changes relative to the 2013 rule are discussed herein. The new and
modified reporting requirements are found in sections __.4(c)(3)(i),
__.20(d), __.20(i), and the Appendix. The new and modified
recordkeeping requirements are found in sections, __.3(d)(3),
__.4(c)(3)(i), __.5(c), __.20(b), __.20(c), __.20 (d), __.20(e),
__.20(f), and the Appendix. The modified information collection
requirements \739\ would implement section 13 of the BHC 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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    \739\ In an effort to provide transparency, the total cumulative
burden for each agency is shown. In addition to the changes
resulting from this final 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 __.4(c)(3)(i) requires a banking entity to make available
to the agency upon request records regarding (1) any limit that is
exceeded and (2) any temporary or permanent increase to any limit(s),
in each case in the form and manner as directed by the primary
financial regulatory agency. The agencies estimate that the average
time per response would be 15 minutes.
    Section __.20(d) is modified by extending the reporting period for
certain banking entities from within 10 days of the end of each
calendar month to 30 days of the end of each calendar quarter. The
threshold for reporting under section __.20(d) is modified from $10
billion or more in trading assets and liabilities to $20 billion or
more in trading assets and liabilities. The metrics reporting changes
to the Appendix would impact the reporting burden under section
___.20(d). The agencies estimate that the current average hours per
response will

decrease by 14 hours (decrease 40 hours for initial set-up).
    Sections __.3(b)(4), __.4(c)(4), __.20(g)(2), and __.20(h) would
implicate the notice and response procedures pursuant to section
__.20(i) that an agency would follow when rebutting a presumption or
exercising a reservation of authority. The agencies estimate that the
average hours per response would be 20 hours.
Recordkeeping Requirements
    Section __.3(d)(3) would expand the scope of the recordkeeping to
include foreign exchange forward (as that term is defined in section
1a(24) of the Commodity Exchange Act (7 U.S.C. 1a(24)), foreign
exchange swap (as that term is defined in section 1a(25) of the
Commodity Exchange Act (7 U.S.C. 1a(25)), or cross-currency swap. The
agencies estimate that the current average hour per response will not
change.
    Section __.4(c)(3)(i) requires a banking entity to maintain records
regarding (1) any limit that is exceeded and (2) any temporary or
permanent increase to any limit(s), in each case in the form and manner
as directed by the primary financial regulatory agency. The agencies
estimate that the average time per response would be 15 minutes.
    Section __.5(c) is 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 will decrease by 20 hours (decrease 10 hours for
initial set-up).
    Section __.20(b) is 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 will not
change.
    Section __.20(c) is modified by limiting the CEO attestation
requirement to a banking entity that has significant trading assets and
liabilities. The agencies estimate that the current average hours per
response will decrease by 1,100 hours (decrease 3,300 hours for initial
set-up).
    Section __.20(d) is modified by extending the time period for
reporting for certain banking entities from within 10 days of the end
of each calendar month to 30 days of the end of each calendar quarter.
The agencies estimate that the current average hours per response will
decrease by 3 hours.
    Section __.20(e) is modified by limiting the requirement to banking
entities with significant trading assets and liabilities. The agencies
estimate that the current average hours per response will not change.
    Section __.20(f)(2) is modified by limiting the requirement to
banking entities with moderate trading assets and liabilities. The
agencies estimate that the current average hours per response will not
change.
    The Instructions for Preparing and Submitting Quantitative
Measurement Information, Technical Specifications Guidance, and XML
Schema will be available 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; and
     SEC: https://www.sec.gov/structureddata/dera_taxonomies.
Proposed Revision, With Extension, of the Following Information
Collections
    Estimated average hours per response:
Reporting
    Section __.4(c)(3)(i)--0.25 hours for an average of 20 times per
year.
    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) quarterly.
    Section __.20(i)--20 hours.
Recordkeeping
    Section __.3(d)(3)--1 hour (Initial set-up 3 hours).
    Section __.4(b)(3)(i)(A)--2 hours quarterly.
    Section __.4(c)(3)(i)--0.25 hours for an average of 40 times per
year.
    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)- 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, quarterly, and event driven.
    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: 39.
    Proposed revisions estimated annual burden: -3,503 hours.
    Estimated annual burden hours: 19,823 hours (3,482 hours for
initial set-up and 16,341 hours for ongoing).
Board
    Title of Information Collection: Reporting, Recordkeeping, and
Disclosure Requirements Associated with Regulation VV.
    Frequency: Annual, quarterly, and event driven.
    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 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: 255.
    Proposed revisions estimated annual burden: -169,466 hours.
    Estimated annual burden hours: 31,044 hours (4,035 hours for
initial set-up and 27,009 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, quarterly, and event driven.
    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: 13.
    Proposed revisions estimated annual burden: -15,172 hours.
    Estimated annual burden hours: 3,115 hours (1,656 hours for initial
set-up and 1,459 hours for ongoing).

C. Regulatory Flexibility Act Analysis

    OCC: The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., (RFA),
requires an agency, in connection with a final rule, to prepare a Final
Regulatory Flexibility Analysis describing the impact of the rule on
small entities (defined by the SBA for purposes of the RFA to include
commercial banks and savings institutions with total assets of $600
million or less and trust companies with total assets of $41.5 million
or less) or to certify that the rule will not have a significant
economic impact on a substantial number of small entities.
    The OCC currently supervises approximately 782 small entities.\740\
Under the EGRRCPA, banking entities with total consolidated assets of
$10 billion or less generally 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.
Thus, the final rule will not impact any OCC-supervised small entities.
Therefore, the OCC certifies that the final rule will not have a
significant impact on a substantial number of OCC-supervised small
entities.
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    \740\ 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 $600 million
and $41.5 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 the
OCC should classify an OCC-supervised institution a small entity.
The OCC used December 31, 2018, 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.
---------------------------------------------------------------------------

    Board: The RFA requires an agency to either provide a regulatory
flexibility analysis with a rule or certify that the rule 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.\741\ Except as otherwise specified below, the size standard
to be considered a small business for banking entities subject to the
proposal is $600 million or less in consolidated assets.\742\
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    \741\ 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.
    \742\ 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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    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. No comments were received
related to the Board's initial RFA analysis, which was published with
the proposal.
    As discussed in the Supplementary Information, the agencies are
revising the 2013 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 rule. The agencies are
explicitly authorized under section 13(b)(2) of the BHC Act to adopt
rules implementing section 13.\743\
---------------------------------------------------------------------------

    \743\ 12 U.S.C. 1851(b)(2).
---------------------------------------------------------------------------

    The Board's rule generally applies to state-chartered banks that
are members of the Federal Reserve System, bank holding companies,
foreign banking organizations, and nonbank financial companies
supervised by the Board (collectively, Board-regulated entities).
However, EGRRCPA, which was enacted on May 24, 2018, amended section 13
of the BHC Act and modified the scope of the definition of banking
entity by amending the term ``insured depository institution'' to
exclude certain community banks.\744\ The Board is not aware of any
Board-regulated entities that meet the SBA's definition of ``small
entity'' that are subject to section 13 of the BHC Act and the rule
following the enactment of EGRRCPA. Furthermore, to the extent that any
Board-regulated entities that meet the definition of ``small entity''
are or become subject to section 13 of the BHC Act and the rule, the
Board does not expect the total number of such entities to be
substantial. Accordingly, the Board's rule is not expected to have a
significant economic impact on a substantial number of small entities.
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    \744\ Under EGRRCPA, a community bank and its affiliates are
generally excluded from the definition of banking entity, and thus
section 13 of the BHC Act, if the bank and all companies that
control the bank have total consolidated assets equal to $10 billion
or less and trading assets and liabilities equal to 5 percent or
less of total consolidated assets.
---------------------------------------------------------------------------

    The Board has not identified any federal statutes or regulations
that would duplicate, overlap, or conflict with the proposed revisions,
and the Board is not aware of any significant alternatives to the rule
that would reduce the economic impact on Board-regulated small
entities.
FDIC
(a) Regulatory Flexibility Analysis
    The RFA generally requires an agency, in connection with a final
rule, to prepare and make available for public comment a final
regulatory flexibility analysis that describes the impact of a rule on
small entities.\745\ 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 $600 million.\746\

Generally, the FDIC considers a significant effect to be a quantified
effect in excess of 5 percent of total annual salaries and benefits per
institution, or 2.5 percent of total noninterest expenses. The FDIC
believes that effects in excess of these thresholds typically represent
significant effects for FDIC-supervised institutions. As discussed
further below, the FDIC certifies that this final rule will not have a
significant economic impact on a substantial number of FDIC-supervised
small entities.
---------------------------------------------------------------------------

    \745\ 5 U.S.C. 601 et seq.
    \746\ The SBA defines a small banking organization as having
$600 million or less in assets, where an organization's ``assets are
determined by averaging the assets reported on its four quarterly
financial statements for the preceding year.'' See 13 CFR 121.201
(as amended by 84 FR 34261, effective August 19, 2019). In its
determination, the ``SBA counts the receipts, employees, or other
measure of size of the concern whose size is at issue and all of its
domestic and foreign affiliates.'' See 13 CFR 121.103. Following
these regulations, the FDIC uses a covered entity's affiliated and
acquired assets, averaged over the preceding four quarters, to
determine whether the covered entity is ``small'' for the purposes
of RFA.
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(b) Reasons for and Policy Objectives of the Final Rule
    The agencies are issuing this final rule to amend the 2013 rule in
order to provide banking entities with additional clarity and certainty
about what activities are prohibited and seek to improve the efficacy
of the regulations where possible. The agencies acknowledge that many
banking entities have found certain aspects of the 2013 rule to be
complex or difficult to apply in practice. This final rule amends the
2013 rule to make its requirements more efficient.
(c) Description of the Rule
    First, the FDIC is amending its regulations to tailor the
application of the final rule based on the size and scope of a banking
entity's trading activities. In particular, the FDIC aims to further
reduce compliance obligations for firms that do not have large trading
operations and therefore reduce costs and uncertainty faced by firms in
complying with the final rule, relative to their amount of trading
activity. In addition to tailoring the application of the final rule,
the FDIC is also streamlining and clarifying for all banking entities
certain definitions and requirements related to the proprietary trading
prohibition and limitations on covered fund activities and investments.
Finally, the FDIC is reducing reporting, recordkeeping, and compliance
program requirements for all banking entities and expanding tailoring
to make the scale of compliance activity required by the rule
commensurate with a banking entity's size and level of trading
activity.
(d) Other Statutes and Federal Rules
    On May 24, 2018, EGRRCPA 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.
    The FDIC has not otherwise identified any likely duplication,
overlap, and/or potential conflict between this final rule and any
other federal rule.
(e) Small Entities Affected
    The FDIC supervises 3,465 depository institutions,\747\ of which,
2,705 are defined as small banking organizations according to the
RFA.\748\ Almost all FDIC-supervised small banking entities are exempt
from the requirements of section 13 of the BHC Act, pursuant to
EGRRCPA, and hence the final rule does not affect them.
---------------------------------------------------------------------------

