __.20(d) (entities with at least $10 billion and less than
$50 billion in trading assets and liabilities)--10 hours.
    Section __.20(e)--200 hours.
    Section __.20(f)(1)--8 hours.
    Section __.20(f)(2)--40 hours (Initial set-up 100 hours).
Disclosure
    Section __.11(a)(8)(i)--0.1 hours for an average of 26 times per
year.
OCC
    Title of Information Collection: Reporting, Recordkeeping, and
Disclosure Requirements Associated with Restrictions on Proprietary
Trading and Certain Relationships with Hedge Funds and Private Equity
Funds.
    Frequency: Annual, monthly, quarterly, and on occasion.

    Affected Public: Businesses or other for-profit.
    Respondents: National banks, state member banks, state nonmember
banks, and state and federal savings associations.
    OMB control number: 1557-0309.
    Estimated number of respondents: 38.
    Proposed revisions estimated annual burden: -469 hours.
    Estimated annual burden hours: 20,712 hours (1,784 hour for initial
set-up and 18,928 hours for ongoing).
Board
    Title of Information Collection: Reporting, Recordkeeping, and
Disclosure Requirements Associated with Regulation VV.
    Frequency: Annual, monthly, quarterly, and on occasion.
    Affected Public: Businesses or other for-profit.
    Respondents: State member banks, bank holding companies, savings
and loan holding companies, foreign banking organizations, U.S. State
branches or agencies of foreign banks, and other holding companies that
control an insured depository institution and any subsidiary of the
foregoing other than a subsidiary for which the OCC, FDIC, CFTC, or SEC
is the primary financial regulatory agency. The Board will take burden
for all institutions under a holding company including:
     OCC-supervised institutions,
     FDIC-supervised institutions,
     Banking entities for which the CFTC is the primary
financial regulatory agency, as defined in section 2(12)(C) of the
Dodd-Frank Act, and
     Banking entities for which the SEC is the primary
financial regulatory agency, as defined in section 2(12)(B) of the
Dodd-Frank Act.
    Legal authorization and confidentiality: This information
collection is authorized by section 13 of the Bank Holding Company Act
(BHC Act) (12 U.S.C. 1851(b)(2) and 12 U.S.C. 1851(e)(1)). The
information collection is required in order for covered entities to
obtain the benefit of engaging in certain types of proprietary trading
or investing in, sponsoring, or having certain relationships with a
hedge fund or private equity fund, under the restrictions set forth in
section 13 and the final rule. If a respondent considers the
information to be trade secrets and/or privileged such information
could be withheld from the public under the authority of the Freedom of
Information Act (5 U.S.C. 552(b)(4)). Additionally, to the extent that
such information may be contained in an examination report such
information could also be withheld from the public (5 U.S.C. 552
(b)(8)).
    Agency form number: FR VV.
    OMB control number: 7100-0360.
    Estimated number of respondents: 41.
    Proposed revisions estimated annual burden: -51,219 hours.
    Estimated annual burden hours: 45,558 hours (1,784 hour for initial
set-up and 43,774 hours for ongoing).
FDIC
    Title of Information Collection: Volcker Rule Restrictions on
Proprietary Trading and Relationships with Hedge Funds and Private
Equity Funds.
    Frequency: Annual, monthly, quarterly, and on occasion.
    Affected Public: Businesses or other for-profit.
    Respondents: State nonmember banks, state savings associations, and
certain subsidiaries of those entities.
    OMB control number: 3064-0184.
    Estimated number of respondents: 53.
    Proposed revisions estimated annual burden: -10,305 hours.
    Estimated annual burden hours: 10,632 hours (1,784 hours for
initial set-up and 8,848 hours for ongoing).

C. Initial Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act (``RFA'') \261\ requires an agency
to either provide an initial regulatory flexibility analysis with a
proposal or certify that the proposal will not have a significant
economic impact on a substantial number of small entities. The U.S.
Small Business Administration (``SBA'') establishes size standards that
define which entities are small businesses for purposes of the
RFA.\262\ Except as otherwise specified below, the size standard to be
considered a small business for banking entities subject to the
proposal is $550 million or less in consolidated assets.\263\ The
Agencies are separately publishing initial regulatory flexibility
analyses for the proposals as set forth in this NPR.
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    \261\ 5 U.S.C. 601 et seq.
    \262\ U.S. SBA, Table of Small Business Size Standards Matched
to North American Industry Classification System Codes, available at
https://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf.
    \263\ See id. Pursuant to SBA regulations, the asset size of a
concern includes the assets of the concern whose size is at issue
and all of its domestic and foreign affiliates. 13 CFR 121.103(6).
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Board
    The Board has considered the potential impact of the proposed rule
on small entities in accordance with the RFA. Based on the Board's
analysis, and for the reasons stated below, the Board believes that
this proposed rule will not have a significant economic impact on a
substantial of number of small entities. Nevertheless, the Board is
publishing and inviting comment on this initial regulatory flexibility
analysis. A final regulatory flexibility analysis will be conducted
after comments received during the public comment period have been
considered.
    The Board welcomes comment on all aspects of its analysis. In
particular, the Board requests that commenters describe the nature of
any impact on small entities and provide empirical data to illustrate
and support the extent of the impact.
1. Reasons for the Proposal
    As discussed in the SUPPLEMENTARY INFORMATION, the Agencies are
proposing to revise the 2013 final rule in order to provide clarity to
banking entities about what activities are prohibited, reduce
compliance costs, and improve the ability of the Agencies to make
supervisory assessments regarding compliance relative to the 2013 final
rule. To minimize the costs associated with the 2013 final rule in a
manner consistent with section 13 of the BHC Act, the Agencies are
proposing to simplify and tailor the rule in a manner that would
substantially reduce compliance costs for all banking entities and, in
particular, small banking entities and banking entities without
significant trading operations.
2. Statement of Objectives and Legal Basis
    As discussed above, the Agencies' objective in proposing this rule
is to reduce the compliance costs for all banking entities and, in
particular, to tailor the rule based on the size of the banking entity
and the complexity of its trading operations. The Agencies are
explicitly authorized under section 13(b)(2) of the BHC Act to adopt
rules implementing section 13.\264\
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    \264\ 12 U.S.C. 1851(b)(2).
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3. Description of Small Entities to Which the Regulation Applies
    The Board's proposal would apply to state-chartered banks that are
members of the Federal Reserve System (state member banks), bank
holding companies, foreign banking organizations, and nonbank financial
companies supervised by the Board (collectively, ``Board-regulated
banking entities''). However, the Board notes that the Economic Growth,
Regulatory Relief, and Consumer Protection Act,\265\ which was enacted
on May 24, 2018,

