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New York Washington, D.C. Los Angeles Palo Alto London Paris Frankfurt Brussels Tokyo Hong Kong Beijing Melbourne Sydney www.sullcrom.com June 5, 2018 Volcker Rule Federal Banking Agencies and CFTC Approve Notice of Proposed Rulemaking to Amend Volcker Rule Regulations; SEC Expected to Follow EXECUTIVE SUMMARY On May 30, 2018, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) approved a notice of proposed rulemaking to amend the regulations implementing the so-called “Volcker Rule” provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Each of the other agencies responsible for implementing and enforcing the Volcker Rule (collectively with the Federal Reserve, the “Agencies”) 1 subsequently approved or is expected to approve in the very near term a substantially similar notice of proposed rulemaking (collectively with the Federal Reserve’s notice of proposed rulemaking, the “NPR”). 2 The NPR follows recent statements by representatives of the Agencies, 3 a 2017 report on financial reform by the U.S. Department of the Treasury 4 (the “Treasury Report”) and a public comment pr ocess initiated by the OCC 5 (the “OCC RFI”) following the Treasury Report, each of which highlighted concerns that the current Volcker Rule regulations are overly complex and should be tailored to reduce compliance costs and clarify the application of the regulations. The NPR also comes shortly after Congress’s May 24, 2018 enactment of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Reform Act”), which exempts certain smaller banking entities from the Volcker Rule entirely. 6 We believe that there are two key takeaways from the NPR: First, the NPR proposes limited and targeted changes to the proprietary trading and compliance program provisions of the Volcker Rule regulations and, to a significantly lesser extent, the covered funds provisions. The Agencies’ stated objectives for these changes include streamlining and clarifying the application of their regulations and tailoring the compliance program and certain other requirements based on the size and scope of a banking entity’s tra ding activities. For example, a banking entity with less than $10 billion in gross trading assets and liabilities would be

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Page 1: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

New York Washington, D.C. Los Angeles Palo Alto London Paris Frankfurt Brussels

Tokyo Hong Kong Beijing Melbourne Sydney

www.sullcrom.com

June 5, 2018

Volcker Rule

Federal Banking Agencies and CFTC Approve Notice of Proposed Rulemaking to Amend Volcker Rule Regulations; SEC Expected to Follow

EXECUTIVE SUMMARY

On May 30, 2018, the Board of Governors of the Federal Reserve System (the “Federal Reserve”)

approved a notice of proposed rulemaking to amend the regulations implementing the so-called “Volcker

Rule” provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank

Act”). Each of the other agencies responsible for implementing and enforcing the Volcker Rule

(collectively with the Federal Reserve, the “Agencies”)1 subsequently approved or is expected to approve

in the very near term a substantially similar notice of proposed rulemaking (collectively with the Federal

Reserve’s notice of proposed rulemaking, the “NPR”).2

The NPR follows recent statements by representatives of the Agencies,3 a 2017 report on financial reform

by the U.S. Department of the Treasury4 (the “Treasury Report”) and a public comment process initiated

by the OCC5 (the “OCC RFI”) following the Treasury Report, each of which highlighted concerns that the

current Volcker Rule regulations are overly complex and should be tailored to reduce compliance costs

and clarify the application of the regulations. The NPR also comes shortly after Congress’s May 24, 2018

enactment of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Reform Act”),

which exempts certain smaller banking entities from the Volcker Rule entirely.6

We believe that there are two key takeaways from the NPR:

First, the NPR proposes limited and targeted changes to the proprietary trading and compliance

program provisions of the Volcker Rule regulations and, to a significantly lesser extent, the

covered funds provisions. The Agencies’ stated objectives for these changes include streamlining

and clarifying the application of their regulations and tailoring the compliance program and certain

other requirements based on the size and scope of a banking entity’s trading activities. For

example, a banking entity with less than $10 billion in gross trading assets and liabilities would be

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subject to a substantially simpler compliance program requirement than a banking entity that

exceeds this threshold, and banking entities with less than $1 billion in gross trading assets and

liabilities would benefit from a “presumption of compliance” with all aspects of the regulations. If

adopted in the form proposed in the NPR, however, the amendments would provide a lesser

degree of relief to the firms most affected by the Volcker Rule, including larger and mid-sized

banking entities. Furthermore, the proposed changes to the proprietary trading provisions will

need to be carefully analyzed by individual banking organizations in order to assess the impact

on their businesses and operations.

Second, many recommendations and concerns raised in the Treasury Report, the OCC RFI and

industry comment letters7—especially with respect to the covered funds provisions—are not

addressed in any proposed amendment but instead are discussed only in certain of the 342

separately numbered questions (and multiple subquestions) posed in the preamble to the NPR’s

proposed amendments (the “Preamble”).

The ultimate scope and contour of many significant aspects of the Volcker Rule regulations remain open

questions and should be influenced by the comment process that will follow publication of the NPR.

Comments on the NPR will be due 60 days following publication in the Federal Register.

A comparison of the text of the Agencies’ final rule issued on December 10, 2013 (the “2013 Rule”)8

against the text of the amended regulations proposed by the NPR (the “Proposed Rule”) is attached as

Appendix A to this Memorandum.

OVERVIEW

The Volcker Rule, as implemented by the 2013 Rule, imposes broad prohibitions on proprietary trading

and investing in and sponsoring private equity funds, hedge funds and certain other investment

vehicles—referred to as “covered funds” in the 2013 Rule—by banking entities. In addition, banking

entities are generally required to establish an internal compliance program that is reasonably designed to

ensure and monitor compliance with the Volcker Rule.9 The Proposed Rule is the Agencies’ first proposal

to amend the 2013 Rule,10

although staffs of the Agencies have published a number of “Frequently Asked

Questions” (FAQs) to provide interpretive guidance11

and have also issued policy statements and other

guidance regarding the application and interpretation of various aspects of the 2013 Rule.12

As the Agencies acknowledge in the NPR, the 2013 Rule has been criticized for instituting an overly

complex and prescriptive compliance regime that has led to difficulties for banking entities seeking to

distinguish permissible from prohibited activities and created unnecessary compliance costs.13

The

Agencies state in the NPR that their proposal “would adopt a revised risk-based approach that would rely

on a set of clearly articulated standards for both prohibited and permitted activities and investments,

consistent with the requirements of [the Volcker Rule].”14

In particular, the Agencies indicate that their

proposal is intended to: (i) tailor the application of the regulations based on the size and scope of a

banking entity’s trading activities; (ii) streamline and clarify for all banking entities certain definitions and

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requirements related to the proprietary trading prohibition and limitations on covered fund activities and

investments—including by codifying or otherwise addressing matters that previously have been clarified

through interagency FAQs and other guidance—and (iii) reduce metrics reporting, recordkeeping and

compliance program requirements for all banking entities.15

Summarized below is an overview of key aspects of the NPR and the Proposed Rule:

A. TAILORING OF REQUIREMENTS; SCOPE OF APPLICABILITY

Tailoring by amount of trading assets and liabilities. The Proposed Rule divides banking

entities into three categories, each of which is subject to different compliance program and

other requirements. The categorization applied to a banking entity is based on the extent of

the banking entity’s trading assets and liabilities—and does not also take into account total

consolidated assets, unlike the 2013 Rule’s approach to designating five tiers of compl iance

program requirements16

—as calculated in the manner detailed in Part I of this Memorandum.