    \747\ Categories of FDIC-supervised depository institutions are
set forth in 12 U.S.C. 1813(q)(2).
    \748\ FDIC Call Report, March 31, 2019.
---------------------------------------------------------------------------

    Only one FDIC-supervised small banking entity is not exempt from
the requirements of section 13 of the BHC Act under EGRRCPA because it
has trading assets and liabilities greater than five percent of total
consolidated assets. This bank has trading activity at levels that
would place it in the final rule's limited trading assets and
liabilities compliance category, and it thus could benefit from the
final rule which contains a rebuttable presumption of compliance for
such banking entities. The FDIC estimates that banks with limited
trading will save, on average, $115,233 from the reduced burden of this
rule. This amount is far less than 5 percent of total salaries and 2.5
percent of total non-interest expenses for this one institution.
    Consequently, the FDIC does not believe that this rule will have a
significant economic impact on a substantial number of small entities.
(f) Certification Statement
    Section 13 of the BHC Act, as amended by EGRRCPA, exempts all but
one of the 2,705 FDIC-supervised small banking entities from compliance
with section 13 of the BHC Act. Therefore, the FDIC certifies that this
final rule will not have a significant economic impact on a substantial
number of FDIC-supervised small banking entities.
    CFTC: Pursuant to 5 U.S.C. 605(b), the CFTC hereby certifies that
the amendments to the 2013 final rule will not 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
revising 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, the Agencies are simplifying and
tailoring the rule to allow banking entities to more efficiently
provide financial services in a manner that is consistent with the
requirements of section 13 of the BHC Act.
    The revisions will generally apply to banking entities, including
certain CFTC-registered entities. These entities include bank-
affiliated CFTC-registered swap dealers, futures commission merchants,
commodity trading advisors and commodity pool operators.\749\ 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.\750\ 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.\751\
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    \749\ The 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 revisions.
See 2013 final rule (CFTC), 79 FR 5808 at 5813 (Jan. 31, 2014).
    \750\ 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); and Registration of Swap Dealers and
Major Swap Participants, 77 FR 2613, 2620 (Jan. 19, 2012) (swap
dealers and major swap participants).
    \751\ 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 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 that are
within the scope of the Volcker Rule, which the CFTC expects are larger
businesses.\752\
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    \752\ In this regard, the CFTC notes that the agencies recently
revised the 2013 final rule in order to be consistent with statutory
amendments made by EGRRCPA to section 13 of the BHC Act. The general
result of one of these statutory revisions was to exclude community
banks and their affiliates and subsidiaries from the scope of the
Volcker Rule. See 84 FR 35008. The CFTC believes this exclusion
lessens the likelihood that any commodity trading advisors that
remain within the scope of the Volcker Rule are small entities.

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

    The CFTC requested that commenters address whether any CFTC
registrants covered by the proposed revisions to the 2013 final rule
are small entities for purposes of the RFA. The CFTC did not receive
any public comments on this or any other aspect of the RFA as it
relates to the rule.
    Because the CFTC believes there are not a substantial number of
commodity trading advisors within the scope of the Volcker Rule 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
revisions to the 2013 final rule will not have a significant economic
impact on a substantial number of small entities for which the CFTC is
the primary financial regulatory agency.
    SEC: In the proposal, the SEC certified that, pursuant to 5 U.S.C.
605(b), the proposal would not, if adopted, have a significant economic
impact on a substantial number of small entities. Although the SEC
solicited written comments regarding this certification, no commenters
responded to this request.
    As discussed in the Supplementary Information, the Agencies are
adopting revisions to the 2013 rule that are intended to provide
banking entities with clarity about what activities are prohibited and
improve supervision and implementation of section 13 of the BHC Act.
    The revisions the agencies are adopting today will generally apply
to banking entities, including certain SEC-registered entities.\753\
These entities include SEC-registered broker-dealers, investment
advisers, security-based swap dealers, and major security-based swap
participants that are affiliates or subsidiaries of an insured
depository institution.\754\ Based on information in filings submitted
by these entities, the SEC believes that there are no banking entity
registered investment advisers,\755\ broker-dealers,\756\ security-
based swap dealers, or major security-based swap participants that are
small entities for purposes of the RFA.\757\ For this reason, the SEC
certifies that the rule, as adopted, will not have a significant
economic impact on a substantial number of small entities.
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    \753\ The SEC's Economic Analysis, below, discusses the economic
effects of the final amendments. See SEC Economic Analysis, supra
Part V.F.
    \754\ See 2013 rule Sec.  _.2(c) (definition of banking entity);
2013 rule Sec.  _.2(r) as amended (definition of insured depository
institution).
    \755\ 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.
    \756\ 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).
    \757\ Based on SEC analysis of Form ADV data, the SEC believes
that there are not a substantial number of registered investment
advisers affected by the proposal that qualify as small entities
under RFA. Based on SEC analysis of broker-dealer FOCUS filings and
NIC relationship data, the SEC believes that there are no SEC-
registered broker-dealers affected by the proposal that qualify as
small entities under RFA. With respect to security-based swap
dealers and major security-based swap participants, based on
feedback from market participants and information about the
security-based swap markets, the Commission believes that the types
of entities that would engage in more than a de minimis 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. See Regulation SBSR--Reporting
and Dissemination of Security-Based Swap Information, 81 FR 53546,
53553 (Aug. 12, 2016).
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D. Riegle Community Development and Regulatory Improvement Act

    Section 302(a) of the Riegle Community Development and Regulatory
Improvement Act of 1994 (RCDRIA) \758\ requires that each Federal
banking agency, in determining the effective date and administrative
compliance requirements for new regulations that impose additional
reporting, disclosure, or other requirements on insured depository
institutions, consider, consistent with principles of safety and
soundness and the public interest, any administrative burdens that such
regulations would place on depository institutions, including small
depository institutions, and customers of depository institutions, as
well as the benefits of such regulations. The agencies have considered
comment on these matters in other parts of this Supplementary
Information.
---------------------------------------------------------------------------

    \758\ 12 U.S.C. 4802(a).
---------------------------------------------------------------------------

    In addition, under section 302(b) of the RCDRIA, new regulations
that impose additional reporting, disclosures, or other new
requirements on insured depository institutions generally must take
effect on the first day of a calendar quarter that begins on or after
the date on which the regulations are published in final form.\759\
Therefore, the effective date for the OCC, Board, and FDIC is January
1, 2020, the first day of the calendar quarter.\760\
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    \759\ 12 U.S.C. 4802(b).
    \760\ Additionally, the Administrative Procedure Act generally
requires that the effective date of a rule be no less than 30 days
after publication in the Federal Register. 5 U.S.C. 553(d)(1). The
effective date, January 1, 2020, will be more than 30 days after
publication in the Federal Register.
---------------------------------------------------------------------------

E. OCC Unfunded Mandates Reform Act Determination

    The OCC has analyzed the rule under the factors set forth in the
Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1532). Under this
analysis, the OCC considered whether the 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 for inflation). The cost
estimate for the final rule is approximately $4.1 million in the first
year. Therefore, the OCC finds that the final rule does not trigger the
UMRA cost threshold. Accordingly, the OCC has not prepared the written
statement described in section 202 of the UMRA.

F. SEC Economic Analysis

1. Broad Economic Considerations
a. Scope
    As discussed above, section 13 of the Bank Holding Company (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 a hedge fund or
private equity fund (covered funds), subject to certain exemptions.
Section 13(h)(1) of the BHC Act defines the term ``banking entity'' to
include (i) any insured depository institution (as defined by statute),
(ii) any company that controls an insured depository institution, (iii)
any company that is treated as a bank holding company for purposes of
section 8 of the

International Banking Act of 1978, and (iv) any affiliate or subsidiary
of such an entity.\761\ In addition, as discussed above, the Economic
Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA),
enacted on May 24, 2018, amended section 13 of the BHC Act to exclude
from the definition of ``insured depository institution'' any
institution 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.\762\
---------------------------------------------------------------------------

    \761\ See 12 U.S.C. 1851(h)(1).
    \762\ These and other aspects of the regulatory baseline against
which the SEC is assessing the economic effects of the final rule on
SEC banking entities are discussed in the economic baseline. On July
22, 2019, the agencies adopted a final rule amending the definition
of ``insured depository institution'' in a manner consistent with
EGRRCPA.
---------------------------------------------------------------------------

    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.\763\ This economic 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 final rule on SEC registrants,
in their capacity as such, the functioning and efficiency of the
securities markets, investor protection, and capital formation. SEC
registrants affected by the final rule include SEC-registered broker-
dealers, SBSDs, and RIAs. Thus, the below analysis does not consider
broker-dealers, SBSDs, and investment advisers that are not banking
entities, or banking entities that are not SEC registrants, in either
case for purposes of section 13 of the BHC Act, beyond the potential
spillover effects on these entities and effects on efficiency,
competition, investor protection, and capital formation in securities
markets. Other sections of this Supplementary Information discuss the
effects of the final rule on banking entities not overseen by the SEC
for purposes of section 13 of the BHC Act.
---------------------------------------------------------------------------

    \763\ 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).
    Compliance with SBSD registration requirements is not yet
required and there are currently no registered SBSDs. However, the
SEC has previously estimated that as many as 50 entities may
potentially register as SBSDs and that as many as 16 of these
entities may already be SEC-registered broker-dealers. See Capital,
Margin, and Segregation Requirements for Security-Based Swap Dealers
and Major Security-Based Swap Participants and Capital and
Segregation Requirements for Broker-Dealers, Exchange Act Release
No. 86175 (June 21, 2019), 84 FR at 43872 (Aug. 22, 2019),
(henceforth ``Capital, Margin, and Segregation Adopting Release'').
    For the purposes of this economic analysis, the term ``dealer''
generally refers to SEC-registered broker-dealers and SBSDs.
---------------------------------------------------------------------------

    In the proposal, the SEC solicited comment on all aspects of the
costs and benefits associated with the proposed amendments for SEC
registrants, including any spillover effects the proposed amendments
may have on efficiency, competition, and capital formation in
securities markets. The SEC has considered these comments, as discussed
in greater detail in the sections that follow.
b. Economic Effects and Justification
    As stated in the proposal, 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.
    In the proposal, the SEC recognized a number of effects of the 2013
rule.\764\ The SEC continues to recognize that distinguishing between
permissible and prohibited activities may be complex and costly for
some firms,\765\ which may impede the conduct of permissible
activities.\766\ The SEC continues to believe that the 2013 rule may
have resulted in a complex and costly compliance regime that is unduly
restrictive and burdensome for some banking entities, particularly
smaller firms that do not qualify for the simplified compliance
regime.\767\ Since the 2013 rule became effective, new estimates
regarding compliance burdens and new information about the various
effects of the 2013 rule have become available.\768\ 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 reporting and other
compliance burdens.\769\
---------------------------------------------------------------------------

    \764\ See 83 FR at 33520-33552.
    \765\ See, e.g., 83 FR at 33521.
    \766\ See, e.g., 83 FR at 33532.
    \767\ Id.
    \768\ See, e.g., 83 FR at 33522.
    \769\ Id.
---------------------------------------------------------------------------