amends section 13 of the BHC Act by narrowing the definition of banking
entity. Accordingly, no small top-tier bank holding company would meet
the threshold criteria for application of the provisions provided in
this proposal and, therefore, the proposed amendments to the 2013 final
rule would not have a significant economic impact on a substantial
number of small entities.
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    \265\ Public Law 115-174, 132 Stat. 1296-1368 (2018).
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4. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
    The proposal would reduce reporting, recordkeeping, and other
compliance requirements for small entities. First, banking entities
with consolidated gross trading assets and liabilities below $10
billion would be subject to reduced requirements and a tailored
approach in light of their significantly smaller and less complex
trading activities. Second, in order to further reduce compliance
requirements for small and mid-sized banking entities, the Agencies
have proposed a rebuttable presumption of compliance for firms that do
not have consolidated gross trading assets and liabilities in excess of
$1 billion. All Board-regulated banking entities that meet the SBA
definition of small entities (i.e., those with consolidated assets of
$550 million or less) have consolidated gross trading assets and
liabilities below $1 billion and thus would be subject to the
presumption of compliance.
    As discussed in the SUPPLEMENTARY INFORMATION, the Agencies expect
that this rebuttable presumption of compliance would materially reduce
the costs associated with complying with the rule. As a result of this
presumed compliance, these banking entities would not be required to
comply with many of the rule's specific requirements to demonstrate
compliance, such as the documentation requirements associated with the
hedging exemption. Additionally, these entities would not be required
to specify and maintain trading risk limits to comply with the rule's
market making exemption. Accordingly, these smaller entities would
generally not be required to devote resources to demonstrate compliance
with any of the rule's requirements.
    Without this presumption of compliance, these banking entities
would generally be required to comply with the rule's applicable
substantive requirements to demonstrate compliance with the rule. As a
result, this proposed change is expected to meaningfully reduce the
costs associated with rule compliance for small banking entities. The
presumption would be rebuttable, so a banking entity would need to
maintain a certain level of resources to respond to supervisory
requests for information in the event that the presumption of
compliance is rebutted; however, the Agencies would not expect these
banking entities to maintain anything other than what they would
normally maintain in the ordinary course. The amount of resources
required for such purposes is expected to be significantly smaller than
the amount of resources that would be required to maintain and execute
ongoing compliance with the 2013 final rule's requirements.
5. Identification of Duplicative, Overlapping, or Conflicting Federal
Regulations
    The Board has not identified any federal statutes or regulations
that would duplicate, overlap, or conflict with the proposed revisions.
6. Discussion of Significant Alternatives
    The Board believes the proposed amendments to the 2013 final rule
will not have a significant economic impact on small banking entities
supervised by the Board and therefore believes that there are no
significant alternatives to the proposal that would reduce the economic
impact on small banking entities supervised by the Board.
OCC
    The RFA, requires an agency, in connection with a proposed rule, to
prepare an Initial Regulatory Flexibility Analysis describing the
impact of the proposed rule on small entities, or to certify that the
proposed rule would not have a significant economic impact on a
substantial number of small entities. For purposes of the RFA, the SBA
defines small entities as those with $550 million or less in assets for
commercial banks and savings institutions, and $38.5 million or less in
assets for trust companies.
    The OCC currently supervises approximately 886 small entities.\266\
Pursuant to section 203 of the Economic Growth, Regulatory Relief, and
Consumer Protection Act (May 24, 2018), OCC-supervised institutions
with total consolidated assets of $10 billion or less are not ``banking
entities'' within the scope of Section 13 of the BHCA, if their trading
assets and trading liabilities do not exceed 5 percent of their total
consolidated assets, and they are not controlled by a company that has
total consolidated assets over $10 billion or total trading assets and
trading liabilities that exceed 5 percent of total consolidated assets.
The proposal may impact two OCC-supervised small entities, which is not
a substantial number. Therefore, the OCC certifies that the proposal
would not have a significant economic impact on a substantial number of
small entities.
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    \266\ The number of small entities supervised by the OCC is
determined using the SBA's size thresholds for commercial banks and
savings institutions, and trust companies, which are $550 million
and $38.5 million, respectively. Consistent with the General
Principles of Affiliation 13 CFR 121.103(a), the OCC counts the
assets of affiliated financial institutions when determining if we
should classify an OCC-supervised institution as a small entity. The
OCC used December 31, 2017, to determine size because a ``financial
institution's assets are determined by averaging the assets reported
on its four quarterly financial statements for the preceding year.''
See footnote 8 of the U.S. Small Business Administration's Table of
Size Standards.
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FDIC
a. Regulatory Flexibility Act
    The RFA, generally requires an agency, in connection with a
proposed rule, to prepare and make available for public comment an
initial regulatory flexibility analysis that describes the impact of a
proposed rule on small entities.\267\ However, a regulatory flexibility
analysis is not required if the agency certifies that the rule will not
have a significant economic impact on a substantial number of small
entities. The SBA has defined ``small entities'' to include banking
organizations with total assets of less than or equal to $550
million.\268\ As discussed further below, the FDIC certifies that this
proposed rule would not have a significant economic impact on a
substantial number of FDIC-supervised small entities.
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    \267\ 5 U.S.C. 601 et seq.
    \268\ 13 CFR 121.201 (as amended, effective December 2, 2014).
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b. Reasons for and Policy Objectives of the Proposed Rule
    The Agencies are issuing this proposal to amend the 2013 final rule
in order to provide banking entities with additional certainty and
reduce compliance obligations and costs where possible. The Agencies
acknowledge that many small banking entities have found certain aspects
of the 2013 final rule to be complex or difficult to apply in
practice.\269\ The proposed rule amends existing requirements in order
the make them more efficient. However, the proposed amendments do not
alter the Volcker Rule's existing restrictions on the ability of
banking entities to engage in proprietary trading and have

certain interests in, and relationships with, covered funds.
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    \269\ The FDIC has issued twenty-one FAQs since inception of the
2013 rule.
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c. Description of the Rule
    The Agencies are proposing to tailor the application of the 2013
final rule based on a banking entity's risk profile and the size and
scope of its trading activities. Second, the Agencies aim to further
streamline compliance obligations, particularly for entities without
large trading operations. Third, the agencies seek to streamline and
refine certain definitions and requirements related to the proprietary
trading prohibition and limitations on covered fund activities and
investments. Please refer to Section II: Overview of Proposal, for
further information.
d. Other Statutes and Federal Rules
    The FDIC has not identified any likely duplication, overlap, and/or
potential conflict between the proposed rule and any other federal
rule.
    On May 24, 2018, the Economic Growth, Regulatory Relief, and
Consumer Protection Act was enacted, which, among other things, amends
section 13 of the BHC Act. As a result, section 13 excludes from the
definition of banking entity any institution that, together with their
affiliates and subsidiaries, has: (1) Total assets of $10 billion or
less, and (2) trading assets and liabilities that comprise 5 percent or
less of total assets. This excludes every FDIC-supervised small entity
from the statutory definition of banking entity, except those that are
controlled by a company that is not excluded. The SBA has defined
``small entities'' to include banking organizations with total assets
less than or equal to $550 million.\270\
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    \270\ 13 CFR 121.201.
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e. Small Entities Affected
    The FDIC supervises 3,597 depository institutions,\271\ of which,
2,885 are defined as small entity.\272\ There are no FDIC-supervised
small entities that engage in significant or moderate trading of assets
and liabilities at the depository institution level.\273\ There are
only five FDIC-supervised small entities, which are controlled by
companies not excluded by section 13, as amended, that would be
required to implement compliance elements prescribed by the proposed
rule and would have compliance obligations under the proposed rule, of
which one is categorized as having ``significant'' trading, one is
categorized as having ``moderate'' trading and three are categorized as
having ``limited'' trading activity.\274\
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    \271\ FDIC-supervised institutions are set forth in 12 U.S.C.
1813(q)(2).
    \272\ FDIC Call Report, March 31, 2018.
    \273\ Based on data from the December 31, 2017 Call Reports and
Y9C reports. Top tier institutions that have a four-quarter average
trading assets and liabilities, excluding U.S. treasuries and
obligations or guarantees of government agencies, exceeding $10
billion have ``significant'' trading activity while those between $1
billion and $10 billion have ``moderate'' trading activity and those
below $1 billion have ``limited'' trading activity.
    \274\ Id.
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f. Expected Effects of the Proposed Rule
    The potential benefits of this proposed rule consist of any
reduction in the regulatory costs borne by covered entities. The
potential costs of this rule consist of any reduction in the efficacy
of the objectives in the existing regulatory framework. As explained in
the following sections, certain of these potential costs and benefits
are difficult to quantify.
1. Expected Costs
    By reducing the reporting requirements of the 2013 final rule,
there is a chance that the Agencies would fail to recognize prohibited
proprietary trading, resulting in additional risk of loss to an
institution, the Deposit Insurance Fund (DIF), the financial sector,
and the economy. The FDIC believes the potential costs associated with
these risks are minimal. First, the reporting metrics that would be
removed or replaced by the proposed rule have contributed little as
indicators of risk, and there would be no cost associated with
replacing them. Second, the banking entities that would be relieved
from compliance requirements under section __.20 of the proposed rule
are primarily small entities that conduct limited to no trading
activity, and which are therefore excluded from Section 13 by the
Economic Growth, Regulatory Relief, and Consumer Protection Act. The
FDIC would maintain its ability to recognize and respond to potential
risks of prohibited activity by these small entities through off-site
monitoring of Call Reports as well as periodic on-site examinations.
The proposed rule has no additional or transition costs because the new
reporting metrics in the proposed rule consist of data that covered
entities already collect in the course of business and for regulatory
compliance.
2. Expected Benefits
    The potential benefits of the proposed rule can be expressed in
terms of the potential reduction in the costs of compliance incurred by
small, FDIC-supervised affected banking entities under the proposed
rule. These benefits cannot be quantified because covered institutions
do not collect data and report to the FDIC the precise burden relating
to parts of the 2013 final rule. Nevertheless, supervisory experience
and feedback received from FDIC-supervised banking entities have
demonstrated that these burdens exist. The proposed rule clarifies many
requirements and definitions that are expected to enable banking
entities to more efficiently and effectively comply with the rule, thus
providing benefits to those entities.
g. Alternatives Considered
    The primary alternative to the proposed rule is to maintain the
status quo under the 2013 final rule. As discussed above, however, the
proposed rule implements the statutory requirements, but is expected to
provide more certainty and result in lower costs.
    The proposed rule also seeks public comment on alternative
regulatory approaches that would reduce the compliance burden of the
2013 final rule without reducing its effectiveness in eliminating the
moral hazard of proprietary trading.
h. Certification Statement
    Section 13, as amended, exempts almost all of the FDIC-supervised
small institutions from compliance with the Volcker Rule. The proposed
rule provides benefits to the remaining five FDIC-supervised small
institutions with parent companies subject to the rule. Therefore, the
FDIC certifies that this proposed rule will not have a significant
economic impact on a substantial number of FDIC-supervised small
entities.\275\
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    \275\ Notwithstanding S.2155, the rule does provide benefits to
a substantial number of moderate sized banks above $550 million in
total assets and below $1 billion in trading assets and liabilities
as well as to large banks with very little trading activity.
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i. Request for Comments
    The FDIC invites comments on all aspects of the supporting
information provided in this RFA section. In particular, would this
rule have any significant effect on small entities that the FDIC has
not identified? If the proposed rule is implemented, how many hours of
burden would small institutions save?
SEC
    Pursuant to 5 U.S.C. 605(b), the SEC hereby certifies that the
proposed amendments to the 2013 final rule would not, if adopted, have
a significant economic impact on a substantial number of small
entities.
    As discussed in the Supplementary Information, the Agencies are
proposing