The result of this calculation determines whether the banking entity is categorized as having

trading assets and liabilities that are:17

“significant” (i.e., equaling or exceeding a $10 billion threshold), in which case the banking

entity is subject to the “six-pillar” compliance program requirement, a quantitative trading

metrics reporting and recordkeeping regime, specific compliance program requirements

associated with the exemptions for underwriting and market making-related activities,

documentation requirements associated with the risk-mitigating hedging exemption, covered

fund documentation requirements and the CEO attestation requirement;

“moderate” (i.e., between the $10 billion threshold and a $1 billion threshold), in which

case the banking entity is subject to reduced compliance program requirements and to the

CEO attestation requirement; or

“limited” (i.e., under the $1 billion threshold), in which case the banking entity is subject to

significantly reduced requirements, is presumed to be in compliance with the Proposed Rule

and has no obligation to demonstrate compliance with the covered fund and proprietary

trading provisions on an ongoing basis.

Recent legislation exempting smaller, less active banking entities. The Reform Act exempts

from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total

consolidated assets and (ii) total trading assets and trading liabilities representing less than 5% of

its total consolidated assets.18

The NPR does not propose any implementation of the Reform

Act’s amendments, although it expressly states that the Agencies will not enforce the 2013 Rule

in a manner inconsistent with those amendments.19

B. PROPRIETARY TRADING PROVISIONS

“Trading account” tests. As under the 2013 Rule, the Proposed Rule provides a multi-prong

test to determine whether a purchase of a financial instrument is “for the trading account” of the

banking entity and is, therefore, within the definition of “proprietary trading.” The Proposed Rule

revises the 2013 Rule’s definition of “trading account” by eliminating the “short-term intent prong”

(including the 60-day rebuttable presumption) and adding a new “accounting prong” that generally

captures any purchase or sale of a financial instrument that is recorded at fair value on a

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recurring basis under applicable accounting standards. The Agencies note that this would

include, among other financial instruments, derivatives, trading securities and available-for-sale

securities. The Proposed Rule also includes a presumption of compliance for trading desks that

are not captured by the “market risk capital prong” or the “dealer prong,” so long as the trading

desk operates at or below an absolute daily profit and loss threshold of $25 million (as calculated

on a rolling basis with a 90-day lookback period).

Definition of “trading desk.” The Proposed Rule retains the current definition of “trading desk.”

However, the Agencies solicit comment on a potential multi-factor definition of “trading desk” that

would be based on the same criteria typically used to establish trading desks for other

operational, management and compliance purposes.

Underwriting and market making-related activities. The Proposed Rule includes certain

changes that are intended to “tailor, streamline, and clarify” the requirements that a banking entity

must satisfy to avail itself of the exemptions for permitted underwriting and market making-related

activities. Notably, a banking entity’s purchase or sale of a financial instrument in connection with

its underwriting or market making-related activities is presumed to meet the “reasonably expected

near-term demands of clients, customers and counterparties” requirement (“RENTD”) if the

banking entity has established, and implements, maintains and enforces, the applicable

“internally set risk limits.” The Proposed Rule would also amend the compliance program

requirement for each of these exemptions by making the requirement, in each case, applicable

only to banking entities with significant trading assets and liabilities.

Risk-mitigating hedging activities. The Proposed Rule streamlines certain conditions of the

exemption for permitted risk-mitigating hedging activity by: (i) eliminating the current requirement

that the hedging activity must demonstrably reduce or otherwise significantly mitigate one or more

specific, identifiable risks; (ii) reducing documentation requirements associated with risk-

mitigating hedging transactions that are conducted by one desk to hedge positions of another

desk with pre-approved types of instruments within pre-set hedging limits; and (iii) eliminating the

2013 Rule’s requirement that banking entities undertake correlation analyses regarding their

hedges. The Proposed Rule provides for even more streamlined conditions for banking entities

that do not have significant trading assets and liabilities.

Exclusions for liquidity management activities and error trade exclusion. The Proposed

Rule broadens the current liquidity management exclusion to allow banking entities to use foreign

exchange forwards, foreign exchange swaps and physically settled cross-currency swaps as part

of their liquidity management activities. Furthermore, the Proposed Rule establishes a new

exclusion from the definition of “proprietary trading” for any purchase or sale of a financial

instrument that was made in error by a banking entity in the course of conducting a permitted or

excluded activity (or made to correct such an error).

Trading by foreign banking entities outside of the United States. The Proposed Rule retains

certain elements of the so-called “TOTUS” proprietary trading exemption (for trading activities

conducted outside of the United States) while modifying or eliminating others. To qualify for the

TOTUS exemption under the Proposed Rule, personnel engaged in the decision to purchase or

sell the relevant financial instrument must not be located in the United States (the same

requirement as under the 2013 Rule), among other conditions. However, the Proposed Rule

removes the requirement that personnel who arrange, negotiate or execute such purchase or

sale may not be located in the United States. Furthermore, the Proposed Rule removes the

TOTUS exemption’s “financing prong” (which requires that the purchase or sale not be financed

by a U.S. affiliate or branch) and the “counterparty prong” (which requires that transactions with a

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U.S. counterparty be executed through an unaffiliated market intermediary and promptly cleared

and settled through a clearing agency or derivatives clearing organization acting as a central

counterparty, and be conducted anonymously if the unaffiliated market intermediary is not acting

as principal).

C. COVERED FUNDS PROVISIONS

Definition of “covered fund.” The Proposed Rule does not include specific changes to the

definition of “covered fund,” despite the Treasury Report’s recommendation to adopt a simple

definition that focuses on the characteristics of hedge funds and private equity funds, with

appropriate additional exemptions,20

comments in response to the OCC RFI that highlighted the

overbreadth of the 2013 Rule’s definition21

and concerns acknowledged in the OCC RFI that the

definition captures investment vehicles that facilitate lending activity and capital formation and

that are not equivalent to traditional hedge funds or private equity funds.22

The Agencies simply

request comment on numerous aspects of the definition, including (i) whether the current

definition effectively implements the statute and is appropriately tailored to identify the funds that

are the intended focus of the Volcker Rule and (ii) whether the definition has been inappropriately

imprecise and, if so, whether that has led to any unintended results.

Exclusions from covered fund status. The Proposed Rule also retains without change the

existing exclusions from the “covered fund” definition under the 2013 Rule. Comment is solicited

broadly as to whether additional exclusions or modifications to the current exclusions would be

appropriate, including for foreign public funds (“FPFs”), family wealth management vehicles, joint

ventures, securitizations and municipal securities tender option bond vehicles.