    As discussed below, a number of commenters have indicated that the
proposed amendments would have altered the scope of permissible
activities and compliance requirements of the 2013 rule in a way that
significantly affects the economic costs and benefits of the 2013 rule.
In addition, commenters offered a variety of views on the baseline
economic effects, which include section 13 of the BHC Act, the 2013
rule, sections 203 and 204 of EGRRCPA and conforming amendments, and
current practices of banking entities aimed at compliance with these
regulations.\770\ As part of the proposal's economic baseline, the SEC
discussed the effects of the agencies' 2013 rule.\771\ The economic
baseline section below discusses these effects in greater detail.
---------------------------------------------------------------------------

    \770\ See, e.g., Occupy the SEC; Better Markets; SIFMA and
Center for American Entrepreneurship.
    \771\ See 83 FR at 33520-33521.
---------------------------------------------------------------------------

    The final rule includes amendments that impact the scope of
permitted activities for all or a subset of banking entities (e.g.,
trading account definition, underwriting and market making, and trading
and investing activities by foreign banking entities), and amendments
that simplify, tailor, or eliminate the application of certain aspects
of the 2013 rule intended to reduce compliance and reporting burdens
while preserving and, in some cases, enhancing the effectiveness of the
2013 rule. Many of the final amendments seek to provide greater clarity
and certainty about which activities are permitted under the 2013 rule,
which may increase the ability and willingness of banking entities to
engage in permitted activities, and to promote the effective allocation
of compliance resources.
    Broadly, the SEC believes that a greater ability and willingness to
engage in permitted activities would benefit the parties to those
transactions and capital markets as a whole. Reduced compliance costs
may translate into increased willingness of banking entities to engage
in activities that facilitate risk-sharing and capital formation, such
as underwriting securities and making markets. Accordingly, the rule
may also benefit clients, customers, and counterparties in the form of
an increased ability to transact with banking entities.
    The SEC continues to recognize that some of these changes may also,
in certain circumstances, increase activities involving risk exposure
or increase the incidence of conflicts of interest among some market
participants. The returns and risks from

the activities of banking entities may flow through to their investors.
In general, to the extent that the final rule increases or decreases
the scope of permissible activities, the final rule may dampen or
magnify some of the economic tensions inherent in this rulemaking. As
discussed above, various aspects of the final rule are designed to
ensure that the prudential objectives of the rule are not diminished.
Moreover, amendments adopted as part of the final rule that redefine
the scope of entities subject to certain provisions of the 2013 rule
may have an effect on competition, allocative efficiency, and capital
formation. Where the final rule reduces burdens on some groups of
market participants (e.g., on banking entities without significant
trading assets and liabilities and certain foreign banking entities),
the final rule is expected to increase competition and trading activity
in related market segments.
    Other amendments to the 2013 rule reduce compliance program,
reporting, and documentation requirements for some banking entities.
The SEC believes that these amendments may reduce the compliance
burdens of SEC-regulated banking entities, which may enhance
competition, trading activity, and capital formation. The SEC
recognizes that these amendments may alter the mix of tools available
for regulatory oversight and supervision. However, the SEC believes
that the final rule as a whole is unlikely to reduce the efficacy of
the agencies' regulatory oversight.\772\ Further, under the final rule,
banking entities (other than banking entities with limited trading
assets and liabilities for which the presumption of compliance has not
been rebutted) are still required to develop and provide for the
continued administration of a compliance program that is reasonably
designed to ensure and monitor compliance with the prohibitions and
restrictions set forth in section 13 of the BHC Act. Finally, the final
rule does not change the scope of entities subject to the statutory
obligations and prohibitions of section 13 of the BHC Act.
---------------------------------------------------------------------------

    \772\ See, e.g., sections IV.B.2 and IV.D.1.
---------------------------------------------------------------------------

c. Analytical Approach
    The SEC's economic analysis is informed by research on the effects
of section 13 of the BHC Act and the 2013 rule and on related
incentives conflicts, by comments received by the agencies from a
variety of interested parties, and by the agencies' experience
administering the 2013 rule since its adoption. Throughout this
economic analysis, the SEC discusses how different market participants
may respond to various aspects of the final rule and considers the
potential effects of the final rule on activities by banking entities
that involve risk, on their willingness and ability to engage in
client-facilitation activities, and on competition, market quality, and
capital formation, as informed, among other things, by research and
comment letters. The SEC's analysis also recognizes that the overall
risk exposure of banking entities may arise out of a combination of
activities, including proprietary trading, market making, and
traditional banking, as well as the volume and structure of hedging and
other risk-mitigating activities. As discussed further below, the SEC
recognizes the complex baseline effects of section 13 of the BHC Act,
as amended by sections 203 and 204 of EGRRCPA, and implementing rules,
on overall levels and structure of banking entity risk exposures.
    The SEC also considered the investor protection implications of the
final rule. Broadly, the SEC notes that market liquidity can be
important to investors as it may enable investors to exit (in a timely
manner and at an acceptable price) from their positions in instruments,
products, and portfolios. At the same time, excessive risk exposures of
banking entities can adversely affect markets and, therefore,
investors.
    The final rule tailors, removes, or alters the scope of various
requirements in the 2013 rule and adds certain new requirements. Since
section 13 of the BHC Act and the 2013 rule combined a number of
different requirements, and, as discussed above, the type and level of
risk exposure of a banking entity is the result of a combination of
activities,\773\ it is difficult to attribute the observed effects to a
specific provision or set of requirements. In addition, analysis of the
effects of the implementation of the 2013 rule is confounded by
macroeconomic factors, other policy interventions, and post-crisis
changes to market participants' risk aversion and return expectations.
Because of the extended timeline of implementation of section 13 of the
BHC Act and the overlap of the 2013 rule period with other post-crisis
changes affecting the same group or certain sub-groups of SEC
registrants, the SEC cannot rely on typical quantitative methods that
might otherwise enable causal attribution and quantification of the
effects of section 13 of the BHC Act and the 2013 rule on measures of
capital formation, liquidity, competition, and informational or
allocative efficiency. Moreover, empirical measures of capital
formation or liquidity do not reflect issuance and transaction activity
that does not occur as a result of the 2013 rule. Accordingly, it is
difficult to quantify the primary issuance and secondary market
liquidity that would have been observed following the financial crisis
absent various provisions of Section 13 of the BHC Act and the 2013
final rule.
---------------------------------------------------------------------------

    \773\ See, e.g., 79 FR 5541.
---------------------------------------------------------------------------

    Importantly, 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
enactment of Section 13 of the BHC Act and the implementation of the
2013 rule. For example, the role of dealers in intermediating trading
activity has changed in important ways, including the following: In
recent years, on both an absolute and relative basis bank-dealers
generally committed less capital to intermediation activities while
nonbanking dealers generally committed more; the volume and
profitability of certain trading activities after the financial crisis
may have decreased for bank-dealers while it may have increased for
other intermediaries, including nonbanking entities that provide
intraday liquidity using sophisticated electronic trading algorithms
and high speed access to data and trading venues; and the introduction
of alternative credit markets may have contributed to liquidity
fragmentation across markets while potentially increasing access to
capital.\774\
---------------------------------------------------------------------------

    \774\ See Sec. & Exch. Comm'n, Access To Capital And Market
Liquidity, (2017) [hereinafter SEC Report 2017].
---------------------------------------------------------------------------

    Where possible, this analysis attempts to quantify the costs and
benefits expected to result from the final rule. 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 rule's prohibitions that are
being amended here, such as potential benefits for resilience during a
crisis, are less readily observable under strong economic conditions
and cannot be isolated from the effects of other post-crisis regulatory
efforts intended to enhance resilience. Lastly, because of overlapping
implementation periods of various post-crisis regulations affecting

the same group or certain sub-groups of SEC registrants, the long
implementation timeline of the 2013 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
individual amendments to the 2013 rule adopted here.
    In some instances, the SEC lacks the information or data necessary
to provide reasonable estimates for the economic effects of the final
rule. For example, the SEC lacks information and data, and commenters
have not provided such information or data, to allow a quantification
of (1) the volume of trading activity that does not occur because of
uncertainty about how to demonstrate that underwriting or market making
activities satisfy the reasonably expected near-term demand (RENTD)
requirement; (2) the extent to which internal limits may capture
expected customer demand; (3) 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; (4) 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;
and (5) the extent of the overall risk reduction (if any) caused by the
2013 rule. Where the SEC cannot quantify the relevant economic effects,
the SEC discusses them in qualitative terms.
2. Baseline
    The baseline against which the SEC is assessing the economic
effects of the final rule includes the legal and regulatory framework
as it exists at the time of this release and current practices aimed at
compliance with these regulations.
a. Regulation
    The regulatory baseline includes section 13 of the BHC Act, as
amended by EGRRCPA, and the 2013 rule, as amended by the agencies'
amendments conforming to EGRRCPA. Further, the baseline accounts for
the fact that since the adoption of the 2013 rule, the staffs of the
agencies have provided FAQ responses to questions about the 2013
rule.\775\ In addition, the federal banking agencies released a 2019
policy statement with respect to foreign excluded funds.\776\
---------------------------------------------------------------------------

    \775\ See https://www.sec.gov/divisions/marketreg/faq-volcker-rule-section13.htm, originally published on June 10, 2014, and most
recently updated on March 4, 2016.
    \776\ See Statement regarding Treatment of Certain Foreign Funds
under the Rules Implementing Section 13 of the Bank Holding Company
Act (July 17, 2019), available at https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20190717a1.pdf. This policy
statement continued the position of the Federal banking agencies
that was released on July 21, 2017, and the position that the
agencies expressed in the proposal. See 83 FR 33444.
---------------------------------------------------------------------------

    The subsections below discuss in greater detail the legal and
regulatory baseline applicable to entities that are registered with the
SEC and that the SEC oversees for purposes of section 13 of the BHC
Act. In particular, the SEC discusses the exemptions for permissible
underwriting and market making-related activities, risk-mitigating
hedging, and foreign trading; requirements and exemptions related to
covered funds; compliance and metrics reporting requirements; and
sections of EGRRCPA and conforming amendments that exempt certain
banking entities from section 13 of the BHC Act and the 2013 rule.
i. The 2013 Rule
(1) Definition of the Trading Account
    The scope of prohibited proprietary trading activity is determined
by the definition of ``trading account'' and related exclusions.\777\
As discussed in detail in section IV.B.1.a, the 2013 rule's definition
of trading account includes three prongs: The short-term intent prong,
the market risk capital rule prong, and the dealer prong. In addition,
the 2013 rule includes a rebuttable presumption, under which a purchase
(or sale) of a financial instrument is presumed to be for the trading
account under the short-term intent prong if the banking entity holds
the financial instrument for fewer than 60 days or substantially
transfers the risk of the financial instrument within 60 days of the
purchase (or sale).
---------------------------------------------------------------------------

    \777\ This aspect of the baseline is discussed in section
V.F.3.b.
---------------------------------------------------------------------------