to revise the 2013 final rule in order to provide clarity to banking
entities about what activities are prohibited, reduce compliance costs,
and improve the ability of the Agencies to make assessments regarding
compliance relative to the 2013 final rule. To minimize the costs
associated with the 2013 final rule in a manner consistent with section
13 of the BHC Act, the Agencies are proposing to simplify and tailor
the rule in a manner that would substantially reduce compliance costs
for all banking entities and, in particular, small banking entities and
banking entities without significant trading operations.
    The proposed revisions would generally apply to banking entities,
including certain SEC-registered entities. These entities include bank-
affiliated SEC-registered broker-dealers, investment advisers, and
security-based swap dealers. Based on information in filings submitted
by these entities, the SEC preliminarily believes that there are no
banking entity registered investment advisers \276\ or broker-dealers
\277\ that are small entities for purposes of the RFA.\278\ For this
reason, the SEC believes that the proposed amendments to the 2013 final
rule would not, if adopted, have a significant economic impact on a
substantial number of small entities.
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    \276\ For the purposes of an SEC rulemaking in connection with
the RFA, an investment adviser generally is a small entity if it:
(1) Has assets under management having a total value of less than
$25 million; (2) did not have total assets of $5 million or more on
the last day of the most recent fiscal year; and (3) does not
control, is not controlled by, and is not under common control with
another investment adviser that has assets under management of $25
million or more, or any person (other than a natural person) that
had total assets of $5 million or more on the last day of its most
recent fiscal year. See 17 CFR 275.0-7.
    \277\ For the purposes of an SEC rulemaking in connection with
the RFA, a broker-dealer will be deemed a small entity if it: (1)
Had total capital (net worth plus subordinated liabilities) of less
than $500,000 on the date in the prior fiscal year as of which its
audited financial statements were prepared pursuant to 17 CFR
240.17a-5(d), or, if not required to file such statements, had total
capital (net worth plus subordinated liabilities) of less than
$500,000 on the last day of the preceding fiscal year (or in the
time that it has been in business, if shorter); and (2) is not
affiliated with any person (other than a natural person) that is not
a small business or small organization. See 17 CFR 240.0-10(c).
Under the standards adopted by the SBA, small entities also include
entities engaged in financial investments and related activities
with $38.5 million or less in annual receipts. See 13 CFR 121.201
(Subsector 523).
    \278\ Based on SEC analysis of Form ADV data, the SEC
preliminarily believes that there are not a substantial number of
registered investment advisers affected by the proposed amendments
that would qualify as small entities under RFA. Based on SEC
analysis of broker-dealer FOCUS filings and NIC relationship data,
the SEC preliminarily believes that there are no SEC-registered
broker-dealers affected by the proposed amendments that would
qualify as small entities under RFA. With respect to security-based
swap dealers, based on feedback from market participants and our
information about the security-based swap markets, the Commission
believes that the types of entities that would engage in more than a
de minims amount of dealing activity involving security-based
swaps--which generally would be large financial institutions--would
not be ``small entities'' for purposes of the RFA.
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    The SEC encourages written comments regarding this certification.
Specifically, the SEC solicits comment as to whether the proposed
amendments could have an impact on small entities that has not been
considered. Commenters should describe the nature of any impact on
small entities and provide empirical data to support the extent of such
impact.
CFTC
    Pursuant to 5 U.S.C. 605(b), the CFTC hereby certifies that the
proposed amendments to the 2013 final rule would not, if adopted, have
a significant economic impact on a substantial number of small entities
for which the CFTC is the primary financial regulatory agency.
    As discussed in this SUPPLEMENTARY INFORMATION, the Agencies are
proposing to revise the 2013 final rule in order to provide clarity to
banking entities about what activities are prohibited, reduce
compliance costs, and improve the ability of the Agencies to make
assessments regarding compliance relative to the 2013 final rule. To
minimize the costs associated with the 2013 final rule in a manner
consistent with section 13 of the BHC Act, the Agencies are proposing
to simplify and tailor the rule in a manner that would substantially
reduce compliance costs for all banking entities and, in particular,
small banking entities and banking entities without significant trading
operations.
    The proposed revisions would generally apply to banking entities,
including certain CFTC-registered entities. These entities include
bank-affiliated CFTC-registered swap dealers, FCMs, commodity trading
advisors and commodity pool operators.\279\ The CFTC has previously
determined that swap dealers, futures commission merchants and
commodity pool operators are not small entities for purposes of the RFA
and, therefore, the requirements of the RFA do not apply to those
entities.\280\ As for commodity trading advisors, the CFTC has found it
appropriate to consider whether such registrants should be deemed small
entities for purposes of the RFA on a case-by-case basis, in the
context of the particular regulation at issue.\281\
---------------------------------------------------------------------------

    \279\ The proposed revisions may also apply to other types of
CFTC registrants that are banking entities, such as introducing
brokers, but the CFTC believes it is unlikely that such other
registrants will have significant activities that would implicate
the proposed revisions. See 79 FR 5808, 5813 (Jan. 31, 2014) (CFTC
version of 2013 final rule).
    \280\ See Policy Statement and Establishment of Definitions of
``Small Entities'' for Purposes of the Regulatory Flexibility Act,
47 FR 18618 (Apr. 30, 1982) (futures commission merchants and
commodity pool operators); Registration of Swap Dealers and Major
Swap Participants, 77 FR 2613, 2620 (Jan. 19, 2012) (swap dealers
and major swap participants).
    \281\ See Policy Statement and Establishment of Definitions of
``Small Entities'' for Purposes of the Regulatory Flexibility Act,
47 FR 18618, 18620 (Apr. 30, 1982).
---------------------------------------------------------------------------

    In the context of the proposed revisions to the 2013 final rule,
the CFTC believes it is unlikely that a substantial number of the
commodity trading advisors that are potentially affected are small
entities for purposes of the RFA. In this regard, the CFTC notes that
only commodity trading advisors that are registered with the CFTC are
covered by the 2013 final rule, and generally those that are registered
have larger businesses. Similarly, the 2013 final rule applies to only
those commodity trading advisors that are affiliated with banks, which
the CFTC expects are larger businesses. The CFTC requests that
commenters address in particular whether any of these commodity trading
advisors, or other CFTC registrants covered by the proposed revisions
to the 2013 final rule, are small entities for purposes of the RFA.
    Because the CFTC believes that there are not a substantial number
of registered, banking entity-affiliated commodity trading advisors
that are small entities for purposes of the RFA, and the other CFTC
registrants that may be affected by the proposed revisions have been
determined not to be small entities, the CFTC believes that the
proposed revisions to the 2013 final rule would not, if adopted, have a
significant economic impact on a substantial number of small entities
for which the CFTC is the primary financial regulatory agency.
    The CFTC encourages written comments regarding this certification.
Specifically, the CFTC solicits comment as to whether the proposed
amendments could have a direct impact on small entities that were not
considered. Commenters should describe the nature of any impact on
small entities and provide empirical data to support the extent of such
impact.