Banking entity status of foreign excluded funds. The Agencies solicit comment as to whether

changes to the “covered fund” definition are warranted to address, among other issues, the

possibility that entities excluded from the “covered fund” definition would nonetheless be treated

as banking entities. These entities may include, for example, certain foreign excluded funds, with

respect to which the NPR extends until July 21, 2019 the temporary relief from enforcement that

the federal banking agencies previously provided (as explained further in Part II.B.1.ii below), as

well as U.S. registered investment companies (“RICs”), FPFs and employees’ securities

companies. The Proposed Rule does not alter the current definition of “banking entity” under the

2013 Rule.

“Super 23A” restrictions on relationships with certain covered funds. The Agencies

specifically seek comment on whether the exemptions available under Section 23A of the Federal

Reserve Act and Regulation W should also be available under the Volcker Rule, which generally

prohibits a banking entity from entering into any transaction with related covered funds that would

be a covered transaction as defined in Section 23A of the Federal Reserve Act. The Agencies

also seek comment on whether to incorporate into the Super 23A provisions the quantitative limits

on covered transactions in Section 23A of the Federal Reserve Act and Regulation W (in lieu of

the current prohibition on covered transactions).

Underwriting and market making for third-party covered funds. The Proposed Rule removes

the requirement that a banking entity include in its aggregate funds limitation and Tier 1 capital

deduction the value of any ownership interests in a covered fund acquired or retained under the

underwriting or market making-related activities exemptions, so long as the banking entity does

not sponsor or advise that covered fund.

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Risk-mitigating hedging investments for customer facilitation. The Proposed Rule would

amend the 2013 Rule to allow a banking entity to acquire or retain a covered fund ownership

interest as a risk-mitigating hedge when acting as an intermediary on behalf of a customer that is

not itself a banking entity to facilitate the exposure by the customer to the profits and losses of the

covered fund, subject to compliance with all the requirements of the covered funds exemption for

permitted risk-mitigating hedging activity (as modified by the Proposed Rule). This proposal

reverses the Agencies’ position stated in the Supplementary Information accompanying the 2013

Rule that this type of activity constitutes a high-risk strategy that could threaten the safety and

soundness of the banking entity.

Permitted covered fund activities of a foreign banking entity. The Proposed Rule codifies the

Agencies’ previously issued FAQ guidance that, for purposes of the so-called “SOTUS”

exemption (for covered fund activities and investments conducted “solely outside of the United

States”), an ownership interest in a covered fund is not “offered for sale or sold to a resident of

the United States” if it is not sold, and has not been sold, pursuant to an offering that targets

residents of the United States in which the banking entity relying on the SOTUS exemption (or an

affiliate) participates. Furthermore, the Proposed Rule eliminates the requirement in the 2013

Rule that no financing may be provided by any branch or affiliate of the banking entity in the

United States for any sponsorship or investment conducted in reliance on the SOTUS exemption.

D. COMPLIANCE PROGRAM; QUANTITATIVE METRICS

Compliance program. As noted in Part A of this Overview, the Proposed Rule’s compliance

program requirements are determined only by the extent of a banking entity’s trading assets and

liabilities (and not by reference to any other measure, such as the amount of total consolidated

assets, which is a factor in determining the compliance program requirement applicable to a

banking entity under the 2013 Rule). Banking entities are subject to one of three different

compliance program tiers based on whether they have “significant trading assets and liabilities,”

“moderate trading assets and liabilities” or “limited trading assets and liabilities” (in each case, as

defined in the Proposed Rule). Part I of this Memorandum provides a detailed explanation of this

categorization and of the methodology to calculate trading assets and liabilities for this purpose.

Metrics reporting and recordkeeping requirements. The Agencies indicate that they have

assessed the utility of data gathered from banking entities’ reports of quantitative trading metrics

as well as the compliance costs of the metrics regime. Taking this evaluation into account, the

Agencies propose numerous amendments to Appendix A of the 2013 Rule, including: (i) limiting

the applicability of certain metrics only to market making and underwriting desks; (ii) replacing the

Customer-Facing Trade Ratio with a new Transaction Volumes metric; (iii) replacing Inventory

Turnover with a new Positions metric; (iv) eliminating inventory aging data for derivatives;

(v) modifying the calculation and reporting methodology for certain metrics; and (vi) adding

requirements that metrics-reporting banking entities provide (A) qualitative information regarding

each trading desk, (B) a Narrative Statement describing changes in calculation methods, trading

desk structure or trading desk strategies and (C) descriptive information about their reported

metrics. As noted in Part A of this Overview, only banking entities with significant trading assets

and liabilities are required to report quantitative trading metrics under the Proposed Rule.

CEO attestation. Under the 2013 Rule, banking entities subject to the “enhanced” compliance

program are required to provide an annual attestation of the chief executive officer that the

banking entity has in place processes to establish, maintain, enforce, review, test and modify the

compliance program in a manner reasonably designed to achieve compliance with the rule. The

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Proposed Rule retains the CEO attestation requirement and applies it to banking entities with

significant trading assets and liabilities or moderate trading assets and liabilities. This change

would extend the CEO attestation requirement to certain banking entities that are not subject to

the “enhanced” compliance program under the 2013 Rule—for example, banking entities with

less than $50 billion of total consolidated assets and less than $10 billion (but more than $1

billion) of trading assets and liabilities—but would exempt a banking entity with limited trading

assets and liabilities from the requirement,23

absent a determination by the Agencies to exercise

its “reserved authority” to impose such requirement on the banking entity.24

The remainder of this Memorandum summarizes the significant provisions of the NPR and is organized

as follows:

Part I discusses the categorization of banking entities under the Proposed Rule, based on the

amount of their trading assets and liabilities, and under the Reform Act.

Part II provides a more detailed discussion of the Proposed Rule’s changes to specific

requirements and restrictions of the 2013 Rule.

Part III provides an overview of areas on which the NPR solicits comment, including certain topics

that are the subject of specific amendments in the Proposed Rule as well as a broad range of

topics that are not addressed by any of these amendments.

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TABLE OF CONTENTS

I. Tailoring of the Proposed Rule’s Requirements ............................................................................... 9

II. Changes to Specific Requirements and Restrictions ..................................................................... 12

II.A. Proprietary Trading ..................................................................................................................... 12

II.A.1. Definitions of “proprietary trading” and “trading account” .............................................. 12

II.A.2. Definition of “trading desk” ............................................................................................. 14

II.A.3. Underwriting activities .................................................................................................... 15

II.A.4. Market making-related activities .................................................................................... 16

II.A.5. Risk-mitigating hedging activities................................................................................... 18

II.A.6. Liquidity management exclusion and error trade exclusion .......................................... 19

(i) Liquidity management ............................................................................................. 19

(ii) Error trade exclusion ............................................................................................... 20

II.A.7. Trading activities conducted solely outside of the United States .................................. 20

II.B. Covered Fund Activities and Investments .................................................................................. 22

II.B.1. “Banking entity” status of certain entities excluded from the definition of

“covered fund” ................................................................................................................ 23

(i) Exclusion of certain U.S. registered investment companies and foreign

public funds from “banking entity” status ................................................................ 23

(ii) Extension of relief from “banking entity” treatment for certain foreign

excluded funds ........................................................................................................ 24

II.B.2. Permitted underwriting and market making-related activities ........................................ 24

II.B.3. Covered fund activities conducted solely outside of the United States ......................... 25

II.B.4. Permitted risk-mitigating hedging activities ................................................................... 26

II.B.5. Name sharing with organized and offered covered funds ............................................. 27

II.C. Compliance Program and Quantitative Trading Metrics ............................................................. 27

II.C.1. Compliance program requirement ................................................................................. 27

II.C.2. Quantitative metrics reporting and recordkeeping requirements ................................... 28