    The 2013 rule provides several exclusions from the definition of
proprietary trading in section Sec.  __.3(d). In particular, under
certain conditions, the 2013 rule excludes from the definition of
proprietary trading any purchases or sales that arise under a
repurchase or reverse repurchase agreement or under a transaction in
which the banking entity lends or borrows a security temporarily, any
purchase or sale of a security for the purpose of liquidity management
in accordance with a documented liquidity management plan,\778\ any
purchase or sale by a banking entity that is a derivatives clearing
organization or a clearing agency in connection with clearing financial
instruments, any excluded clearing activities, any purchase or sale
that satisfies an existing delivery obligation or an obligation in
connection with a judicial, administrative, self-regulatory
organization, or arbitration proceeding, any purchase or sale by a
banking entity that is acting solely as agent, broker, or custodian,
any purchase or sale through a deferred compensation, stock-bonus,
profit-sharing, or pension plan, and any purchase or sale in the
ordinary course of collecting a debt previously contracted in good
faith.
---------------------------------------------------------------------------

    \778\ This aspect of the baseline is discussed in section
IV.B.1.b.i.
---------------------------------------------------------------------------

    In addition, section Sec.  __.3(e)(13) of the 2013 rule defines
``trading desk'' as the smallest discrete unit of organization of a
banking entity that purchases or sells financial instruments for the
trading account of the banking entity or an affiliate thereof, and
applies certain requirements at the ``trading desk''-level of
organization.\779\
---------------------------------------------------------------------------

    \779\ See 2013 rule Sec. Sec.  __.4, __.5, App. A., App. B;
final rule Sec. Sec.  __.4, __.5, App. A.
---------------------------------------------------------------------------

(2) Exemption for Underwriting and Market Making-Related Activity
    Section 13(d)(1)(B) of the BHC Act contains an exemption from the
prohibition on proprietary trading for underwriting and market making-
related activities. Under the 2013 rule, all banking entities with
covered activities must satisfy several requirements with respect to
their underwriting activities to qualify for the exemption for
underwriting activities, discussed in detail in section IV.B.2.a
above.\780\ In addition, under the current baseline, all banking
entities with covered activities must satisfy six requirements with
respect to their market making-related activities to qualify for the
exemption for market making-related activities, as discussed in section
IV.B.2.a.\781\
---------------------------------------------------------------------------

    \780\ See 2013 rule Sec.  __.4 (a).
    \781\ See 2013 rule Sec.  __.4 (b).
---------------------------------------------------------------------------

    The SEC also notes that, under the baseline, an organizational unit
or a trading desk of another banking entity that has consolidated
trading assets and liabilities of $50 billion or more is generally not
considered a client, customer, or counterparty for the purposes of the
RENTD requirement.\782\ Thus, such demand does not contribute to RENTD
unless such demand is affected through an anonymous trading facility or
unless the trading desk documents how and why the organizational unit
of said large banking entity should be treated as a client,

customer, or counterparty. To the extent that such documentation
requirements increase the cost of intermediating interdealer
transactions, this requirement may affect the volume and cost of
interdealer trading.
---------------------------------------------------------------------------

    \782\ See 2013 rule Sec.  __.4 (b)(3)(i).
---------------------------------------------------------------------------

(3) Exemption for Risk-Mitigating Hedging
    Under the baseline, certain risk-mitigating hedging activities may
be exempt from the restriction on proprietary trading under the risk-
mitigating hedging exemption. To make use of this exemption, the 2013
rule requires all banking entities to comply with a comprehensive and
multi-faceted set of requirements, including (1) the establishment,
implementation, and maintenance of an internal compliance program; (2)
satisfaction of various criteria for hedging activities; and (3) the
existence of compensation arrangements for persons performing risk-
mitigating hedging activities that are designed not to reward or
incentivize prohibited proprietary trading. In addition, certain
activities under the exemption for risk-mitigating hedging are subject
to documentation requirements.\783\
---------------------------------------------------------------------------

    \783\ See 2013 rule Sec.  __.5.
---------------------------------------------------------------------------

    Specifically, the 2013 rule requires that a banking entity seeking
to rely on the exemption for risk-mitigating hedging must establish,
implement, maintain, and enforce an internal compliance program that
includes reasonably designed written policies and procedures regarding
the positions, techniques, and strategies that may be used for hedging,
including documentation indicating what positions, contracts, or other
holdings a particular trading desk may use in its risk-mitigating
hedging activities, as well as position and aging limits with respect
to such positions, contracts, or other holdings. The compliance program
must also provide for internal controls and ongoing monitoring,
management, and authorization procedures, including relevant escalation
procedures. In addition, the 2013 rule requires that all banking
entities, as part of their compliance program, must conduct analysis,
including correlation analysis, and independent testing designed to
ensure that the positions, techniques, and strategies that may be used
for hedging are designed to reduce or otherwise significantly mitigate
and demonstrably reduce or otherwise significantly mitigate the
specific, identifiable risk(s) being hedged.
    The 2013 rule does not require a banking entity to prove
correlation mathematically--rather, the nature and extent of the
correlation analysis should be dependent on the facts and circumstances
of the hedge and the underlying risks targeted. Moreover, if
correlation cannot be demonstrated, the analysis needs to state the
reason and explain how the proposed hedging position, technique, or
strategy is designed to reduce or significantly mitigate risk and how
that reduction or mitigation can be demonstrated without
correlation.\784\ In the proposal, the SEC referenced market
participants' estimate that the inability to perform correlation
analysis, for instance, for non-trading assets such as mortgage
servicing assets, can add as much as 2% of the asset value to the cost
of hedging.\785\
---------------------------------------------------------------------------

    \784\ See 79 FR 5631.
    \785\ See 83 FR at 33534 citing to note 18 regarding Notice
Seeking Public Input on the Volcker Rule (August 2017), available at
https://www.occ.gov/news-issuances/news-releases/2017/nr-occ-2017-89a.pdf. Corresponding comment letters are available at https://www.regulations.gov/docketBrowser?rpp=25&so=DESC&sb=commentDueDate&po=0&dct=PS&D=OCC-2017-0014. Letter from BOK Financial can be accessed directly at
https://www.regulations.gov/document?D=OCC-2017-0014-0016.
---------------------------------------------------------------------------

    To qualify for the exemption for risk-mitigating hedging, the
hedging activity, both at inception and at the time of any adjustment
to the hedging activity, must be designed to reduce or otherwise
significantly mitigate and demonstrably reduce or significantly
mitigate one or more specific identifiable risks.\786\ Hedging
activities also must not give rise, at the inception of the hedge, to
any significant new or additional risk that is not itself hedged
contemporaneously. Additionally, the hedging activity must be subject
to continuing review, monitoring, and management by the banking entity,
including ongoing recalibration of the hedging activity to ensure that
the hedging activity satisfies the requirements for the exemption and
does not constitute prohibited proprietary trading.
---------------------------------------------------------------------------

    \786\ See 2013 rule Sec.  __.5(b)(2)(ii).
---------------------------------------------------------------------------

    Finally, the 2013 rule requires banking entities to document and
retain information related to the purchase or sale of hedging
instruments that are either (1) established by a trading desk that is
different from the trading desk establishing or responsible for the
risks being hedged; (2) established by the specific trading desk
establishing or responsible for the risks being hedged but that are
effected through means not specifically identified in the trading
desk's written policies and procedures; or (3) established to hedge
aggregate positions across two or more trading desks. \787\ The
documentation must include the specific identifiable risks being
hedged, the specific risk-mitigating strategy that is being
implemented, and the trading desk that is establishing and responsible
for the hedge. These records must be retained for a period of not less
than 5 years in a form that allows them to be promptly produced if
requested.\788\
---------------------------------------------------------------------------

    \787\ See 2013 rule Sec.  __.5(c)(1).
    \788\ See 2013 rule Sec.  __.5(c)(3). See also 2013 rule Sec.
__.20(b)(6).
---------------------------------------------------------------------------

(4) Exemption for Foreign Trading
    Under the 2013 rule, a foreign banking entity that has a branch,
agency, or subsidiary located in the United States (and is not itself
located in the United States) is subject to the proprietary trading
prohibitions and related compliance requirements unless the transaction
meets five criteria.\789\ First, a branch, agency, or subsidiary of a
foreign banking organization that is located in the United States or
organized under the laws of the United States or of any state may not
engage as principal in the purchase or sale of financial instruments
(including any personnel that arrange, negotiate, or execute a purchase
or sale). Second, the banking entity (including relevant personnel)
that makes the decision to engage in the transaction must not be
located in the United States or organized under the laws of the United
States or of any state. Third, the transaction, including any
transaction arising from risk-mitigating hedging related to the
transaction, must not be accounted for as principal directly or on a
consolidated basis by any branch or affiliate that is located in the
United States or organized under the laws of the United States or of
any state. Fourth, no financing for the transaction can be provided by
any branch or affiliate of a foreign banking entity that is located in
the United States or organized under the laws of the United States or
of any state (the financing prong). Fifth, the transaction must
generally not be conducted with or through any U.S. entity (the
counterparty prong), unless (1) no personnel of a U.S. entity that are
located in the United States are involved in the arrangement,
negotiation, or execution of such transaction; (2) the transaction is
with an unaffiliated U.S. market intermediary acting as principal and
is promptly cleared and settled through a central counterparty; or (3)
the transaction is executed through an unaffiliated U.S. market
intermediary acting as agent, conducted anonymously through an

exchange or similar trading facility, and is promptly cleared and
settled through a central counterparty.\790\
---------------------------------------------------------------------------

    \789\ See 2013 rule Sec.  __.6(e).
    \790\ See 2013 rule Sec.  __.6(e)(3).
---------------------------------------------------------------------------

(5) Covered Funds
    The 2013 rule generally defines covered funds as issuers that would
be investment companies but for section 3(c)(1) or 3(c)(7) of the
Investment Company Act of 1940 and then excludes specific types of
entities from the definition. As described above, the 2013 rule
provides for market making and hedging exemptions to the prohibition on
proprietary trading. However, the 2013 rule places additional
restrictions on the amount of underwriting, market making, and hedging
a banking entity can engage in when those transactions involve covered
funds. For underwriting and market making transactions in covered
funds, if the banking entity sponsors or advises a covered fund, or
acts in any of the other capacities specified in Sec.  __.11(c)(2) of
the 2013 rule, then any ownership interests acquired or retained by the
banking entity and its affiliates in connection with underwriting and
market making-related activities for that particular covered fund must
be included in the per-fund and aggregate covered fund investment
limits in Sec.  __.12 of the 2013 rule and is subject to the capital
deduction provided in Sec.  __.12(d) of the 2013 rule.\791\
Additionally, a banking entity's aggregate investment in all covered
funds is limited to 3% of a banking entity's tier 1 capital, and
banking entities must include all ownership interests in covered funds
acquired or retained in connection with underwriting and market making-
related activities for purposes of this calculation.\792\ Moreover,
under the 2013 rule, the exemption for risk-mitigating hedging
activities related to covered funds is available only for transactions
that mitigate risks associated with the compensation of a banking
entity employee or an affiliate that provides advisory or other
services to the covered fund.\793\
---------------------------------------------------------------------------