A. OCC Unfunded Mandates Reform Act of 1995 Determination

    The OCC analyzed the proposed rule under the factors set forth in
the

Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1532). Under this
analysis, the OCC considered whether the proposed rule includes a
federal mandate that may result in the expenditure by state, local, and
Tribal governments, in the aggregate, or by the private sector, of $100
million or more in any one year (adjusted annually for inflation).
    The OCC has determined this proposed rule is likely to result in
the expenditure by the private sector of approximately $11.6 million in
the first year. Therefore, the OCC concludes that implementation of the
proposed rule would not result in an expenditure of $100 million or
more annually by state, local, and tribal governments, or by the
private sector.

B. SEC: Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996, or ``SBREFA,'' \282\ the SEC requests comment on the
potential effect of the proposed amendments on the U.S. economy on an
annual basis; any potential increase in costs or prices for consumers
or individual industries; and any potential effect on competition,
investment or innovation. Commenters are requested to provide empirical
data and other factual support for their views to the extent possible.
---------------------------------------------------------------------------

    \282\ Public Law 104-121, Title II, 110 Stat. 857 (1996)
(codified in various sections of 5 U.S.C., 15 U.S.C. and as a note
to 5 U.S.C. 601).
---------------------------------------------------------------------------

D. SEC Economic Analysis

1. Broad Economic Considerations
    Section 13 of the BHC Act generally prohibits banking entities from
engaging in proprietary trading and from acquiring or retaining an
ownership interest in, sponsoring, or having certain relationships with
covered funds, subject to certain exemptions. Under the BHC Act,
``banking entities'' include insured depository institutions, any
company that controls an insured depository institution or that is
treated as a bank holding company for purposes of section 8 of the
International Banking Act of 1978, and their affiliates and
subsidiaries.\283\ Accordingly, certain SEC-regulated entities, such as
broker-dealers, security-based swap dealers (``SBSDs''), and registered
investment advisers (``RIAs'') affiliated with a banking entity, fall
under the definition of ``banking entity'' and are subject to the
prohibitions of section 13 of the BHC Act.\284\ In addition, the
Economic Growth, Regulatory Relief, and Consumer Protection Act,
enacted on May 24, 2018, amends section 13 of the BHC Act to exclude
from the scope of ``insured depository institution'' in the banking
entity definition any entity that does not have and is not controlled
by a company that has (1) more than $10 billion in total consolidated
assets; and (2) total trading assets and trading liabilities, as
reported on the most recent applicable regulatory filing filed by the
institution, that are more than 5% of total consolidated assets.\285\
---------------------------------------------------------------------------

    \283\ See 12 U.S.C. 1851(h)(1).
    \284\ Throughout this economic analysis, the term ``banking
entity'' generally refers only to banking entities for which the SEC
is the primary financial regulatory agency unless otherwise noted.
While section 13 of the BHC Act and its associated rules apply to a
broader set of banking entities, this economic analysis is limited
to those banking entities for which the SEC is the primary financial
regulatory agency as defined in section 2(12)(B) of the Dodd-Frank
Act. See 12 U.S.C. 1851(b)(2); 12 U.S.C. 5301(12)(B).
    We recognize that compliance with SBSD registration requirements
is not yet required and that there are currently no registered
SBSDs. However, the SEC has previously estimated that as many as 50
entities may potentially register as security-based swap dealers and
that as many as 16 of these entities may already be SEC-registered
broker-dealers. See Registration Process for Security-Based Swap
Dealers and Major Security-Based Swap Participants, Exchange Act
Release No. 75611 (Aug. 5, 2015), 80 FR 48963 (Aug. 14, 2015)
(``SBSD and MSP Registration Release'').
    For the purposes of this economic analysis, the term ``dealer''
generally refers to SEC-registered broker-dealers and SBSDs.
    Throughout this economic analysis, ``we'' refers only to the SEC
and not the other Agencies, except where otherwise indicated.
    \285\ The legislation also alters the name sharing provisions in
section 13(d)(1)(G)(vi). This economic analysis assumes that the
legislation's changes to section 13 of the BHC Act are in effect.
---------------------------------------------------------------------------

    The Agencies issued final regulations implementing section 13 of
the BHC Act in December 2013, with an initial effective date of April
1, 2014.\286\ The 2013 final rule prohibits banking entities (e.g.,
bank-affiliated broker-dealers, SBSDs, and investment advisers) from
engaging, as principal, in short-term trading of securities,
derivatives, futures contracts, and options on these instruments,
subject to certain exemptions. In addition, the 2013 final rule
generally prohibits the same entities from acquiring or retaining an
ownership interest in, sponsoring, or having certain relationships with
a ``covered fund,'' subject to certain exemptions. The 2013 final rule
defines the term ``covered fund'' to include any issuer that would be
an investment company under the Investment Company Act of 1940 if it
were not otherwise excluded by sections 3(c)(1) or 3(c)(7) of that act,
as well as certain foreign funds and commodity pools.\287\ However, the
definition contains a number of exclusions for entities that would
otherwise meet the covered fund definition but that the Agencies did
not believe are engaged in investment activities contemplated by
section 13 of the BHC Act.\288\
---------------------------------------------------------------------------

    \286\ See 79 FR at 5536. The 2013 final rule was published in
the Federal Register on January 31, 2014, and became effective on
April 1, 2014. Banking entities were required to fully conform their
proprietary trading activities and their new covered fund
investments and activities to the requirements of the final rule by
the end of the conformance period, which the Board extended to July
21, 2015. The Board extended the conformance period for legacy-
covered fund activities until July 21, 2017. Upon application,
banking entities also have an additional period to conform certain
illiquid funds to the requirements of section 13 and implementing
regulations.
    \287\ See 2013 final rule Sec.  __.10(b).
    \288\ See 2013 final rule Sec.  __.10(c).
---------------------------------------------------------------------------

    In implementing section 13 of the BHC Act, the Agencies sought to
increase the safety and soundness of banking entities, promote
financial stability, and reduce conflicts of interest between banking
entities and their customers.\289\ The regulatory regime created by the
2013 final rule may enhance regulatory oversight and compliance with
the substantive prohibitions but could also impact capital formation
and liquidity. The Agencies also recognized that client-oriented
financial services, such as underwriting and market making, are
critical to capital formation and can facilitate the provision of
market liquidity, and that the ability to hedge is fundamental to
prudent risk management as well as capital formation.\290\
---------------------------------------------------------------------------