III. Additional Areas Identified for Comment by Agencies .................................................................. 30

Overall Framework and Categorization of Banking Entities ................................................................. 30

Proprietary Trading Provisions ............................................................................................................. 31

Covered Fund Provisions ..................................................................................................................... 34

Compliance Program; Violations .......................................................................................................... 38

Quantitative Metrics Reporting and Recordkeeping ............................................................................. 39

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I. TAILORING OF THE PROPOSED RULE’S REQUIREMENTS

Under the 2013 Rule, a banking entity’s total consolidated assets and its trading assets and liabilities

(together with those of its affiliates and subsidiaries) determine the compliance program requirements that

are applicable to the banking entity. Broadly speaking, the calculations of consolidated assets and trading

assets and liabilities for this purpose are conducted either (i) on a worldwide basis in the case of U.S.

banking entities or (ii) with respect to U.S. assets or combined U.S. operations in the case of foreign

banking entities. Depending on these calculations, a banking entity is subject under the 2013 Rule to one

of five different tiers of compliance program requirements, each of which entails a different set of required

policies and procedures, recordkeeping, internal controls and other compliance program elements, as

well as, potentially, quantitative metrics reporting and CEO attestation requirements.25

Under the Proposed Rule, banking entities are divided into three categories—each of which is subject to

a distinct set of compliance program requirements and other substantive requirements, as summarized in

Figure 1 below—based on the amount of the banking entities’ trading assets and liabilities as calculated

in the following manner (referred to as “TALs” in this Part I):

In the case of a banking entity that is not and is not controlled by a foreign banking organization

(“FBO”), the banking entity’s TALS equals the average gross sum of the banking entity’s and its

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)

over the previous consecutive four quarters, as measured as of the last day of each of the four

previous calendar quarters, on a worldwide consolidated basis.

In the case of a banking entity that is a FBO or is controlled by a FBO, the calculation of TALs is

based on the combined U.S. operations of the top-tier FBO (including all subsidiaries, affiliates,

branches and agencies of the FBO operating, located or organized in the United States),26

except

that, for purposes of determining whether a FBO has “limited trading assets and liabilities” (i.e.,

TALs of less than $1 billion) the calculation is conducted on a worldwide consolidated basis.

Therefore, a FBO that has less than $1 billion in TALs based on the combined U.S. operations of

the top-tier FBO but more than $1 billion in TALs on a worldwide consolidated basis would be

deemed to have “moderate trading assets and liabilities.”

In addition to the relief that the Proposed Rule provides for banking entities with “limited trading assets

and liabilities”—i.e., banking entities with TALs of less than $1 billion, calculated on a worldwide

consolidated basis—Section 203 of the Reform Act exempts from the Volcker Rule any banking entity

that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets and trading

liabilities representing less than 5% of its total consolidated assets. The Agencies indicate that they

expect to conduct a separate rulemaking process to address the Reform Act’s amendments that affect

the Volcker Rule.27

The Reform Act does not expressly state how “total trading assets and trading

liabilities” for purposes of Section 203 should be determined, and the Preamble does not specify whether

that figure will be calculated in the same manner as TALs.

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The following table summarizes the categorization of banking entities under the Proposed Rule based on

whether they have “significant trading assets and liabilities,” “moderate trading assets and liabilities” or

“limited trading assets and liabilities” (in each case, as defined in the Proposed Rule) and whether they

are exempted from the Volcker Rule by Section 203 of the Reform Act.

Figure 1: Categorization of Banking Entities Under the Proposed Rule and the Reform Act

Categorization

Under Proposed

Rule / Reform Act Criteria for This Level

Compliance Program

Requirements

Metrics

Reporting

CEO

Attestation

Additional

Permitted Activity

Requirements

“Significant trading assets and liabilities”

TALs equal or exceed $10 billion.

Calculation of TALs is based on (i) in the case of U.S. banking entities, all affiliates and subsidiaries on a worldwide basis and (ii) in the case of FBOs and their subsidiaries, combined U.S. operations only.

Six pillars required under the 2013 Rule (i.e., written policies and procedures, internal controls, management framework, independent testing, training and records).

Subject to the same additional covered fund documentation requirements as under the 2013 Rule.

28

Yes.

A banking entity with $50 billion or more in TALs is subject to increased frequency of reporting require-ments.

Yes. Subject to compliance requirements in order to rely on exemptions for underwriting, market making-related and risk-mitigating hedging permitted activities.

“Moderate trading assets and liabilities”

TALs are less than $10 billion, but greater than or equal to the $1 billon threshold for banking entities with “limited” TALs (see below).

TALs for U.S. banking entities and for FBOs and their subsidiaries are calculated as described immediately above.

Simplified compliance program requirement, which would “allow the banking entity to comply with the applicable requirements by updating existing policies and procedures.”

29

Subject to the Agencies’ “reserved authority” to require the banking entity to apply any requirement applicable to banking entities having “significant” TALs based on size or complexity of the entity’s trading or investment activities, or the risk of evasion.

30

No, unless notified in writing by the relevant Agency.

Yes. --

“Limited trading assets and liabilities”

TALs are less than $1 billon (as calculated on a worldwide basis for all banking entities), and the banking entity is not otherwise exempted by the Reform Act (see below).

No compliance program requirement unless relevant Agency directs otherwise. Subject to the Agencies’ “reserved authority” (see above) to require the banking entity to apply any requirement applicable to banking entities having “significant” or “moderate” TALs.

31

Presumed to be in compliance with substantive provisions (subject to rebuttal by an Agency upon an examination or audit).

32

No, unless notified in writing by the relevant Agency.

--

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-11- Volcker Rule June 5, 2018

Categorization

Under Proposed

Rule / Reform Act Criteria for This Level

Compliance Program

Requirements

Metrics

Reporting

CEO

Attestation

Additional

Permitted Activity

Requirements

Not engaged in covered activities

Does not engage in proprietary trading or covered fund activities (other than permitted trading in U.S. government obligations).

None, unless and until the banking entity becomes engaged in covered proprietary trading or covered fund activities.

No, unless notified in writing by the relevant Agency.

--

Exempted by the Reform Act

Banking entity has less than $10 billion in total consolidated assets; and total trading assets and liabilities representing less than 5% of its total consolidated assets.

Not subject to the Volcker Rule or any element of the Proposed Rule.

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II. CHANGES TO SPECIFIC REQUIREMENTS AND RESTRICTIONS

This Part II provides an overview of the provisions of the Proposed Rule that would substantively amend

the 2013 Rule’s requirements and restrictions. The following discussion focuses on the aspects of the

Proposed Rule that would, if adopted, directly modify the regulatory requirements that banking entities

must meet in order to comply with the Volcker Rule’s restrictions on proprietary trading and covered fund

activities (and to qualify for certain exemptions and exclusions) and to meet the Volcker Rule’s

compliance program requirement. The extent to which certain of these restrictions and requirements

would apply to any particular banking entity under the Proposed Rule will depend on the banking entity’s

level of trading activities and the other factors explained in Part I of this Memorandum.

Many other aspects of the 2013 Rule that are not discussed in this Part II—including significant issues

that have been the subject of extensive commentary among industry participants—are acknowledged in

the Preamble as warranting further consideration and, potentially, further revisions to the 2013 Rule, but

are not addressed in the Proposed Rule. Rather, these issues are addressed only in the NPR’s questions

and solicitations for comment, as discussed in Part III of this Memorandum.