    \791\ See 2013 rule Sec.  __.12(a)(2)(ii); see also Sec.
__.11(c)(2).
    \792\ See 2013 rule Sec.  __.12(a)(2)(iii); see also Sec.
__.11(c)(3).
    \793\ See 2013 rule Sec.  __.13(a).
---------------------------------------------------------------------------

    Under the 2013 rule, foreign banking entities can acquire or retain
an ownership interest in, or act as sponsor to, a covered fund, so long
as those activities and investments occur solely outside of the United
States, no ownership interest in such fund is offered for sale or sold
to a resident of the United States (the marketing restriction), and
certain other conditions are met. Under the 2013 rule, an activity or
investment occurs solely outside of the United States if (1) the
banking entity is not itself, and is not controlled directly or
indirectly by, a banking entity that is located in the United States or
established under the laws of the United States or of any state; (2)
the banking entity (and relevant personnel) that makes the decision to
acquire or retain the ownership interest or act as sponsor to the
covered fund is not located in the United States or organized under the
laws of the United States or of any state; (3) the investment or
sponsorship, including any risk-mitigating hedging transaction related
to an ownership interest, is not accounted for as principal by any U.S.
branch or affiliate; and (4) no financing is provided, directly or
indirectly, by any U.S. branch or affiliate. In addition, the staffs of
the agencies have issued FAQs concerning the requirement that no
ownership interest in such fund is offered for sale or sold to a
resident of the United States.\794\
---------------------------------------------------------------------------

    \794\ See Responses to Frequently Asked Questions Regarding the
Commission's Rule under Section 13 of the Bank Holding Company Act,
June 10, 2014, updated March 4, 2016, available at https://www.sec.gov/divisions/marketreg/faq-volcker-rule-section13.htm.
---------------------------------------------------------------------------

(6) Compliance Program
    For compliance purposes, the 2013 rule differentiates banking
entities on the basis of certain thresholds, including the amount of
the banking entity's consolidated trading assets and liabilities and
total consolidated assets. 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 subject to reporting
requirements of Appendix A under the 2013 rule. Banking entities that
have $50 billion or more in total consolidated assets as of the
previous calendar year end and banking entities with over $10 billion
in consolidated trading assets and liabilities are subject to the
requirement to adopt an enhanced compliance program pursuant to
Appendix B of the 2013 rule. Additionally, banking entities that engage
in covered activities and that have total consolidated assets of $10
billion or less as reported on December 31 of the previous 2 calendar
years qualify for the simplified compliance regime.
    The 2013 rule emphasized the importance of a strong compliance
program and sought to tailor the compliance program to the size of
banking entities and the size of their trading activity. As noted in
the preamble to the 2013 rule, the agencies believed it was necessary
to balance compliance burdens posed on smaller banking entities with
specificity and rigor necessary for large and complex banking
organizations facing high compliance risks. As a result, the compliance
regime under the 2013 rule is progressively more stringent with the
size of covered activities and/or balance sheet of banking entities.
    Under the 2013 rule, all banking entities with covered activities
must develop and maintain a compliance program that is reasonably
designed to ensure and monitor compliance with section 13 of the BHC
Act and the implementing regulations. The terms, scope, and detail of
the compliance program depend on the types, size, scope, and complexity
of activities and business structure of the banking entity.\795\
---------------------------------------------------------------------------

    \795\ See 2013 rule Sec.  __.20(a).
---------------------------------------------------------------------------

    Under the 2013 rule, banking entities that qualify for the
simplified compliance program (banking entities that have total
consolidated assets of less than $10 billion) are able to incorporate
compliance with the 2013 rule into their regular compliance policies
and procedures by reference, adjusting as appropriate given the
entities' activities, size, scope, and complexity.\796\
---------------------------------------------------------------------------

    \796\ See 2013 rule Sec.  __.20(f). Note that if an entity does
not have any covered activities, it is not required to establish a
compliance program until it begins to engage in covered activity.
---------------------------------------------------------------------------

    All other banking entities with covered activities are, at a
minimum, required to implement a six-pillar compliance program. The six
pillars include (1) written policies and procedures reasonably designed
to document, describe, monitor and limit proprietary trading and
covered fund activities and investments for compliance; (2) a system of
internal controls reasonably designed to monitor compliance; (3) a
management framework that clearly delineates responsibility and
accountability for compliance, including management review of trading
limits, strategies, hedging activities, investments, and incentive
compensation; (4) independent testing and audit of the effectiveness of
the compliance program; (5) training for personnel to

effectively implement and enforce the compliance program; and (6)
recordkeeping sufficient to demonstrate compliance.\797\
---------------------------------------------------------------------------

    \797\ See 2013 rule Sec.  __.20(b).
---------------------------------------------------------------------------

    In addition, under the 2013 rule, banking entities with covered
activities that do not qualify as those with modest activity (banking
entities that have total consolidated assets in excess of $10 billion)
and that are either subject to the reporting requirements of Appendix A
or have more than $50 billion in total consolidated total assets as of
the previous calendar year end are required to comply with the enhanced
minimum standards for compliance as specified in Appendix B of the 2013
rule.\798\
---------------------------------------------------------------------------

    \798\ See 2013 rule Sec.  __.20(c) and Appendix B.
---------------------------------------------------------------------------

    Appendix B requires the compliance program of the banking entities
that are subject to it to (1) be reasonably designed to supervise the
permitted trading and covered fund activities and investments, identify
and monitor the risks of those activities and potential areas of
noncompliance, and prevent prohibited activities and investments; (2)
establish and enforce appropriate limits on the covered activities and
investments, including limits on the size, scope, complexity, and risks
of the individual activities or investments consistent with the
requirements of section 13 of the BHC Act and the 2013 rule; (3)
subject the compliance program to periodic independent review and
testing and ensure the entity's internal audit, compliance, and
internal control functions are effective and independent; (4) make
senior management and others accountable for the effective
implementation of the compliance program, and ensure that the chief
executive officer and board of directors review the program; and (5)
facilitate supervision and examination by the agencies.
    Additionally, under the 2013 rule, any banking entity that has more
than $10 billion in total consolidated assets as reported in the
previous 2 calendar years is required to maintain additional records
related to covered funds. In particular, a banking entity must document
the exclusions or exemptions relied on by each fund sponsored by the
banking entity (including all subsidiaries and affiliates) in
determining that such fund is not a covered fund, including
documentation that supports such determination; for each seeding
vehicle that will become a registered investment company or SEC-
regulated business development company, a written plan documenting the
banking entity's determination that the seeding vehicle will become a
registered investment company or SEC-regulated business development
company, the period of time during which the vehicle will operate as a
seeding vehicle, and the banking entity's plan to market the vehicle to
third-party investors and convert it into a registered investment
company or SEC-regulated business development company within the time
period specified.\799\
---------------------------------------------------------------------------

    \799\ See 2013 rule Sec.  __.20(e).
---------------------------------------------------------------------------

(7) Metrics
    Under Appendix A of the 2013 rule, banking entities with 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 four previous quarters, as
measured by the last day of each of the four prior calendar quarters--
equals or exceeds $10 billion to meet requirements concerning recording
and reporting certain measurements for each trading desk engaged in
covered trading activity.\800\ Banking entities subject to Appendix A
are required to record and report the following quantitative
measurements for each trading day and for each trading desk engaged in
covered trading activities: (i) Risk and Position Limits and Usage;
(ii) Risk Factor Sensitivities; (iii) Value-at-Risk and Stress Value-
at-Risk; (iv) Comprehensive Profit and Loss Attribution; (v) Inventory
Turnover; (vi) Inventory Aging; and (vii) Customer-Facing Trade Ratio.
---------------------------------------------------------------------------

    \800\ See 2013 rule Sec.  __.20(d) and Appendix A.
---------------------------------------------------------------------------

    The metrics reporting requirements are intended to assist banking
entities, the SEC, and other regulators in achieving the following: A
better understanding of the scope, type, and profile of covered trading
activities; identification of covered trading activities that warrant
further review or examination by the banking entity to verify
compliance with the rule's proprietary trading restrictions; evaluation
of whether the covered trading activities of trading desks engaged in
permitted activities are consistent with the provisions of the
permitted activity exemptions; evaluation of whether the covered
trading activities of trading desks that are engaged in permitted
trading activities (i.e., underwriting and market making-related
activity, risk-mitigating hedging, or trading in certain government
obligations) are consistent with the requirement that such activity not
result, directly or indirectly, in a material exposure to high-risk
assets or high-risk trading strategies; identification of the profile
of particular covered trading activities of the banking entity, and its
individual trading desks, to help establish the appropriate frequency
and scope of the SEC's examinations of such activity; and the
assessment and addressing of the risks associated with the banking
entity's covered trading activities.\801\
---------------------------------------------------------------------------

    \801\ See 2013 rule Sec.  __.20 and Appendix A.
---------------------------------------------------------------------------

    Under the 2013 rule, banking entities with significant trading
assets and liabilities (Group A entities) and with moderate trading
assets and liabilities (Group B entities) that have less than $50
billion in consolidated trading assets and liabilities are required to
report metrics for each quarter within 30 days of the end of that
quarter. In contrast, Group A and Group B banking entities with total
trading assets and liabilities equal to or above $50 billion are
required to report metrics more frequently--each month within 10 days
of the end of that month.\802\
---------------------------------------------------------------------------

    \802\ See 2013 rule Sec.  __.20(d)(3).
---------------------------------------------------------------------------

ii. EGRRCPA and Conforming Amendments
    In accordance with section 203 of EGRRCPA,\803\ the agencies
amended the definition of ``insured depository institution'' in Sec.
__.2(r) of the 2013 rule to exclude an institution if it, and every
entity that controls it, has both (1) $10 billion or less in total
consolidated assets and (2) total consolidated trading assets and
liabilities that are 5% or less of its total consolidated assets. The
agencies also amended the 2013 rule to reflect the changes made by
section 204 of EGRRCPA. That provision modified section 13 of the BHC
Act to permit, in certain circumstances, bank-affiliated investment
advisers to share their name with the hedge funds or private equity
funds they organize and offer.
---------------------------------------------------------------------------

    \803\ Specifically, section 203 of EGRRCPA provides that the
term ``insured depository institution,'' for purposes of the
definition of ``banking entity'' in section 13(h)(1) of the BHC Act
(12 U.S.C. 1851(h)(1)), does not include an insured depository
institution 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.
---------------------------------------------------------------------------

    As discussed elsewhere,\804\ certain SEC-regulated entities, such
as dealers and RIAs, fell under the definition of ``banking entity''
for the purposes of section 13 of the BHC Act before the enactment of
EGRRCPA and qualified for the final amendments implementing

sections 203 and 204 of EGRRCPA.\805\ Therefore, the economic baseline
against which the SEC is assessing the final rule incorporates the
economic effects of sections 203 and 204 of EGRRCPA, as analyzed in the
agencies' release adopting the conforming amendments.\806\
---------------------------------------------------------------------------