    \289\ See, e.g., 79 FR at 5666, 5574, 5541, 5659. An extensive
body of research has examined moral hazard arising out of federal
deposit insurance, implicit bailout guarantees, and systemic risk
issues. See, e.g., Atkeson, d'Avernas, Eisfeldt, and Weill, 2018,
``Government Guarantees and the Valuation of American Banks,''
working paper. See also Bianchi, 2016, ``Efficient Bailouts?''
American Economic Review 106 (12), 3607-3659; Kelly, Lustig, and Van
Nieuwerburgh, 2016, ``Too-Systematic-to-Fail: What Option Markets
Imply about Sector-Wide Government Guarantees,'' American Economic
Review 106(6), 1278-1319; Anginer, Demirguc-Kunt, and Zhu, 2014,
``How Does Deposit Insurance Affect Bank Risk? Evidence from the
Recent Crisis,'' Journal of Banking and Finance 48, 312-321;
Beltratti and Stulz, 2012, ``The Credit Crisis Around the Globe: Why
Did Some Banks Perform Better?'' Journal of Financial Economics 105,
1-17; Veronesi and Zingales, 2010, ``Paulson's Gift,'' Journal of
Financial Economics 97(3), 339-368. For a literature review, see,
e.g., Benoit, Colliard, Hurlin, and Perignon, 2017, ``Where the
Risks Lie: A Survey on Systemic Risk,'' Review of Finance 21(1),
109-152.
    See also, e.g., Avci, Schipani, and Seyhun, 2017, ``Eliminating
Conflicts of Interests in Banks: The Significance of the Volcker
Rule,'' Yale Journal on Regulation 35 (2).
    \290\ See, e.g., 79 FR at 5541, 5546, 5561. In addition, a
significant amount of research has focused on changes in liquidity
provision following the financial crisis and regulatory reforms.
See, e.g., Bessembinder, Jacobsen, Maxwell, and Venkataraman 2017,
``Capital Commitment and Illiquidity in Corporate Bonds,'' Journal
of Finance, forthcoming. See also Bao, O'Hara and Zhou, 2017, ``The
Volcker Rule and Corporate Bond Market Making in Times of Stress,''
Journal of Financial Economics, forthcoming. Bao et al. (2017) shows
that dealers not subject to the Volcker rule increased their market-
making activities, partially offsetting the reduction market making
by dealers affected by the Volcker Rule. See also, Anderson and
Stulz, 2017, ``Is Post-Crisis Bond Liquidity Lower?'' working paper;
Goldstein and Hotchkiss, 2017, ``Providing Liquidity in an Illiquid
Market: Dealer Behavior in U.S. Corporate Bonds,'' working paper.

---------------------------------------------------------------------------

    Section 13 of the BHC Act also provides a number of statutory
exemptions to the general prohibitions on proprietary trading and
covered funds activities. For example, the statute exempts from the
proprietary trading restrictions certain underwriting, market making,
and risk-mitigating hedging activities, as well as certain trading
activities outside of the United States.\291\ Similarly, section 13
provides exemptions for certain covered funds activities, such as
exemptions for organizing and offering covered funds.\292\ The 2013
final rule implemented these exemptions.\293\ In addition, some banking
entities engaged in proprietary trading are required to furnish
periodic reports that include a variety of quantitative measurements of
their covered trading activities, and banking entities engaged in
activities covered by section 13 of the BHC Act and the 2013 final rule
are required to establish a compliance program reasonably designed to
ensure and monitor compliance with the 2013 final rule.\294\
---------------------------------------------------------------------------

    \291\ See 12 U.S.C. 1851(d).
    \292\ See section 13(d)(1)(G) of the BHC Act.
    \293\ See 2013 final rule Sec. Sec.  __.4, __.5, __.6, __.11,
__.13.
    \294\ See 2013 final rule Sec.  __.20.
---------------------------------------------------------------------------

    Certain aspects of the rule may have resulted in a complex and
costly compliance regime that is unduly restrictive and burdensome on
some affected banking entities, particularly smaller firms that do not
qualify for the simplified compliance and reporting regime. The
Agencies also recognize that distinguishing between permissible and
prohibited activities may be complex and costly for some firms.
Moreover, the 2013 final rule may have included in its scope some
groups of market participants that do not necessarily engage in the
activities or pose the risks that section 13 of the BHC Act intended to
address. For example, the 2013 final rule's definition of the term
``covered fund'' is broad and, as a result, may include funds that do
not engage in the investment activities contemplated by section 13 of
the BHC Act. As another example, foreign banking entities' ability to
trade financial instruments in the United States may have been
significantly limited despite the foreign trading exemption in the 2013
final rule.
    The amendments to the 2013 final rule proposed in this release
include those that influence the scope of permitted activities for all
or a subset of banking entities and covered funds, and those that
simplify, tailor, or eliminate the application of certain aspects of
the rule to reduce compliance and reporting burdens.
    Some of the proposed amendments affect the scope of permitted
activities (e.g., foreign trading, underwriting, market making, and
risk-mitigating hedging). These changes would expand the scope of
permitted activities, which may benefit the parties to those
transactions and broader capital markets, for example, if reduced
compliance costs translate into increased willingness of banking
entities to underwrite securities or make markets. These changes also,
however, could facilitate risk-taking or create conflicts of interest
among certain groups of market participants. Moreover, amendments that
redefine the scope of entities subject to certain provisions of the
rule may impact competition, allocative efficiency, and capital
formation. Broadly, to the extent that the proposed amendments and
changes on which the Agencies are requesting comment increase or
decrease the scope of permissible activities, they may magnify or
attenuate the economic tradeoffs above. As we discuss below, to the
extent that the proposed amendments or changes on which the Agencies
are requesting comments reduce burdens on some groups of market
participants (e.g., on entities without significant trading assets and
liabilities, foreign banking entities, certain types of covered funds),
the proposed amendments may increase competition and trading activity
in various market segments.
    Other proposed amendments reduce compliance program, reporting, and
documentation requirements for some entities. While these amendments
are designed to reduce the compliance burdens of regulated entities,
they may also reduce the efficacy of regulatory oversight, internal
compliance, and supervision. Amendments and changes on which the
Agencies are requesting comment that decrease (or increase) compliance
program and reporting requirements tip the balance of economic
tradeoffs toward (or away from) competition, trading activity, and
capital formation on the one hand, and against (or in favor of)
regulatory and internal oversight on the other. However, as discussed
below, some of the changes need not reduce the efficacy of the
Agencies' regulatory oversight. Further, under the proposal, banking
entities (other than banking entities with limited trading assets and
liabilities for which the proposed presumption of compliance has not
been rebutted) would still be required to develop and provide for the
continued administration of a compliance program reasonably designed to
ensure and monitor compliance with the prohibitions and restrictions
set forth in section 13 of the BHC Act and the 2013 final rule, as it
is proposed to be amended.
    Where possible, we have attempted to quantify the costs and
benefits expected to result from the proposed amendments. In many
cases, however, the SEC is unable to quantify these potential economic
effects. Some of the primary economic effects, such as the effect on
incentives that may give rise to conflicts of interest in various
regulated entities and the efficacy of regulatory oversight under
various compliance regimes, are inherently difficult to quantify.
Moreover, some of the benefits of the 2013 final rule's definitions and
prohibitions that are being amended here, for example potential
benefits for resilience during a crisis, are less readily observable
under strong economic conditions. Lastly, because of overlapping
implementation periods of various post-crisis regulations affecting the
same group of SEC registrants, the long implementation timeline of the
2013 final rule, and the fact that many market participants changed
their behavior in anticipation of future changes in regulation, it is
difficult to quantify the net economic effects of the individual
amendments to rule provisions proposed here.
    In some instances, we lack the information or data necessary to
provide reasonable estimates for the economic effects of the proposed
amendments. For example, we lack information and data on the volume of
trading activity that does not occur because of uncertainty about how
to demonstrate that underwriting or market-making activities satisfy
the RENTD requirement; the extent to which internally-set risk limits
capture expected customer demand; how accurately correlation analysis
reflects underlying exposures of banking entities with, and without,
significant trading assets and liabilities in normal times and in times
of market stress; the feasibility and costs of reorganization that may
enable some U.S. banking entities to become foreign banking entities
for the purposes of relying on the foreign trading exemption; how
market participants may choose to

