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AGENDA
○ Simplify the rule, but focus on outcomes rather than
trying to get into traders’ heads
THE BLOOMBERG VIEW
For more commentary, go to
bloomberg.com/opinionILLUSTRATION BY JONATHAN DJOB NKONDO
The Trump administration is drawing up a proposal to
simplify the Volcker Rule, one of the most controversial
pieces of the 2010 Dodd-Frank Act. This could be a desirable
development, as long as it doesn’t weaken a crucial safe-
guard against gambling with taxpayers’ money.
The Volcker Rule has a worthy goal: Limit government sub-
sidies to inancial institutions. When authorities bailed out
banks during the 2008 crisis, they found themselves prop-
ping up activities—including outright bets on securities and
derivatives—that had little to do with providing credit. To nar-
row the scope of what taxpayers support, the rule largely
prohibits deposit-taking institutions from speculating.
Congress, however, left regulators to deine what spec-
ulating, or “proprietary trading,” actually meant. This was
diicult, because legislators also agreed to exempt two activ-
ities hard to distinguish from it: market-making and hedging.
Both involve buying and selling securities and derivatives,
in the irst case on behalf of customers, in the second to
mitigate risks.
Regulators tried to put the burden of proof on banks.
Positions held for fewer than 60 days are presumed to be
proprietary trading unless a bank can prove otherwise, in
part by producing a slew of trading metrics. The idea was
that examiners would learn to divine traders’ intentions
from the data. But they haven’t. Worse, each agency can
interpret the data in its own way. It’s a mess.
The various regulators—the Federal Reserve, the Federal
Deposit Insurance Corp., the Oice of the Comptroller of the
Currency, the Securities and Exchange Commission, and the
Commodity Futures Trading Commission—are close to pro-
posing changes. Bloomberg has reported that they plan to
drop the 60-day presumption, allowing banks more leeway
to decide how to comply.
This could make sense, but not if it leaves the basic
question—what is speculation?—unanswered. Banks still won’t
be sure how to comply. And taxpayers could ind themselves
back in the business of subsidizing proprietary trading.
A better way might be to focus on outcomes, not intent.
Speculative trading difers from market-making and hedg-
ing in seeking to proit from price movements. That makes it
prone to big gains and losses. Setting a conservative threshold
for volatility, typically lower than that of the broader market
for the relevant assets, would draw a bright line. Breach it,
and you’d have to explain yourself.
Granted, some speculative activity might slip through,
just as now. But the key is to limit risk to taxpayers while
lifting the burden of reporting and compliance, which this
would do. The stringency of the rule would depend on
where regulators set the threshold: Done right, simpler
could even be stronger.
At the streaming service’s annual meeting on June 6,
investors will focus on two key figures: subscriber growth,
of course, but also spending on original content. The
more Netflix produces, the harder it becomes for smaller
services to compete.
⊲ Investors in businesses
associated with sanctioned
Russian billionaire Oleg
Deripaska must withdraw
money by June 6 or risk
U.S. sanctions themselves.
⊲ Karim Baratov, who
pleaded guilty to illegally
accessing user information
for hundreds of millions of
Yahoo! email accounts, will
be sentenced on May 29.
⊲ The New Jersey
Legislature is expected to
pass a bill legalizing sports
betting on June 7. Governor
Phil Murphy hopes to sign it
into law that day.
⊲ The American Society
of Clinical Oncology hosts
its annual meeting from
June 1-5, with most of
the world’s major pharma
companies in attendance.
⊲ Toshiba completes
the $18 billion sale of
its memory chip unit on
June 1. The buyers are a
group led by Bain Capital.
⊲ On May 29, Starbucks
will close all 8,000 of its
company-owned stores in
the U.S. to conduct anti-
bias training with its staf.
⊲ You Just Got Netflixed
Bloomberg Businessweek
May 28, 2018
Volckerdämmerung?