    \804\ See EGRRCPA Conforming Amendments Adopting Release, 84 FR
at 35008.
    \805\ The SEC continues to believe that all bank-affiliated
entities that may register with the SEC as security-based swap
dealers and major security-based swap participants were unaffected
by section 203 of EGRRCPA or the conforming amendments because of
the size of their balance sheets and the amount of trading activity
of their affiliated banking entities. The SEC's analysis was based
on DTCC Derivatives Repository Limited Trade Information Warehouse
(TIW) data on single-name credit-default swaps.
    \806\ See EGRRCPA Conforming Amendments Adopting Release, 84 FR
at 35008.
---------------------------------------------------------------------------

b. Response to Commenters Regarding Economic Baseline and Effects of
Section 13 of the BHC Act and the 2013 Rule
    In the proposal, the SEC described the baseline effects of the 2013
rule \807\ and recognized that amendments that increase or decrease the
scope of permissible activities may magnify or attenuate the baseline
economic effects of the 2013 rule.\808\ The SEC also noted that
amendments that decrease (or increase) compliance program and reporting
obligations could alter the economic effects 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, the SEC noted that the proposed amendments may enhance
trading liquidity and capital formation and that some of the proposed
changes need not reduce the efficacy of the regulation or the agencies'
regulatory oversight.\809\
---------------------------------------------------------------------------

    \807\ See 83 FR at 33520-33521.
    \808\ See 83 FR at 33521.
    \809\ Id.
---------------------------------------------------------------------------

    A number of commenters, however, have indicated that the proposed
amendments would have changed the scope of permissible activities and
the compliance regime in the 2013 rule in a manner that significantly
alters the costs and benefits of that rule and offered a variety of
assessments of the baseline economic effects of section 13 of the BHC
Act and the 2013 rule.\810\ In response to those comments, this section
expands the discussion of the baseline and supplements the analysis in
the proposal with a discussion of the comments received by the agencies
and, in response to comments, recent research on that topic. In the
2013 rule, the agencies sought to increase the safety and soundness of
banking entities and to promote financial stability,\811\ and to reduce
conflicts of interest between banking entities and their customers,
clients, and counterparties,\812\ while preserving the provision of
valuable client-oriented services \813\ and mitigating unnecessary
compliance burdens and related competitive effects.\814\ Accordingly,
the sections that follow address the SEC's understanding of the
baseline effects of section 13 of the BHC Act and the 2013 rule on (a)
risk exposures, (b) conflicts of interest between banking entities and
their customers and counterparties, (c) client-oriented financial
services and market quality, and (d) compliance burdens and
competition.
---------------------------------------------------------------------------

    \810\ See, e.g., Occupy the SEC, Better Markets, SIFMA, Center
for American Entrepreneurship.
    \811\ See, e.g., 79 FR at 5666, 79 FR at 5574, 79 FR at 5541.
    \812\ See, e.g., 79 FR at 5659.
    \813\ See, e.g., 79 FR at 5541.
    \814\ See, e.g., 79 FR at 5541, 79 FR at 5584, 79 FR at 5616, 79
FR at 5671, 79 FR at 5673, 79 FR at 5675, 79 FR at 5713.
---------------------------------------------------------------------------

    The SEC's analysis of these various effects reflects comments
received, academic research, and the SEC's experience overseeing
registered entities for purposes of section 13 of the BHC Act.
Importantly, research studies cited below are limited to their specific
settings and are subject to various methodological and measurement
limitations, as discussed in the sections that follow. Moreover, as
described below, some studies empirically examine the relevant effects
around the implementation of the 2013 rule, while others focus on the
anticipatory response of market participants around the enactment of
section 13 of the BHC Act and prior to the effective date of the 2013
rule. As a result, the SEC recognizes that these findings may have
limited generalizability and may or may not extend to various groups of
SEC registrants.
    As discussed below, some research suggests that section 13 of the
BHC Act and the 2013 rule may have reduced risk exposures of banking
entities related to trading, but may not have reduced the overall
exposure to risk of some banking entities. Other research suggests that
the 2013 rule may have partly mitigated certain conflicts of interest
between banking entities and clients in a limited set of banking
entity-client relationships. Moreover, some research suggests that the
2013 rule imposed large compliance costs that may have
disproportionately affected smaller banking entities and may have
decreased the willingness and ability of banking entities to engage in
certain client facilitation activities.
    In addition, commenters suggested that the agencies must consider
the effects of the 2013 rule and proposed amendments in light of the
overall effects of new requirements on banking entities, including
Basel III, regulations of systemically important financial
institutions, the SEC's money market reform, and the liquidity coverage
ratio.\815\ Where relevant, the analysis that follows discusses the
direct effects of section 13 of the BHC Act, the 2013 rule, sections
203 and 204 of EGRRCPA and conforming amendments, and the final rule,
as well as how they may interact with the effects of other related
financial regulations.
---------------------------------------------------------------------------

    \815\ See CCMC; Oonagh McDonald; JBA; Occupy the SEC and
Systemic Risk Council.
---------------------------------------------------------------------------

i. Risk Exposure
    As discussed in the proposal, in implementing section 13 of the BHC
Act, the agencies sought to increase the safety and soundness of
banking entities and to promote financial stability, among other
things.\816\ The regulatory regime created by the 2013 rule was
intended to enhance regulatory oversight and compliance with the
substantive prohibitions in section 13 of the BHC Act.\817\
---------------------------------------------------------------------------

    \816\ See, e.g., 79 FR at 5666, 79 FR at 5574, 79 FR at 5541, 79
FR at 5659. See also Senators Merkley et al.
    \817\ See, e.g., 83 FR at 33520.
---------------------------------------------------------------------------

    In response to the proposal, some commenters indicated that the
benefits from the statutory prohibition in section 13 of the BHC Act
and implementing rules on proprietary trading include reduced banking
profits resulting from proprietary trading and corresponding reductions
in the costs associated with bailouts; \818\ prudent risk management
that makes job-creating functions of banks more viable; \819\ greater
financial stability; \820\ dampened bubbles in products such as
synthetic collateralized debt obligations,\821\ and reduced highly
risky bank trading activities and hedge fund and private equity
investments that can threaten financial stability.\822\ Other
commenters stated that proprietary trading was not the cause of the
2007-2008 financial crisis and that almost every financial crisis in
history has been driven by classic extensions of credit; \823\ that
rather than reducing systemic risk, section 13 of the BHC Act and the
implementing rules harm the healthy functioning of the financial
services

industry; \824\ and that section 13 of the BHC Act and the implementing
rules are no longer necessary given Basel III capital requirements,
stress testing, and liquidity coverage ratio rules that promote short-
term resilience of bank risk profiles.\825\
---------------------------------------------------------------------------

    \818\ See, e.g., Occupy the SEC.
    \819\ Id.
    \820\ See, e.g., Better Markets and NAFCU.
    \821\ See, e.g., Volcker Alliance.
    \822\ See, e.g., CAP.
    \823\ See, e.g., American Action Forum.
    \824\ See, e.g., American Action Forum and CAP.
    \825\ See Oonagh McDonald. See also infra note 849.
---------------------------------------------------------------------------

    In response to the comments discussed above, the SEC has analyzed
relevant academic research on these issues. Most existing qualitative
analysis and quantitative research on moral hazard,\826\ incentives to
increase risk exposures that arise out of deposit insurance \827\ and
implicit bailout guarantees,\828\ and systemic risk implications of
proprietary trading do not explicitly analyze the effects of section 13
of the BHC Act or of the 2013 rule.\829\
---------------------------------------------------------------------------

    \826\ A classic definition of moral hazard is ``the loss
exposure of an insurer (the FDIC) that results from the character or
circumstances of the insured'' (here, the banking entity). See
Anthony Saunders & Marcia Cornett, Financial Institutions
Management: A Risk Management Approach, 573 (8th ed. 2014) p. 573.
    \827\ Saunders and Cornett (2014) discusses how deposit
insurance reduces the risks of depositors or other liability holders
engaging in a run on a banking entity and the related costs of a
banking entity's failure. However, if the risk of bank failure is
not adequately priced in the insurance premium paid by the banking
entity, deposit insurance can create incentives to engage in more
risky activities. Moreover, even absent deposit insurance, the
limited liability of a banking entity's shareholders still creates
incentives to risk shift at the expense of depositors, bondholders,
and other fixed claimants. See Saunders and Cornett (2014), ch. 19.
    \828\ Deposit insurance and implicit bailout guarantees may give
rise to risk taking incentives that are not specific to proprietary
trading. In other words, even in the absence of proprietary trading,
both deposit insurance and implicit bailout guarantees may create
incentives for banking entities to increase risk exposures from
permissible activities such as lending, underwriting, and market
making. Thus, a prohibition of proprietary trading need not by
itself reduce moral hazard or overall risk exposures of banking
entities if banking entities increase risk exposures from other
activities during the same time.
    \829\ For a literature review, see, e.g., Sylvain, Benoit et
al., Where the Risks Lie: A Survey on Systemic Risk, 21 Rev. Fin.
109 (2017). See also 83 FR 33533 note 350.
---------------------------------------------------------------------------

    Several recent academic studies examined the baseline effects of
section 13 of the BHC Act and implementing regulations on activities by
banking entities that involve market risk. As discussed in detail
below, this research suggests that, although section 13 of the BHC Act
and the 2013 rule may have reduced risk exposure related to trading, it
is not clear that the 2013 rule reduced the overall risk of individual
banking entities and potentially of banking entities as a whole.
    For example, one study \830\ compares changes in equity returns and
CDS spreads of 93 U.S. listed banks affected by post-crisis financial
reforms and of those that were not. Specifically, the study finds that
news concerning the potential enactment of substantive prohibitions in
section 13 of the BHC Act \831\ led to a rise in credit default swap
(CDS) spreads (by as much as 17-18 basis points) and to a decrease in
equity prices (statistically significant in most specifications). The
paper interprets the results as an indication that the proprietary
trading prohibition reduced bank profitability because of the spinoffs
of profitable trading and swap desks. In an additional analysis, the
paper finds that these effects were more significant for investment
banks, for banks that are more likely to be systemically
important,\832\ and for banks that are closer to default. Notably, the
paper does not examine changes in specific types of risky activities,
so it is possible that the observed effects may have occurred for
reasons unrelated to the proprietary trading prohibitions.\833\ While
the paper concludes that the reforms reduced bail-out expectations, the
rise in CDS spreads and the decrease in equity prices are also
consistent with the interpretation that market participants reacted to
the event as a change increasing the risk to banking entities, for
instance because of the expected shift to risk taking through lending
or reduced hedging of lending activities with trading activities. For
instance, a shift away from trading activity and toward more illiquid
and potentially less diversified lending or trading activities may have
increased banking entities' exposure to liquidity and counterparty
risks, and this risk may have been priced in higher CDS spreads of
banking entities.
---------------------------------------------------------------------------