II.A. PROPRIETARY TRADING

II.A.1. Definitions of “proprietary trading” and “trading account”

As under the 2013 Rule, determining whether a purchase or sale of a financial instrument is “proprietary

trading” depends on whether the transaction is “for the trading account” of the banking entity. The 2013

Rule establishes a three-pronged test of “trading account” status: (i) the “short-term intent prong,” which

includes a rebuttable presumption that this prong captures any purchase or sale of a financial instrument

if the banking entity holds the financial instrument for fewer than 60 days or substantially transfers the risk

of the position within 60 days;33

(ii) the “market risk capital prong”;34

and (iii) the “dealer prong.”35

The Proposed Rule eliminates the “short-term intent prong,” including the 60-day rebuttable

presumption,36

and establishes a modified version of this three-pronged test, as follows:37

Market risk capital prong. As under this prong in the 2013 Rule, the “trading account” definition

captures any purchase or sale of financial instruments that is both a market risk capital rule

covered position and trading position (or a hedge of another market risk capital rule covered

position) if the banking entity, or any affiliate of the banking entity, is an insured depository

institution, bank holding company or savings and loan holding company and calculates risk-based

capital ratios under the market risk capital rule.38

The Proposed Rule modifies the market risk capital prong so that it would include, with

respect to a banking entity that is not, and is not controlled directly or indirectly by a banking

entity that is, located in or organized under the laws of the United States or any U.S. state,

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any account used by the banking entity to purchase or sell one or more financial instruments

that are subject to capital requirements under a market risk framework established by the

home-country supervisor that is consistent with the market risk framework published by the

Basel Committee on Banking Supervision.39

Dealer prong. As under this prong in the 2013 Rule, the “trading account” definition captures any

purchase or sale of financial instruments by a banking entity that is licensed or registered, or

required to be licensed or registered, to engage in the business of a dealer, swap dealer or

security-based swap dealer, if the instrument is purchased or sold in connection with the activities

that require the banking entity to be licensed or registered as such (or if the banking entity is

engaged in the business of a dealer, swap dealer or security-based swap dealer outside of the

United States, if the instrument is purchased or sold in connection with the activities of such

business).40

Accounting prong. The Proposed Rule establishes a new prong of the “trading account”

definition (the “accounting prong”) that captures any account used by a banking entity to

purchase or sell one or more financial instruments that is recorded at fair value on a recurring

basis under applicable accounting standards. The Agencies note that this would include, among

other financial instruments, derivatives, trading securities and available-for-sale securities.41

The Proposed Rule includes a presumption of compliance with the proprietary trading

prohibition for a trading desk42

that purchases or sells financial instruments “for the trading

account” solely by virtue of the accounting prong—in other words, a trading desk that is not

captured by the market risk capital prong or the dealer prong. To qualify for this presumption,

the trading desk must, in any 90-calendar-day period, operate at or below an absolute daily

profit and loss threshold of $25 million—i.e., the sum of the absolute values of the trading

desk’s daily net gain or net loss on the trading desk’s portfolio of financial instruments each

business day, reflecting realized and unrealized gains and losses since the previous business

day, based on the banking entity’s fair value for such financial instruments for the preceding

90-calendar-day period, does not exceed $25 million.43

The Agencies state that a banking entity that elects to make use of this presumption with

respect to a trading desk would have no obligation to demonstrate that the trading desk’s

activity complies with the Volcker Rule on an ongoing basis so long as the $25 million

threshold is not breached,44

nor would the banking entity have to assess the accounting

treatment of each transaction of a trading desk that operates pursuant to this presumption of

compliance.45

If the trading desk’s absolute daily profit and loss measurement exceeds $25 million at any

point, then the banking entity would be required to notify the appropriate Agency in

accordance with the Agency’s notification policies and procedures.46

Furthermore, the

Proposed Rule reserves the Agencies’ authority to determine on a case-by-case basis that a

purchase or sale of one or more financial instruments by a banking entity either is or is not for

the trading account, notwithstanding the presumption of compliance.47

In explaining the Proposed Rule’s approach to revising or eliminating elements of the 2013 Rule’s

definition of “trading account” while retaining others, the Agencies observe that “[b]anking entities subject

to the market risk capital prong and the dealer prong have had several years of experience complying

with the requirements of the [2013 Rule] and experience with identifying these activities in other contexts,”

and such banking entities “are able to conduct appropriate trading activities in an efficient manner

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pursuant to exclusions from the definition of proprietary trading or pursuant to the exemptions for

permitted activities.”48

The Agencies indicate that the inclusion of the accounting prong is “intended to give greater certainty and

clarity . . . about what financial instruments would be included in the trading account, because banking

entities should know which instruments are recorded at fair value on their balance sheets” and to provide

an “objective means of ensuring that such positions entered into by banking entities principally for the

purpose of selling in the near term, or with the intent to resell in order to profit from short-term price

movements, are incorporated in the definition of trading account.”49

Individual firms should assess the

impact of the accounting prong in their respective cases, including the possibility that it could include

positions that are not within the trading account as defined under the 2013 Rule.

II.A.2. Definition of “trading desk”

Many of the substantive and compliance-related requirements for permitted proprietary trading under the

2013 Rule and the Proposed Rule are determined in relation to a banking entity’s “trading desks.” For

example, compliance with the underwriting and market making-related activities exemptions (including the

RENTD requirements for both such exemptions) is determined at the level of individual trading desks.50

The Proposed Rule’s presumption of compliance under the accounting prong (as discussed in Part II.A.1

above) requires trading desks operating pursuant to that presumption to calculate their profits and losses

at the trading desk level and applies to all the activities of the trading desk.

The Proposed Rule retains the current definition of “trading desk”—that is, “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.”51

The Agencies request comment on various alternatives to this

definition of “trading desk,” noting that banking entities have indicated that, in practice, this definition has

led to uncertainty regarding the meaning of “smallest discrete unit” and has caused confusion and

duplicative compliance and reporting efforts for banking entities that also define trading desks for

purposes unrelated to the Volcker Rule (e.g., internal risk management and reporting and calculating

regulatory capital requirements).52

The Agencies indicate that they are seeking comment on a potential multi-factor definition of “trading

desk” that would be based on the same criteria typically used to establish trading desks for other

operational, management and compliance purposes. In particular, the Agencies suggest an alternative

definition of “trading desk” that is: (i) structured to establish efficient trading for a market sector;

(ii) organized to ensure appropriate setting, monitoring and management review of the desk’s trading and

hedging limits, current and potential future loss exposures, strategies and compensation incentives; and

(iii) characterized by a clearly-defined unit of personnel that typically: (a) engages in coordinated trading

activity with a unified approach to its key elements; (b) operates subject to a common and calibrated set

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of risk metrics, risk levels and joint trading limits; (c) submits compliance reports and other information as

a unit for monitoring by management; and (d) books its trades together.53

II.A.3. Underwriting activities

The 2013 Rule includes an exemption for a banking entity’s underwriting activities, which is statutorily

designated as a permitted activity under the Volcker Rule,54

subject to the following conditions (among

others):55

(1) The trading desk’s “underwriting position” must be related to a “distribution” of securities

in which the banking entity is acting as an “underwriter.”56

(2) The amount and type of the securities in the trading desk’s underwriting position must

be designed not to exceed the reasonably expected near-term demands of clients,

customers or counterparties, and reasonable efforts must be made to sell or otherwise

reduce the underwriting position within a reasonable period, taking into account the

liquidity, maturity and depth of the market for the relevant type of security.