restructure their interests in various types of private funds in
response to the proposed amendments or other changes on which the
Agencies seek comment; the amount of capital formation in covered funds
that does not occur because of current covered fund provisions,
including those concerning underwriting, market making, or hedging with
covered funds; or the volume of loans, guarantees, securities lending,
and derivatives activity dealers may wish to engage in with the covered
funds they advise; the extent of risk reduction associated with the
2013 final rule. Where we cannot quantify the relevant economic
effects, we discuss them in qualitative terms.
    In addition, the broader economic effects of the proposed
amendments, such as those related to efficiency, competition, and
capital formation, are difficult to quantify with any degree of
certainty. The proposed amendments tailor, remove, or alter the scope
of requirements in the 2013 final rule. Thus, some of the
methodological challenges in analyzing market effects of these
amendments are somewhat similar to those that arise when analyzing the
effects of the 2013 final rule. As we have noted elsewhere, analysis of
the effects of the implementation of the 2013 final rule is confounded
by, among others, macroeconomic factors, other policy interventions,
post-crisis changes to market participants' risk aversion and return
expectations, and technological advancements unrelated to regulations.
Because of the extended timeline of implementation of section 13 of the
BHC Act and the overlap of the 2013 final rule period with other post-
crisis changes affecting the same group of SEC registrants, typical
quantitative methods that might otherwise enable causal attribution and
quantification of the effects of section 13 of the BHC Act and the 2013
final rule on measures of capital formation, liquidity, and
informational or allocative efficiency are not available. Where
existing research has sought to test causal effects and to measure them
quantitatively, the presence, direction, and magnitude of the effects
are sensitive to econometric methodology, measurement, choice of
market, and the time period studied.\295\ Moreover, empirical measures
of capital formation or liquidity do not reflect issuance and
transaction activity that does not occur as a result of the
implementing rules. Accordingly, it is difficult to quantify the
primary issuance and market liquidity that would have been observed
following the financial crisis absent the ensuing reforms. Finally,
since section 13 of the BHC Act and the 2013 final rule combined a
number of different requirements, it is difficult to attribute the
observed effects to a specific provision or set of requirements.
---------------------------------------------------------------------------

    \295\ See, e.g., Access to Capital and Market Liquidity supra
note 106.
---------------------------------------------------------------------------

    In addition, the existing securities markets--including market
participants, their business models, market structure, etc.--differ in
significant ways from the securities markets that existed prior to the
2013 final rule's implementation. For example, the role of dealers in
intermediating trading activity has changed in important ways,
including: Bank-dealer capital commitment declined while non-bank
dealer capital commitment increased; electronic trading in some
securities markets became more prominent; the profitability of trading
after the financial crisis may have decreased significantly; and the
introduction of alternative credit markets may have contributed to
liquidity fragmentation across markets.\296\
---------------------------------------------------------------------------

    \296\ See, e.g., Bessembinder et al. (2017), Bao et al. (2017),
Anderson and Stulz (2017). See also, Trebbi and Xiao, 2018,
``Regulation and Market Liquidity,'' Management Science,
forthcoming; Oehmke and Zawadowski, 2017, ``The Anatomy of the CDS
Market,'' Review of Financial Studies 30(1), 80-119.
---------------------------------------------------------------------------

    The SEC continues to recognize that post-crisis financial reforms
in general, and the 2013 final rule in particular, impose costs on
certain groups of market participants. Since the rule became effective,
new estimates regarding compliance burdens and new information about
the various effects of the final rule have become available. The
passage of time has also enabled an assessment of the value of
individual requirements that enable SEC oversight, such as the
requirement to report certain quantitative metrics, relative to
compliance burdens. This and other information and considerations
inform the SEC's economic analysis.
    From the outset, we note that this analysis is limited to areas
within the scope of the SEC's function as the primary securities
markets regulator in the United States. In particular, the SEC's
economic analysis is focused on the potential effects of the proposed
amendments on SEC registrants, the functioning and efficiency of the
securities markets, and capital formation. Specifically, this economic
analysis generally concerns entities subject to the 2013 final rule for
which the SEC is the primary financial regulatory agency, including
SEC-registered broker-dealers, SBSDs, and RIAs.\297\ In addition, the
analysis of the covered funds provisions discusses their economic
effects on covered funds as well as the economic effects of the
Agencies modifying the definition of covered funds. Thus, the below
analysis does not consider broker-dealers, SBSDs, and investment
advisers that are not banking entities, and banking entities that are
not SEC registrants, beyond the potential spillover effects on these
entities and effects on efficiency, competition, and capital formation
in securities markets.
---------------------------------------------------------------------------

    \297\ See Responses to Frequently Asked Questions Regarding the
Commission's Rule under Section 13 of the Bank Holding Company Act
(the ``Volcker Rule''), June 10, 2014; Updated March 4, 2016,
available at https://www.sec.gov/divisions/marketreg/faq-volcker-rule-section13.htm (providing background on the application of the
Commission's rule).
---------------------------------------------------------------------------

2. Overview of the Baseline
    In the context of this economic analysis, the economic costs and
benefits, and the impact of the proposed amendments on efficiency,
competition, and capital formation, are considered relative to a
baseline that includes the 2013 final rule and recent legislative
amendments as applicable and current practices aimed at compliance with
these regulations.
a. Regulation
    To assess the economic impact of the proposed rule, we are using as
our baseline the legal and regulatory framework as it exists at the
time of this release. Thus, the regulatory baseline for our economic
analysis includes section 13 of the BHC Act as amended by the Economic
Growth, Regulatory Relief, and Consumer Protection Act and the 2013
final rule. Further, our baseline accounts for the fact that since the
adoption of the 2013 final rule, the staffs of the Agencies have
provided FAQ responses related to the regulatory obligations of banking
entities, including SEC-regulated entities that are also banking
entities under the 2013 final rule, which likely influenced these
entities' means of compliance with the 2013 final rule.\298\ In
addition, the Federal banking agencies released a 2017 policy statement
with respect to foreign excluded funds.\299\
---------------------------------------------------------------------------

    \298\ See id.
    \299\ See Statement regarding Treatment of Certain Foreign Funds
under the Rules Implementing Section 13 of the Bank Holding Company
Act supra note 48.
---------------------------------------------------------------------------

    Three major areas of the 2013 final rule--proprietary trading
restrictions, covered fund restrictions, and compliance requirements--
are relevant to establishing an economic baseline. First, with respect
to proprietary trading restrictions, the features of the existing
regulatory framework relevant to the baseline of this economic analysis

include definitions of ``trading account'' and ``trading desk;''
requirements for permissible underwriting, market making, and risk-
mitigating hedging activities; the liquidity management exclusion;
treatment of error-related trades; restrictions on transactions between
foreign banking entities and their U.S.-dealer affiliates; and the
compliance and metrics-reporting requirements for dealers affiliated
with banking entities. The potential that a RIC or a BDC would be
treated as a banking entity where the fund's sponsor is a banking
entity and holds 25% of more of the RIC or BDC's voting securities
after a seeding period also forms part of our baseline.
    Second, with respect to the restrictions on covered funds, the
features of the existing regulatory framework under the 2013 final rule
relevant to the baseline include the definition of the term ``covered
fund;'' restrictions on a banking entity's relationships with covered
funds; and restrictions on underwriting, market making, and hedging
with covered funds.
    Third, with respect to compliance, relevant requirements include
the 2013 final rule's compliance program requirements, including those
under Sec.  __.20 and Appendix B, as well as recordkeeping and
reporting of metrics under Appendix A.
    The 2013 final rule differentiates banking entities on the basis of
certain monetary thresholds, including the size of consolidated trading
assets and liabilities of their parent company. More specifically, U.S.
banking entities that have, together with affiliates and subsidiaries,
trading assets and liabilities (excluding trading assets and
liabilities involving obligations of or guaranteed by the United States
or any agency of the United States) the average gross sum of which (on
a worldwide consolidated basis) over the previous consecutive four
quarters, as measured as of the last day of each of the four prior
calendar quarters, equals $10 billion or more are currently subject to
reporting requirements of Appendix A of the 2013 final rule. Entities
below this threshold do not need to comply with Appendix A.
Additionally, banking entities with total consolidated assets of $10
billion or less as reported on December 31 of the previous 2 calendar
years that engage in covered activities qualify for the simplified
compliance regime, and banking entities that have $50 billion or more
in total consolidated assets and banking entities with over $10 billion
in consolidated trading assets and liabilities are currently subject to
the requirement to adopt an enhanced compliance program pursuant to
Appendix B.
    In the sections that follow we discuss rule provisions currently in
effect, how each proposed amendment changes regulatory requirements,
and the anticipated costs and benefits of the proposed amendments.
b. Affected Participants
    The SEC-regulated entities directly affected by the proposed
amendments include broker-dealers, security-based swap dealers, and
investment advisers.
i. Broker-Dealers \300\
---------------------------------------------------------------------------