    \830\ See Alexander Sch[auml]fer et al., Financial Sector Reform
after the Subprime Crisis: Has Anything Happened?, 20 Rev. Fin. 77
(2016).
    \831\ Specifically, the paper performs an event study around
January 21, 2010, when President Obama announced support for Volcker
Rule-type restrictions on proprietary trading by banking entities.
See Remarks by the President on Financial Reform, Office of the
Press Secretary, The White House, January 21, 2010, available at
https://obamawhitehouse.archives.gov/the-press-office/remarks-president-financial-reform, last accessed 6/27/2019.
    \832\ Specifically, the paper measured systemic importance on
the basis of the Financial Stability Board's list of 29 global
systemically important financial institutions published on November
4, 2011. See Financial Stability Board Identifies 29 Global SIFIs
and Announces Agreed Policy Measures, Mondaq, November 4, 2011, last
accessed 7/9/2013.
    \833\ Another study by Gropp et al. (2011) finds that government
guarantees can increase risk-taking incentives in competitor, but
not in protected, banks. See Reint Gropp et al., Competition, Risk-
Shifting, and Public Bailout Policies, 24 Rev. Fin. Stud. 2084
(2011).
---------------------------------------------------------------------------

    In contrast, another paper \834\ examines the cumulative market
reaction to 15 events related to section 13 of the BHC Act using a
sample of 784 listed banks and seeks to distinguish the events from
announcements surrounding Orderly Liquidation Authority events. The
paper finds significant negative cumulative abnormal equity returns (-
11.97%) for targeted banks,\835\ consistent with targeted banks losing
out on profitable opportunities, and positive cumulative abnormal
returns (7.1%) for non-targeted banks. Similarly, the paper estimates
that targeted banks experienced a 0.021% increase in CDS spreads,
consistent with the changes making targeted banks riskier, whereas non-
targeted banks experienced a decline in CDS spreads of -0.049%. In
addition, banks with a higher measure of systemic risk (marginal
expected shortfall), higher illiquidity (Amihud (2002) \836\ measure
and the bid-ask spread), and worse reporting quality (abnormal loan
loss provisions) experienced more negative market reactions to events
surrounding section 13 of the BHC Act and the 2013 rule. On aggregate,
the paper finds that equity returns rose and CDS spreads declined for
sample banks, and concludes that the rule targeted larger institutions
and enhanced the relative position of smaller banks.
---------------------------------------------------------------------------

    \834\ See Fayez Elayan et al., The Impact of the Volcker Rule on
Targeted Banks, Systemic Risk, Liquidity, and Financial Reporting
Quality, 96 J. Econ. & Bus. 69 (2018).
    \835\ The paper defines targeted banks as banks that issued or
had exposure to mortgage-backed securities or other securitized
products or had other asset write-downs reported in news sources.
    \836\ See Amihud Yakov, Illiquidity and Stock Returns: Cross-
section and Time Series Effects, 5 J. Fin Markets 31 (2002).
---------------------------------------------------------------------------

    Four factors limit the interpretation of this paper's results.
First, the validity of inference from event studies is affected by the
presence of confounding events on announcement days. While a study of a
greater number of event days may provide a more complete picture of
market responses to even minor announcements concerning the reform of
interest, it increases the likelihood of confounding events occurring
on event days, ceteris paribus. Second, the proprietary trading
prohibitions scoped in all, not just a subset of, banking entities,
while the paper hypothesizes differential effects of the proprietary
trading prohibition on targeted and non-targeted banks. As a result,
the measurement of targeted banks may simply be capturing prior
performance of an institution during times of severe

stress or the likelihood of an institution being affected by other
regulatory restrictions or sanctions and not necessarily the degree of
exposure to the proprietary trading prohibition. Third, since the
management of bank balance sheets and risk exposures can take several
quarters, narrow event windows may reflect market participants'
expectations but may not be informative about ex-post changes in risky
bank activities in response to the event.\837\ Finally, all but one
event considered in this study relate to the substantive prohibitions
in section 13 of the BHC Act (and not the agencies' implementing
rules), and all of the events examined in this study precede the
adoption of the 2013 rule.
---------------------------------------------------------------------------

    \837\ For example, see the below discussion of a study by Keppo
and Korte (2018) examining changes in bank risk taking over a 10
quarter period and finding that banks did not decrease risk-taking.
---------------------------------------------------------------------------

    A recent paper uses regulatory data on net trading profits reported
by bank holding companies to the Federal Reserve under the Market Risk
Capital Rule and examines the risk-taking of U.S. banks via trading
books before and after the 2013 rule.\838\ The paper finds that, prior
to 2014, U.S. banks had significant exposures to equity risk factors
through their trading books, but that such trading exposures declined
after the implementing regulations. The paper also finds that, in
response to the 2013 rule, the trading desks of U.S. banks have
decreased their exposures to interest rate risk but not to credit risk.
Consistent with bank reliance on certain exemptions with respect to
commodities, foreign exchange, and currency trading, U.S. banks also
continue to be exposed to currency risk. Importantly, post-2013 rule
credit and dollar risk exposures are far less significant in magnitude
compared to pre-2013 rule exposure to equity risk factors. The paper
concludes that the ban on proprietary trading was effective in
curtailing large exposures. These results seem to suggest that holding
companies significantly reduced their exposure to risk from trading
activities.
---------------------------------------------------------------------------

    \838\ See Antonio Falato et al., ``Banks as Regulated Traders,''
Finance Fin. & Econ. Discussion Series 2019-005, Washington: Board
of Governors of the Fed. Reserve System (2019), available at https://doi.org/10.17016/FEDS.2019.005, last accessed 5/20/2019.
---------------------------------------------------------------------------

    Four considerations limit the interpretation of these results.
First, the paper's tests focus on data aggregated to the weekly
frequency, and it is not clear if the results would continue to hold
using daily, monthly, or quarterly frequencies. For example, the
results appear inconsistent with other research analyzing FR Y-9C data
on trends in quarterly trading positions and trading revenues, which
does not find significant changes in equity profits and losses after
the 2013 rule.\839\ Second, anticipatory compliance and confounding
regulatory and macroeconomic events (unaccounted for in the paper)
complicate definitive causal inference. Third, the paper does not
examine the possibility that, since higher risk is generally
compensated with higher expected returns,\840\ banking entities may
have offset risk reductions in their trading books by shifting risk
into illiquid banking books. Fourth, the paper also does not test
changes in the total amount of risk on bank balance sheets before and
after the relevant regulatory shocks or consider the effects of the
implementing regulations on the overall risk of U.S. banking entities.
---------------------------------------------------------------------------

    \839\ See Begenau, 2019, Discussion of ``Banks as Regulated
Traders,'' NBER CF Spring meeting, April 12, available at https://begenau.people.stanford.edu/sites/g/files/sbiybj1926/f/nber_cfspring2019_begenau_disc.pdf, last accessed 07/15/2019. See
also Juliane Begenau et al., Banks' Risk Exposures, (Nat'l Bureau of
Econ. Research, Working Paper No. 21334, 2015) available at http://www.nber.org/papers/w21334, last accessed 07/15/2019.
    \840\ This effect is commonly known as the ``risk-return
tradeoff'': If an investor is willing to take on risk, there is a
reward of higher expected returns. See ZVI Bodie et al.,
Investments, G-11 (9th ed. 2011).
---------------------------------------------------------------------------

    Another study empirically examines the effects of the substantive
prohibitions of section 13 of the BHC Act on the returns and overall
risk of publicly traded U.S. bank holding companies before and after
the third quarter of 2010.\841\ Consistent with the papers discussed
above, this paper finds that most affected bank holding companies, i.e.
those with the largest trading books before 2010, reduced trading books
relative to total assets by 2.34% more than other bank holding
companies. However, this result is generally consistent with mean
reversion in trading activity by banks that may have suffered the
greatest trading losses during the crisis. In addition, the paper does
not directly distinguish between proprietary trading and client
facilitation trading or hedging trading. Although the paper finds a
decline in trading activity and a general decline in overall bank risk
(measured by the z-score),\842\ the paper does not find a pronounced
effect on most affected bank holding companies; in fact, some of the
results suggest that most affected banks became riskier than less
affected banks. The paper finds that the channel for this effect on
overall risk is an increase in asset return volatility of affected bank
holding companies. In addition, the paper finds no significant
differences in the volatility of bank stock prices and liquidity ratios
of affected and unaffected entities. The paper concludes that the risk
taking incentives of banking entities have not changed and that
affected banks have been able to maintain their levels of risk taking
by becoming less likely to use remaining trading assets to hedge
banking book returns.\843\ The SEC notes that the sample period of the
paper ends prior to the full effective date of the 2013 final rule,
which may partly limit the interpretation of these results.
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    \841\ See Jussi Keppo & Josef Korte, Risk Targeting and Policy
Illusions--Evidence from the Announcement of the Volcker Rule, 64
Mgmt. Sci. 215 (2018). Also cited as an example of ``pathbreaking
work assessing the many costs and benefits of the Rule'' in Robert
J. Jackson Jr., ``Proposed Amendments to the Volcker Rule,''
Securities and Exchange Commission, June 5, 2018, note 21 available
at https://www.sec.gov/news/public-statement/jackson-statement-proposed-amendments-volcker-rule.
    \842\ The z-score is one of the most popular multiple
discriminant analysis models of bankruptcy, originally developed by
Altman (1968) and updated frequently since. Multiple discriminant
analysis consists of identifying a linear combination of accounting
measures that provides the best fit for the observed default and
non-default outcomes in a particular sample of firms. The variables
that enter into the z-score include: The ratio of working capital to
total assets; retained earnings to total assets; earnings before
interest and taxes to total assets; market value of equity to total
liabilities; and net sales to total assets. While the weights on
these components of the z-score are periodically recalibrated using
more recent samples, all components enter with a positive sign, such
that an increase in each of the variables decreases the probability
of bankruptcy. See Phillippe Jorion, GARP Financial Risk Manager
Handbook: Frm Part I/Part II, 475 (2011).
    \843\ In another context, Keppo and Korte (2018) also find that,
after the passage of the Gramm-Leach-Bliley Act that repealed the
Glass-Steagall Act, the overall risk (measured by the z-score) of
affected banks relative to unaffected banks did not change. In that
context, the paper finds that affected banks did significantly
increase their trading risk and decrease the risk of their banking
book.
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    Another recent paper \844\ uses structural methods to isolate and
estimate the effects of the limitation of bank proprietary trading in
section 13 of the BHC Act on the probability of bank defaults,
earnings, and the value of their equity. Using a model calibrated to
the data from a sample of 34 of the most affected U.S. banks, this
paper finds that banks--and particularly banks most affected by section
13 of the BHC Act--