(3) The banking entity must establish, implement, maintain and enforce an internal

compliance program that meets specified requirements with respect to underwriting

activity.

(4) The compensation arrangements of persons performing the banking entity’s

underwriting activities must be designed not to reward or incentivize prohibited

proprietary trading.

(5) The banking entity must be licensed or registered to engage in underwriting activity if

and to the extent required by applicable law.

The Agencies retain a number of these conditions in the Proposed Rule, but also propose changes that

are intended to “tailor, streamline, and clarify the requirements that a banking entity must satisfy to avail

itself of the underwriting exemption.”57

In explaining these changes, the Agencies note that, since the

adoption of the 2013 Rule, “public commenters have observed that the significant compliance

requirements in the regulation may unnecessarily constrain underwriting without a corresponding

reduction in the type of trading activities that the rule was designed to prohibit.”58

Accordingly, the Agencies propose the following revisions to the underwriting activities exemption:

Presumption of RENTD compliance. Under the Proposed Rule, a banking entity’s purchase or

sale of a financial instrument is presumed to meet the underwriting RENTD requirement if the

banking entity has established and implements, maintains and enforces limits, based on the

nature and amount of the trading desk’s underwriting activities, on: (i) the amount, types and risk

of its underwriting position; (ii) the level of exposures to relevant risk factors arising from its

underwriting position; and (iii) the period of time a security may be held.59

The Agencies indicate that they believe this presumption would “allow for a clearer

application of the[] exemption[], and would provide banking entities with more flexibility and

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certainty in conducting permissible underwriting . . . activities.”60

The Agencies further

indicate that they expect a banking entity to establish these limits “according to its own

internal analyses and processes around conducting its underwriting activities,” which should

include an “ongoing and internal assessment” of RENTD.61

These limits are subject to review and oversight by the appropriate Agency on an ongoing

basis to determine whether the limits are consistent with the statutory standard.62

Furthermore, a banking entity is required “promptly” to report to the appropriate Agency “(A)

to the extent that any limit is exceeded and (B) any temporary or permanent increase to any

limit(s), in each case in the form and manner as directed by the [Agency].”63

The Agencies

indicate that they would expect to closely monitor and review any instances of a banking

entity exceeding a risk limit as well as any temporary or permanent increase to a trading desk

limit.64

An Agency may rebut the presumption of compliance if it determines, based on all relevant

facts and circumstances, that a trading desk is engaging in activity that is not based on the

trading desk’s reasonably expected near-term demands of clients, customers or

counterparties by providing written notice of such a determination to the banking entity.65

Compliance program requirement limited to banking entities with significant trading

assets and liabilities. The Proposed Rule would amend the compliance program requirement66

for the exemption for permitted underwriting activities (which, under the 2013 Rule, applies to all

banking entities relying on the exemption) by making that requirement applicable only to banking

entities with significant trading assets and liabilities.67

The Agencies clarify that banking entities that do not have significant trading assets and

liabilities are not relieved of the obligation to comply with the other requirements of the

exemption for underwriting activities, but the elimination of the exemption’s compliance

program requirement for such banking entities is intended to provide these banking entities

with “an appropriate amount of flexibility to tailor the means by which they seek to ensure

compliance with the underlying requirements of the exemption for underwriting activities, and

to allow them to structure their internal compliance measures in a way that takes into account

the risk profile and underwriting activity of the particular trading desk.”68

II.A.4. Market making-related activities

The 2013 Rule includes an exemption for a banking entity’s market making-related activities, which is

statutorily designated as a permitted activity under the Volcker Rule,69

subject to the following conditions

(among others):70

(1) The trading desk that establishes and manages the “financial exposure”71

must routinely

stand ready to purchase and sell one or more types of financial instruments related to its

financial exposure and be willing and available to quote, purchase and sell or otherwise

enter into long and short positions in, those types of financial instruments for its own

account, in commercially reasonable amounts and throughout market cycles on a basis

appropriate for the liquidity, maturity and depth of the market for the relevant types of

financial instruments.

(2) The amount, types and risks of the financial instruments in the trading desk’s “market-

maker inventory”72

must be designed not to exceed, on an ongoing basis, the

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reasonably expected near-term demands of “clients, customers or counterparties,”73

based on (i) the liquidity, maturity and depth of the market for the relevant types of

financial instruments and (ii) demonstrable analysis of historical customer demand,

current inventory of financial instruments and market and other factors regarding the

amount, types and risks of or associated with financial instruments in which the trading

desk makes a market, including through block trades.

(3) The banking entity must establish, implement, maintain and enforce an internal

compliance program meeting specified requirements with respect to market making-

related activity.

(4) The compensation arrangements of persons performing the banking entity’s market

making-related activities must be designed not to reward or incentivize prohibited

proprietary trading.

(5) The banking entity must be licensed or registered to engage in market making-related

activity if and to the extent required by applicable law.

The Agencies retain a number of these conditions in the Proposed Rule, but also propose changes that

are intended to “tailor, streamline, and clarify the requirements that a banking entity must satisfy to avail

itself of the market making exemption.”74

In explaining these changes, the Agencies note that their

original rulemaking in connection with the 2013 Rule sought to balance two goals: “to allow market

making to take place, which is important to well-functioning and liquid markets as well as the economy,

and simultaneously to prohibit proprietary trading unrelated to market making or other permitted

activities.”75

The Agencies go on to acknowledge that, based on their experience with the 2013 Rule, they

believe that “the significant compliance requirements and lack of clear bright lines in the regulation may

unnecessarily constrain market making” and “some of the requirements are unnecessary to prevent the

type of trading activities that the rule was designed to prohibit.”76

Accordingly, the Agencies propose to revise the exemption for market making-related activities in a

manner that parallels the proposed amendments to the underwriting exemption discussed in Part II.A.3

above. Specifically, the Proposed Rule establishes a presumption that a banking entity’s purchase or sale

of a financial instrument meets the RENTD requirement of the market making-related activities exemption

if the banking entity has established and implements, maintains and enforces the applicable “internally set

limits” for the trading desk on (i) the amount, types and risks of the trading desk’s market-maker positions;

(ii) the amount, types and risks of the products, instruments and exposures the trading desk may use for

risk management purposes; (iii) the level of exposures to relevant risk factors arising from its financial

exposure; and (iv) the period of time a financial instrument may be held,77

subject to (A) a requirement to

report breaches or increases of the limits to the relevant Agency,78

(B) review and oversight by the

relevant Agency79

and (C) the possibility of a rebuttal of the presumption by the relevant Agency.80

The

Proposed Rule would also amend the compliance program requirement for the exemption for permitted

market making-related activities (which, under the 2013 Rule, applies to all banking entities relying on the

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exemption) by making that requirement applicable only to banking entities with significant trading assets

and liabilities, similar to the amendment to the corresponding provision of the underwriting exemption.81