    \300\ Data sources included Reporting Form FR Y-9C data for
domestic holding companies on a consolidated basis and Report of
Condition and Income data for banks regulated by the Board, FDIC,
and OCC as of Q3 2017. Broker-dealer bank affiliations were obtained
from the Federal Financial Institutions Examination Council's
(FFIEC) National Information Center (NIC). Broker-dealer assets and
holdings were obtained from FOCUS Report data for Q3 2017.
---------------------------------------------------------------------------

    Under the 2013 final rule, some of the largest SEC-regulated
broker-dealers are banking entities. Table 1 reports the number, total
assets, and holdings of broker-dealers by the broker-dealer's bank
affiliation.
    While the 3,658 domestic broker-dealers that are not affiliated
with holding companies greatly outnumber the 138 banking entity broker-
dealers subject to the 2013 final rule, these banking entity broker-
dealers dominate non-banking entity broker-dealers in terms of total
assets (74% of total broker-dealer assets) and aggregate holdings (72%
of total broker-dealer holdings).

                        Table 1--Broker-Dealer Count, Assets, and Holdings by Affiliation
----------------------------------------------------------------------------------------------------------------
                                                                                Holdings
           Broker-dealer affiliation                Number       Total assets,  Holdings, $mln   (alternative),
                                                                   $mln 301           302           $mln 303
----------------------------------------------------------------------------------------------------------------
Affected bank broker-dealers \304\............             138       3,039,337         724,706           536,555
Other bank broker-dealers \305\...............             124         125,595          12,312             5,582
Non-bank broker-dealers.......................           3,658         929,240         270,876           151,516
                                               -----------------------------------------------------------------
    Total.....................................           3,920       4,094,172       1,007,894           693,653
----------------------------------------------------------------------------------------------------------------

    Some of the changes being proposed to the 2013 final rule
differentiate banking entities on the basis of their consolidated
trading assets and liabilities.\306\ Table 2 reports the distribution
of broker-dealer banking entities' counts, assets, and holdings by
consolidated trading assets and liabilities of the (top-level) parent
firm. We estimate that 89 broker-dealer affiliates of firms with less
than $10 billion in consolidated trading assets and liabilities account
for 7% of bank-affiliated broker-dealer assets and 5% of holdings (or
3% using the alternative measure of holdings). These figures may
overestimate or underestimate the number of affected broker-dealers as
they may include broker-dealers that do not engage in various types of
covered trading activity.
---------------------------------------------------------------------------

    \301\ Broker-dealer total assets are based on FOCUS report data
for ``Total Assets.''
    \302\ Broker-dealer holdings are based on FOCUS report data for
securities and spot commodities owned at market value, including
bankers' acceptances, certificates of deposit and commercial paper,
state and municipal government obligations, corporate obligations,
stocks and warrants, options, arbitrage, other securities, U.S. and
Canadian government obligations, and spot commodities.
    \303\ This alternative measure excludes U.S. and Canadian
government obligations and spot commodities.
    \304\ This category includes all banking entity broker-dealers
except those affiliated with banks that have consolidated total
assets less than or equal to $10 billion and trading assets and
liabilities less than or equal to 5% of total assets, and those for
which bank trading asset and liability data was not available.
    \305\ This category includes all banking entity broker-dealers
affiliated with firms that have consolidated total assets less than
or equal to $10 billion and trading assets and liabilities less than
or equal to 5% of total assets, as well as banking entity broker-
dealers for which bank trading asset and liability data was not
available.
    \306\ See, e.g., 2013 final rule Sec.  __.20(d)(1).

              Table 2--Broker-Dealer Counts, Assets, and Holdings by Consolidated Trading Assets and Liabilities of the Banking Entity 307
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               Total                                              Holdings
 Consolidated trading assets and liabilities 308     Number     Percentage    assets,     Percentage   Holdings,    Percentage   (altern.),   Percentage
                                                                                $mln                      $mln                      $mln
--------------------------------------------------------------------------------------------------------------------------------------------------------
>=50bln.........................................           29           21    2,215,295           73      554,125           76      492,017           92
25bln-50bln.....................................            8            6      417,099           14       76,865           11       21,083            4
10bln-25bln.....................................           12            9      184,591            6       58,232            8        7,494            1
5bln-10bln......................................           24           17      145,151            5       23,321            3       10,527            2
1bln-5bln.......................................           23           17        9,756            0        3,628            1        1,795            0
<=1bln..........................................           42           30       67,446            2        8,534            1        3,638            1
                                                 -------------------------------------------------------------------------------------------------------
    Total.......................................          138          100    3,039,338          100      724,705          100      536,554          100
--------------------------------------------------------------------------------------------------------------------------------------------------------

ii. Security-Based Swap Dealers
    The proposed amendments may also affect bank-affiliated SBSDs. As
compliance with SBSD registration requirements is not yet required,
there are currently no registered SBSDs. However, the SEC has
previously estimated that as many as 50 entities may potentially
register as security-based swap dealers and that as many as 16 of these
entities may already be SEC-registered broker-dealers.\309\ Given our
analysis of DTCC Derivatives Repository Limited Trade Information
Warehouse (``TIW'') transaction and positions data on single-name
credit-default swaps, we preliminarily believe that all entities that
may register with the SEC as SBSDs are bank-affiliated firms, including
those that are SEC-registered broker-dealers. Therefore, we
preliminarily estimate that, in addition to the bank-affiliated SBSDs
that are already registered as broker-dealers and included in the
discussion above, as many as 34 other bank-affiliated SBSDs may be
affected by the proposed amendments.
---------------------------------------------------------------------------

    \307\ This analysis excludes SEC-registered broker-dealers
affiliated with firms that have consolidated total assets less than
or equal to $10 billion and trading assets and liabilities less than
or equal to 5% of total assets, as well as firms for which bank
trading asset and liability data was not available.
    \308\ Consolidated trading assets and liabilities are estimated
using information reported in form Y-9C data. These estimates
exclude from the definition of consolidated trading assets and
liabilities Treasury securities--we subtract from the sum of total
trading assets and liabilities reported in items BHCK3545 and
BHCK3547 trading assets that are U.S. Treasury securities as
reported in item BHCK3531 and calculate average trading assets and
liabilities using 2016Q4 through 2017Q3 data. However, our estimates
do not exclude agency securities as such information is not
otherwise available. Thus, these figures may overestimate or
underestimate the number of affected bank affiliated broker-dealers.
We also note that we do not have data on worldwide consolidated
trading assets and liabilities of foreign banking entities with
which some SEC registrants are affiliated, and consolidated trading
assets and liabilities for such foreign banking entities are
calculated based on their U.S. operations. Thus, the figures may
overestimate or underestimate the number of affected bank affiliated
broker-dealers.
    \309\ See SBSD and MSP Registration Release, supra note 284.
---------------------------------------------------------------------------

    Importantly, capital and other substantive requirements for SBSDs
under Title VII of the Dodd-Frank Act have not yet been adopted. We
recognize that firms may choose to move security-based swap trading
activity into (or out of) an affiliated bank or an affiliated broker-
dealer instead of registering as a standalone SBSD, if bank or broker-
dealer capital and other regulatory requirements are less (or more)
costly than those that may be imposed on SBSDs under Title VII. As a
result, the above figures may overestimate or underestimate the number
of SBSDs that are not broker-dealers and that may become SEC-registered
entities that would be affected by the proposed amendments.
Quantitative cost estimates are provided separately for affected
broker-dealers and potential SBSDs.
iii. Private Funds and Private Fund Advisers \310\
---------------------------------------------------------------------------