may have become riskier after the statutory change. In the model, the
key mechanism behind this effect is the banks' ability to respond to
shocks: Since the rule leads to a reduction in the size of the trading
book and increases the relative weight of an illiquid banking book,
banks face greater difficulties scaling down the bank book when faced
with negative earnings shocks after the rule. The model assumes no
implementation costs, as the costs were sunk when the statutory
prohibition came into effect and yields an estimate of between -0.72%
and 56.72% increase in average bank default probability after the law.
This estimate range may suggest that the overall risk of some banks may
have increased, in some cases, after the law. In the model, banks for
which a small trading book is optimal, banks with a profitable and low-
risk bank book, and banks that take more risk through leverage, do not
experience this rise in the default risk after the proprietary trading
prohibition. Because the banking book is more profitable and volatile
than the trading book for most affected banks, the paper actually
estimates no significant decrease and, in some cases, an increase in
banks' expected earnings and earnings volatility (a range of -0.04% to
0.73% depending on calibration).\845\ An important caveat for the
interpretation of these results is the sensitivity of the estimates to
modeling assumptions, the limited sample used in model calibration, and
the extremely broad range of estimates of an increase in average bank
default probability after the law.
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    \844\ See Sohhyun Chung et al., The Impact of Volcker Rule on
Bank Profits and Default Probabilities, (SSRN Working Paper, Feb.
27, 2019), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2167773, last accessed 4/23/2019
     Also cited in Robert J. Jackson Jr., ``Proposed Amendments to
the Volcker Rule,'' Securities and Exchange Commission, June 5,
2018, note 22 available at https://www.sec.gov/news/public-statement/jackson-statement-proposed-amendments-volcker-rule.
    \845\ The estimate of -0.04% was obtained using parameters for
``median hedge fund banks,'' calculated as the median of the 34
sample banks, for which the drift and volatility of the trading
earnings were estimated from Credit Suisse Long/Short Equity Hedge
Fund Index data for 2000 through the beginning of 2010. The estimate
of 0.73% was obtained using drift and trading earnings volatility
for an asset-weighted mean of sample banks.
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    Finally, a recent paper \846\ identified three potential channels
behind the effects of section 13 of the BHC Act and the 2013 rule on
risky activities of bank holding companies: (i) Risks from proprietary
trading activity itself, (ii) risk from a lack of diversification of
bank revenue (trading and non-trading revenue), and (iii) risk from
similarity among banks. The paper measures overall risk with the z-
score (as well as volatility in returns, revenues, and returns on
assets) and systemic risk with marginal expected shortfall (average
stock return of each bank holding company during bottom 5th percentile
shocks to 1-year market returns; it also measures marginal expected
shortfall for the financial industry, and tail beta) \847\ and
documents two main results. First, an index of bank revenue
diversification reduces measures of bank and systemic risk, while
similarity across banks increases systemic risk, and trading activity
increases both. Second, the 2013 rule reduced risks from trading
activity of affected banks, reduced the diversification of bank revenue
of affected banks, and increased similarity across banks.
---------------------------------------------------------------------------

    \846\ See Christina Bui and Talis Putnins, The Intended and
Unintended Effects of the Volcker Rule, (Aug. 31, 2018) (working
paper), available at http://fmaconferences.org/SanDiego/Papers/Volcker_SubmissionFMA.pdf, last accessed 4/23/2019.
    \847\ Acharya et al. (2017) finds that a bank's impact on
systemic expected shortfall is affected by its marginal expected
shortfall and leverage. See Viral Acharya et al., Measuring Systemic
Risk, 30 Rev. Fin. Stud. 2 (2017).
---------------------------------------------------------------------------

    The interpretation of these results may be limited because of
respective methodologies, measurement, identifying assumptions, and
residual confounding, as well as the general limitations noted at the
outset. However, these results are broadly consistent with other
research that finds that banking entities can respond to regulations by
risk shifting within an asset class while remaining in compliance \848\
and that the implementation of other financial reforms can create
effects inconsistent with the regulators' intentions.\849\
---------------------------------------------------------------------------

    \848\ See Ran Duchin and Denis Sosyura, Safer Ratios, Riskier
Portfolios: Banks' Response to Government Aid, 113 J. Fin. Econ. 1
(2014).
    \849\ For example, Sundaresan and Xiao (2019) show that the
interaction of liquidity requirements of Basel III and the money
market fund reform may have increased the reliance of private
financial institutions on liquidity provided by Federal Home Loan
Banks that enjoy an implicit government guarantee. The paper
concludes that the rules increased the role of a government-
sponsored enterprise in the aggregate liquidity transformation and
the reliance of private institutions on public liquidity backstops.
In another context, Baghai et al. (2019) finds that following the
money market fund reforms, safer funds exited the industry, the
remaining funds increased their portfolio risk, and issuers with
lower credit risk experienced a reduced access to money market
funding. See Suresh Sundaresan and Kairong Xiao, Unintended
Consequences of Post-Crisis Liquidity Regulation (Aug. 9, 2019)
(working paper) last accessed 8/29/2019. See also Ramin Baghai et
al., Liability Structure and Risk-Taking: Evidence from the Money
Market Fund Industry, (Aug. 18, 2019) (working paper) last accessed
8/29/2019.
---------------------------------------------------------------------------

    Some commenters indicated that restricting pay practices of banking
entities may effectively reduce proprietary trading cross-subsidized by
taxpayers and accordingly lower the risks of banking entities.\850\
While the final rule does not amend existing requirements or impose new
requirements related to compensation practices of banking entities, the
SEC notes two incentive effects relevant for the consideration of these
issues. First, as discussed above, proprietary trading is one of many
activities through which a banking entity can take risk. Both deposit
insurance and implicit government bailout guarantees incentivize risk
taking that is not specific to proprietary trading. Even in the absence
of proprietary trading, deposit insurance and implicit bailout
guarantees may lead banking entities to take greater risks through
lending and permitted underwriting and market making, among other
things. As a result, a prohibition on proprietary trading need not by
itself reduce the overall risk of banking entities if banking entities
increase risk through other activities during the same time.
---------------------------------------------------------------------------

    \850\ See, e.g., CAP and Public Citizen, citing Robert J.
Jackson Jr., ``Proposed Amendments to the Volcker Rule,'' Securities
and Exchange Commission, June 5, 2018, available at https://www.sec.gov/news/public-statement/jackson-statement-proposed-amendments-volcker-rule on potential effects of pay practices on
proprietary trading.
---------------------------------------------------------------------------

    Second, the incentives to take on greater risks described above are
those of both a banking entity's shareholders who are residual
claimants on the banking entity's assets and management. Under limited
liability, all shareholders enjoy a limited downside (at worst,
shareholders stand to lose their investment) and an unlimited upside if
the firm performs well (the value of shareholders' equity depends on
the value of the assets net of the value of fixed claims, such as
claims of debtholders, depositors, and employees).\851\ Thus, the
incentives of banking entities to take on greater risks discussed above
may persist so long as any restrictions on pay practices leave the
incentives of a banking entity's management and employees even partly
aligned with those of shareholders.
---------------------------------------------------------------------------

    \851\ See, e.g., Jonathan Berk & Peter DeMarzo, Corporate
Finance, 552-53 (3rd ed. 2014), discussing how leverage can (1)
incentivize shareholders to shift from lower-risk to higher-risk
assets (the ``asset substitution'' problem); and (2) induce
shareholders to undertake negative net present value, but
sufficiently risky projects (the ``over-investment'' problem). See
also Michael Jensen and William Meckling, Theory of the Firm:
Managerial Behavior, Agency Costs and Ownership Structure, 3 J. Fin.
Econ. 305 (1976).
---------------------------------------------------------------------------

ii. Conflicts of Interest
    As discussed in the proposal, in implementing section 13 of the BHC
Act, the agencies also sought to reduce conflicts of interest between
banking entities and their customers.\852\ Some commenters indicated
that bank trading activities and interests in hedge funds and private
equity funds resulted in

significant conflicts of interest between banks and their
customers.\853\ One commenter also indicated that the agencies should
amend the provisions concerning material conflicts of interest by
permitting banking entities to rely on information barriers under
certain circumstances.\854\
---------------------------------------------------------------------------

    \852\ See, e.g., 79 FR at 5659.
    \853\ See, e.g., CAP.
    \854\ See SIFMA.
---------------------------------------------------------------------------

    In response to these comments, the SEC reviewed relevant research
on conflicts of interest between banking entities and their customers.
As discussed below, related research generally examines trading of
banking entities in stocks, bonds, or options of their advisory and
underwriting clients. While the findings are somewhat mixed and limited
to their specific empirical settings, this research is consistent with
the presence of such conflicts in certain groups of merger and
acquisition (M&A) deals. In addition, one study finds that a narrow
type of conflicts of interest between banking entities and their
clients may have decreased after the implementation of the 2013 rule.
    Specifically, a recent study \855\ examines both the presence of
conflicts of interest between advisor banks and their customers based
on banks' options holdings, and changes in such trading activity around
the implementation of the Volcker Rule. The paper documents three main
results. First, the paper finds that merger advisors tend to increase
their holdings in call options relative to put options in merger
targets during the quarter before the announcement. Second, merger
advisors are significantly more likely to increase put option holdings
in the acquirer firm.\856\ In combination with the literature's general
finding of average negative announcement returns in acquirer firms and
positive announcement returns in target firms, the paper argues that
these results are suggestive of informed trading by advisor banks on
client firms. Third, within the subsample of affected deals (deals in
which one or more advisor banks ceased proprietary trading operations
around the enactment of section 13 of the BHC Act) after 2011, the
paper finds that advisors did not increase their net call option
holdings on target firms before merger announcements. The paper
concludes that, in this narrow setting, the Volcker Rule may have
decreased banks' options trading on client information. Importantly,
the paper finds that some of this bank activity was replaced by hedge
fund activity: Specifically, hedge funds increased their informed
trading in options of M&A client firms around the same time in the same
subsample of deals.
---------------------------------------------------------------------------

    \855\ See Michelle Lowry et al., Informed Trading By Advisor
Banks: Evidence from Options Holdings, 32 Rev. Fin. Stud 605 (2018).
    \856\ To the degree that some advisor banks may have an
underlying (long) risk exposure to acquirer firms' equity, buying
put options is also consistent with risk-mitigating hedging.
---------------------------------------------------------------------------

    The SEC is also aware of a broader body of research that
empirically tests the existence and magnitude of conflicts of interest
between banks and their customers in the context of advising and
underwriting relationships and that does not directly empirically test
the effects of section 13 of the BHC Act or the 2013 rule on the
presence or magnitude of such conflicts. One article in the legal
literature \857\ empirically measures the profitability of trading by
banks that have advisory clients and are subject to reporting
requirements as temporary insiders. They document that such trading by
banks in the stocks of advisory clients is profitable (with an
estimated average 25% return on their trades), that the trading centers
around adverse events, and that the elimination of Glass-Steagall
restrictions in 2002 was associated with more frequent and more
profitable trading. However, the paper does not empirically test the
effects of section 13 of the BHC Act or of the 2013 rule.
---------------------------------------------------------------------------

    \857\ See Sureyya Avci et al., Eliminating Conflicts of
Interests in Banks: The Significance of the Volcker Rule, 35 Yale J.
Reg. 343 (2017). Also cited in Robert J. Jackson Jr., ``Proposed
Amendments to the Volcker Rule,'' Securities and Exchange
Commission, June 5, 2018, note 20, available at https://www.sec.gov/news/public-statement/jackson-statement-proposed-amendments-volcker-rule.
---------------------------------------------------------------------------

    Finance research on this type of conflict of interest between banks
and their customers finds mixed effects. One of the earlier papers