II.A.5. Risk-mitigating hedging activities

The Proposed Rule modifies the 2013 Rule’s exemption for permitted risk-mitigating hedging activities by

streamlining the requirements for a banking entity to rely upon this exemption in several respects.82

Under the 2013 Rule, the prohibition on proprietary trading does not apply to the risk-mitigating hedging

activities of a banking entity in connection with and related to individual or aggregated positions, contracts

or other holdings of the banking entity and designed to reduce the specific risks to the banking entity in

connection with and related to such positions, contracts or other holdings, provided that the activity

satisfies certain compliance requirements related to monitoring, analysis and documentation.83

The 2013 Rule requires potentially extensive documentation in connection with the exemption for

permitted risk-mitigating hedging activities. Specifically, the 2013 Rule requires additional documentation

for hedges that:

(1) are established at a different level of organization than the specific trading desk

establishing the related hedge positions, contracts or other holdings;

(2) are effected by the specific trading desk establishing or directly responsible for the

underlying positions, contracts or other holdings through a financial instrument,

exposure, technique or strategy that is not specifically identified in its written policies and

procedures as one that it may use for hedging; or

(3) are established to hedge aggregated positions across two or more trading desks.

This documentation must be established contemporaneously with the hedging transaction and must

document the trading desk or other business unit that is establishing and responsible for the hedge, the

risk-mitigating purpose of the transaction and the risks of the individual or aggregated positions, contracts

or other holdings that the transaction is designed to reduce. The 2013 Rule also requires each banking

entity to conduct an analysis (including correlation analysis) supporting its hedging strategy, and the

effectiveness of hedges must be monitored and recalibrated as necessary on an ongoing basis.84

With respect to banking entities with moderate or limited trading assets and liabilities, the Proposed Rule

removes all requirements under the 2013 Rule’s exemption except the requirements that the hedging

activity be designed to reduce or otherwise mitigate one or more specific, identifiable risks arising in

connection with and related to one or more identified positions, contracts or other holdings, and that the

hedging activity be recalibrated to maintain compliance with the rule.85

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With respect to banking entities with significant trading assets and liabilities, the Proposed Rule maintains

most of the exemption’s current requirements. However, the Proposed Rule modifies certain aspects of

the requirements under the 2013 Rule’s exemption, as follows:

“Demonstrably reduces” or otherwise “significantly mitigates.” The Proposed Rule

eliminates the current requirement that the hedging activity “demonstrably reduces” or otherwise

“significantly mitigates” risk.86

The Agencies note that the requirement is not directly required by

the statutory language, which requires only that the hedge “be designed” to reduce or otherwise

significantly mitigate specific risks.87

The Agencies acknowledge that, in practice, the requirement

to show that hedging activity demonstrably reduces or otherwise significantly mitigates a specific,

identifiable risk that develops over time can be complex, could potentially reduce bona fide risk-

mitigating hedging activity and has been difficult for banking entities to comply with, due in large

part to uncertainties that are inherent to hedging practices. In particular, the Agencies note that

unforeseeable changes in market conditions, event risk, sovereign risk and other factors that

cannot be known in advance could reduce or eliminate the otherwise intended hedging benefits.88

Reduce documentation requirements. The Proposed Rule reduces documentation

requirements associated with risk-mitigating hedging transactions that are conducted by one desk

to hedge positions at another desk with pre-approved types of instruments within pre-set hedging

limits.89

The limits must be appropriately tailored for: (i) the size, types and risks of the hedging

activities commonly undertaken by the trading desk; (ii) the financial instruments purchased and

sold by the trading desk for hedging activities; and (iii) the levels and duration of the risk

exposures being hedged.90

The Agencies note that this proposed change is intended to provide

clarity as to the types and characteristics of the limits needed to comply with the proposal.91

Correlation analysis. The Proposed Rule eliminates the correlation analysis requirement of the

2013 Rule’s exemption.92

The Preamble indicates that the correlation analysis requirement was

intended to indicate whether a potential hedging position, strategy or technique would

demonstrably reduce the risk it is designed to hedge, thus suggesting it was not meant for

speculative purposes.93

However, the Agencies indicate that the removal of the requirement

alleviates the practical difficulties with the correlation analysis requirement and the added delays,

costs and uncertainty associated with the requirement without significantly impacting the

conditions that risk-mitigating hedging activities must meet in order to qualify for the exemption.94

II.A.6. Liquidity management exclusion and error trade exclusion

(i) Liquidity management

The 2013 Rule does not contain a broad carve-out for banking entities’ asset-liability management

activities, which are typically directed toward mitigating liquidity, interest rate, foreign exchange or other

risks to the banking entity, including through management of the banking entity’s cash and cash

equivalents. These activities may involve short-term trading in a variety of instruments, including U.S.

Treasury securities, interest rate swaps and foreign exchange swaps. Under the 2013 Rule, the exclusion

for liquidity management activities covers only purchases or sales of “securities” by a banking entity for

the purpose of liquidity management in accordance with a documented liquidity management plan that

meets several requirements.95

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The Proposed Rule broadens the liquidity management exclusion to allow banking entities to use foreign

exchange forwards and foreign exchange swaps96

and physically settled cross-currency swaps97

as part

of their liquidity management activities.98

In proposing the change, the Agencies acknowledge that

banking entities use foreign exchange forwards, foreign exchange swaps and cross-currency swaps to

manage their liquidity in the United States and in foreign jurisdictions (for example, in the case of foreign

branches and subsidiaries of U.S. banking entities that use foreign exchange products to manage the

currency risk arising from their required holdings of foreign currencies).99

As a result of the proposed change, the Proposed Rule allows banking entities to purchase and sell

financial instruments generally as part of their liquidity management activities to the same extent they

may purchase or sell securities under the current exclusion, subject to the same conditions that currently

apply with respect to securities transactions.100

The Proposed Rule limits the inclusion of cross-currency swaps to only swaps for which all payments are

made in the currencies being exchanged, as opposed to cash-settled swaps. The Agencies indicate that

this limitation is intended to address the risk that these instruments may be used for unauthorized

proprietary trading and is necessary because, although foreign exchange forwards and foreign exchange

swaps, as defined in the Commodity Exchange Act, are by definition limited to an exchange of the

designated currencies, no similarly limited definition of the term “cross-currency swap” is available.