    \310\ These estimates are calculated from Form ADV data as of
March 31, 2018. We define an investment adviser as a ``private fund
adviser'' if it indicates that it is an adviser to any private fund
on Form ADV Item 7.B. We define an investment adviser as a ``banking
entity RIA'' if it indicates on Form ADV Item 6.A.(7) that it is
actively engaged in business as a bank, or it indicates on Form ADV
Item 7.A.(8) that it has a ``related person'' that is a banking or
thrift institution. For purposes of Form ADV, a ``related person''
is any advisory affiliate and any person that is under common
control with the adviser. We recognize that the definition of
``control'' for purposes of Form ADV, which is used in identifying
related persons on the form, differs from the definition of
``control'' under the BHC Act. In addition, this analysis does not
exclude SEC-registered investment advisers affiliated with banks
that have consolidated total assets less than or equal to $10
billion and trading assets and liabilities less than or equal to 5%
of total assets. Thus, these figures may overestimate or
underestimate the number of banking entity RIAs.
---------------------------------------------------------------------------

    In this section, we focus on RIAs advising private funds. Using
Form ADV data, Table 3 reports the number of RIAs advising private
funds by fund type, as those types are defined in Form ADV. Table 4
reports the number and gross assets of private funds advised by RIAs
and separately reports these statistics for banking entity RIAs. As can
be seen from Table 3, the two largest categories of private funds
advised by RIAs are hedge funds and private equity funds.
    Banking entity RIAs advise a total of 4,250 private funds with
approximately $2 trillion in gross assets. Using Form ADV data, we
observe that banking entity RIAs' gross private fund assets under
management is concentrated in hedge funds and private equity funds. We
estimate on the basis of this data that banking entity RIAs advise 947
hedge funds with approximately $616 billion in gross assets and 1,282
private equity funds with approximately $350 billion in assets. While
banking entity RIAs are subject to all of section 13's restrictions,
because RIAs do not typically engage in proprietary trading, we
preliminarily believe that they will not be impacted by the proposed
amendments related to proprietary trading.

  Table 3--SEC-Registered Investment Advisers Advising Private Funds by
                              Fund Type 311
------------------------------------------------------------------------
                                                          Banking entity
                Fund type                     All RIA           RIA
------------------------------------------------------------------------
Hedge Funds.............................           2,691             173
Private Equity Funds....................           1,538              90

Real Estate Funds.......................             486              56
Securitized Asset Funds.................             222              43
Venture Capital Funds...................             173              16
Liquidity Funds.........................              46               7
Other Private Funds.....................           1,043             148
                                         -------------------------------
    Total Private Fund Advisers.........           4,660             308
------------------------------------------------------------------------

     Table 4--The Number and Gross Assets of Private Funds Advised by SEC-Registered Investment Advisers 312
----------------------------------------------------------------------------------------------------------------
                                                      Number of private funds           Gross assets, $bln
                                                 ---------------------------------------------------------------
                    Fund type                                     Banking entity                  Banking entity
                                                      All RIA           RIA           All RIA           RIA
----------------------------------------------------------------------------------------------------------------
Hedge Funds.....................................          10,329             947           7,081             616
Private Equity Funds............................          13,588           1,282           2,919             350
Real Estate Funds...............................           3,252             323             564              84
Securitized Asset Funds.........................           1,707             360             562             120
Liquidity Funds.................................           1,073              29             109             190
Venture Capital Funds...........................              76              42             291               2
Other Private Funds.............................           4,337           1,268           1,568             689
                                                 ---------------------------------------------------------------
    Total Private Funds.........................          34,359           4,250          13,093           2,052
----------------------------------------------------------------------------------------------------------------

    Banking entity RIAs advise a total of 4,250 private funds with
approximately $2 trillion in gross assets. Using Form ADV data, we
observe that banking entity RIAs' gross private fund assets under
management is concentrated in hedge funds and private equity funds. We
estimate on the basis of this data that banking entity RIAs advise 947
hedge funds with approximately $616 billion in gross assets and 1,282
private equity funds with approximately $350 billion in assets. While
banking entity RIAs are subject to all of section 13's restrictions,
because RIAs do not typically engage in proprietary trading, we
preliminarily believe that they will not be impacted by the proposed
amendments related to proprietary trading.
---------------------------------------------------------------------------

    \311\ This table includes only the advisers that list private
funds on Section 7.B.(1) of Form ADV. The number of advisers in the
``Any Private Fund'' row is not the sum of the rows that follow
since an adviser may advise multiple types of private funds. Each
listed private fund type (e.g., real estate fund, liquidity fund) is
defined in Form ADV, and those definitions are the same for purposes
of the SEC's Form PF.
    \312\ Gross assets include uncalled capital commitments on Form
ADV.
---------------------------------------------------------------------------

iv. Registered Investment Companies
    Based on SEC filings and public data, we estimate that, as of
January 2018, there were approximately 15,500 RICs \313\ and 100 BDCs.
Although RICs and BDCs are generally not banking entities themselves
subject to the 2013 final rule, they may be indirectly affected by the
2013 final rule and the proposed amendments to the extent that their
advisers are banking entities. For instance, banking entity RIAs or
their affiliates may reduce their level of investment in the funds they
advise, or potentially close these funds, to avoid these funds becoming
banking entities themselves. As discussed in more detail in section
III.A, however, the Agencies have made clear that nothing in the
proposal would modify the application of the staff FAQs discussed
above, and the Agencies will not treat RICs (or FPFs) that meet the
conditions included in the applicable staff FAQs as banking entities or
attribute their activities and investments to the banking entity that
sponsors the fund or otherwise may control the fund under the
circumstances set forth in the FAQs. In addition, and also as discussed
in more detail in section III.A, to accommodate the pendency of the
proposal, for an additional period of one year until July 21, 2019, the
Agencies will not treat qualifying foreign excluded funds that meet the
conditions included in the policy statement discussed above as banking
entities or attribute their activities and investments to the banking
entity that sponsors the fund or otherwise may control the fund under
the circumstances set forth in the policy statement.
---------------------------------------------------------------------------

    \313\ For the purposes of this analysis, the term RIC refers to
the fund or series, not the legal entity.
---------------------------------------------------------------------------

3. Economic Effects
a. Treatment of Entities Based on the Size of Trading Assets and
Liabilities
i. Costs and Benefits
    The proposal categorizes banking entities into three groups on the
basis of the size of their trading activity: (1) Banking entities with
significant trading assets and liabilities, (2) banking entities with
moderate trading assets and liabilities, and (3) banking entities with
limited trading assets and liabilities. Banking entities with
significant trading assets and liabilities are defined as those that
have, together with affiliates and subsidiaries, trading assets and
liabilities (excluding trading assets and liabilities involving
obligations of or guaranteed by the United States or any agency of the
United States) the average gross sum of which over the previous
consecutive four quarters, as measured as of the last day of each of
the four previous calendar quarters, equaling or exceeding $10
billion.\314\ Banking entities with limited trading assets and
liabilities are defined as those that have, together with affiliates
and subsidiaries on a worldwide consolidated basis, trading assets and
liabilities (excluding

trading assets and liabilities involving obligations of or guaranteed
by the United States or any agency of the United States) the average
gross sum of which over the previous consecutive four quarters, as
measured as of the last day of each of the four previous calendar
quarters, is less than $1 billion. Finally, banking entities with
moderate trading assets and liabilities are defined as those that are
neither banking entities with significant trading assets and
liabilities nor banking entities with limited trading assets and
liabilities.
---------------------------------------------------------------------------

    \314\ With respect to a banking entity that is a foreign banking
organization or a subsidiary of a foreign banking organization, this
threshold for having significant trading assets and liabilities
would apply based on the trading assets and liabilities of the
combined U.S. operations, including all subsidiaries, affiliates,
branches and agencies.
---------------------------------------------------------------------------

    We further refer to SEC-registered broker-dealer, investment
adviser, and SBSD affiliates of banking entities with significant
trading assets and liabilities as ``Group A'' entities, to affiliates
of banking entities with moderate trading assets and liabilities as
``Group B'' entities, and to affiliates of banking entities with
limited trading assets and liabilities as ``Group C'' entities.
    Under the proposed amendments, Group A entities would be required
to comply with a streamlined but comprehensive version of the 2013