The inability o financial regulators to define proprietary trading is likely to cause up to a two year delay for Volcker rule implementation.
The rule, which was intended to ban banks from sponsoring or investing in hedge funds in addition to proprietary trading, has a July 21, 2012, deadline. As long as no definition of proprietary trading has been set, however, banks could continue to conduct business as usual for the next several years, according to HedgeFundsReview.com.
Even if the rule meets its deadline, it is still unclear when financial institutions would have to shut down their proprietary trading offices.
“We are looking at July 21 for implementation of certain aspects of the rule, but there is a two-year conformance period,” regulatory expert Coryann Stefansson said, HedgeFundsReview.com reports. “The question is if banks will still be allowed to prop trade during that period.”
The overall complexity and uncertainty of the Volcker Rule may also cause some delay in its implementation.
Several regulatory agencies are required to participate in drafting the rule’s language, including the Securities and Exchange Commission and the Commodity Futures Trading Commission.
The uncertainty will result in problems for banks and other financial institutions, Stefansson said, according to HedgeFundsReview.com.