Therefore, the Agencies have limited the exclusion to cash-settled swaps to prevent evasionary uses of

cross-currency swaps.101

(ii) Error trade exclusion

The Proposed Rule establishes a new exclusion for any purchase or sale of a financial instrument that

was made in error by a banking entity in the course of conducting a permitted or excluded activity or is a

subsequent transaction to correct such an error, provided that the erroneously purchased (or sold)

financial instrument is promptly transferred to a separately-managed trade error account for disposition.102

The Agencies explain that this exclusion is justified by the fact that such a purchase or sale lacks the

requisite short-term trading intent under the statute.103

The Agencies note that the exclusion will depend

on the facts and circumstances of the transactions and may not be available if, for example, a banking

entity fails to make reasonable efforts to prevent errors from occurring (as indicated, for example, by the

magnitude or frequency of errors, taking into account the size, activities and risk profile of the banking

entity) or to identify and correct trading errors in a timely and appropriate manner.104

II.A.7. Trading activities conducted solely outside of the United States

The Volcker Rule provides a statutory exemption for “[p]roprietary trading conducted by a banking ent ity

pursuant to paragraph (9) or (13) of [Section 4(c) of the BHC Act], provided that the trading occurs solely

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outside of the United States and that the banking entity is not directly or indirectly controlled by a banking

entity that is organized under the laws of the United States or of one or more [U.S.] States.”105

In the 2013

Rule, the Agencies’ implementation of this exemption, referred to as the “TOTUS” exemption, requires

that:

(1) The banking entity engaging as principal in the purchase or sale (including any

personnel of the banking entity or its affiliate that arrange, negotiate or execute such

purchase or sale) is not located in the United States or organized under the laws of the

United States or of any U.S. State;

(2) The banking entity (including relevant personnel) that makes the decision to purchase or

sell as principal is not located in the United States or organized under the laws of the

United States or of any U.S. State;

(3) The purchase or sale, including any transaction arising from risk-mitigating hedging

related to the instruments purchased or sold, is not 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 U.S. State;

(4) No financing for the banking entity’s purchases or sales is provided, directly or indirectly,

by any branch or affiliate that is located in the United States or organized under the laws

of the United States or of any U.S. State; and

(5) The purchase or sale is not conducted with or through any U.S. entity, other than:

(A) A purchase or sale with the foreign operations of a U.S. entity, if no personnel of

such U.S. entity that are located in the United States are involved in the

arrangement, negotiation or execution of such purchase or sale;

(B) A purchase or sale with an unaffiliated market intermediary acting as principal,

provided the purchase or sale is promptly cleared and settled through a clearing

agency or derivatives clearing organization acting as a central counterparty; or

(C) A purchase or sale through an unaffiliated market intermediary acting as agent,

provided the purchase or sale is conducted anonymously on an exchange or

similar trading facility and is promptly cleared and settled through a clearing agency

or derivatives clearing organization acting as a central counterparty.106

The Proposed Rule retains the first three requirements of the 2013 Rule, modifies the first requirement

and removes the fourth and fifth requirements, as explained below:107

U.S. personnel engaged in arranging, negotiating or executing. The first requirement is

modified to refer generally to “relevant personnel” instead of “any personnel of the banking entity

or its affiliate that arrange, negotiate or execute such purchase or sale.”108

The effect of this

change is that the Proposed Rule requires only that the relevant personnel engaged in the

decision to purchase or sell not be located in the United States—the requirement that personnel

who arrange, negotiate or execute such purchase or sale may not be located in the United States

is proposed to be removed. The Agencies indicate that the purpose of this modification is to make

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clear that some limited involvement by U.S. personnel is consistent with this exemption, so long

as the “principal risk and actions of the purchase or sale do not take place in the United

States.”109

Financing by U.S. branch of affiliate and conduct of trade “with or through any U.S.

entity.” The Agencies state that the elimination of the fourth and fifth requirements is intended to

address concerns that these requirements unduly limit banking entities’ ability to make use of the

TOTUS exemption and have resulted in an impact on foreign banking entities’ operations outside

of the United States, as foreign banking entities have found the exemption’s requirements to be

“overly difficult and costly for banking entities to monitor, track, and comply with in practice.”110

The Preamble notes that this change represents a recognition that the regulatory requirements

are broader than necessary to achieve compliance with the requirements of the Volcker Rule.111

The Agencies request comment as to whether the proposed modifications to the TOTUS exemption

would result in disadvantages for U.S. banking entities competing with foreign banking entities. The

Agencies recognize a concern that the proposal could lead to competitive disadvantages, as foreign

banking entities would be able to trade directly with U.S. counterparties without being subject to the

limitations associated with the exemptions for market making-related activities or other exemptions, which

U.S. banking entities would need to rely on with respect to their operations in the United States and

abroad.112

The Agencies note that the proposal generally seeks to balance concerns regarding

competitive impact, market bifurcation, reduced efficiency and liquidity of markets, overly burdensome

restrictions on foreign banking entities and harm to U.S. market participants.113

II.B. COVERED FUND ACTIVITIES AND INVESTMENTS

The Volcker Rule prohibits a banking entity from acquiring or retaining any equity, partnership or other

ownership interest in, or sponsoring or engaging in certain other relationships with, a hedge fund or a

private equity fund.114

The 2013 Rule captures the statute’s reference to hedge funds and private equity

funds with a single, expansive definition of a “covered fund.” Specifically, under the 2013 Rule, “covered

fund” means:

any issuer that would be an “investment company,” as defined in the Investment Company Act of

1940 (the “1940 Act”), but for Section 3(c)(1) or 3(c)(7) of the 1940 Act;

certain privately offered commodity pools; and

solely with respect to U.S. banking entities, certain foreign investment vehicles offered and sold

outside of the United States.115

Notwithstanding recommendations in the Treasury Report and comments received in response to the

OCC RFI, which contemplated that there should be changes to the definition of “covered fund” to address

concerns that the current definition is overbroad and negatively affects lending activity and capital

formation, the Proposed Rule does not include proposals for specific changes to the definition of “covered

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fund” or any exclusions from covered fund status. Instead, the Agencies request comment on these

aspects of the Proposed Rule, as discussed in greater detail below.

II.B.1. “Banking entity” status of certain entities excluded from the definition of “covered

fund”

(i) Exclusion of certain U.S. registered investment companies and foreign public funds

from “banking entity” status

The Agencies note in the Preamble that, since the adoption of the 2013 Rule, they have received a

number of requests for guidance regarding scenarios in which certain funds that are excluded from the

definition of “covered fund,” such as RICs, FPFs or foreign excluded funds, are treated as banking entities

under the 2013 Rule, with the consequence that such funds are subject to restrictions on proprietary

trading and covered fund investments that may impair their ability to carry out their business.116

These

situations may occur as a result of the sponsoring banking entity having “control” over such a fund,

including through the banking entity’s investment during a seeding period or by virtue of corporate

governance structures.

The staffs of the Agencies have addressed these requests through interagency FAQs, but without

codifying their guidance through rulemaking:

In FAQ #14,117

the Agencies addressed the “banking entity” status of FPFs sponsored by a

banking entity, stating that they would not advise that the activities and investments of an FPF

excluded from the definition of “covered fund” be attributed to the sponsoring banking entity for

purposes of the Volcker Rule, so long as the banking entity (i) does not own, control or hold with

the power to vote 25% or more of any class of voting shares of the FPF after the seeding period

and (ii) provides investment advisory, commodity trading, advisory, administrative and other

services to the fund in compliance with applicable limitations in the relevant foreign jurisdiction.

In FAQ #16,118

the Agencies addressed the treatment of RICs and FPFs during seeding periods,

stating that they would neither advise the Agencies to treat a RIC or FPF as a banking entity

solely on the basis of the level of ownership of the RIC or FPF by a banking entity during a

seeding period of “for example, three years,” nor expect that a banking entity would submit an

application to the Federal Reserve to determine the length of the seeding period.

The Agencies state in the Preamble that “nothing in the proposal would modify the application of the staff

FAQs discussed above, and the Agencies will not treat RICs or FPFs that meet the conditions included in

the applicable staff FAQs as banking entities or attribute their activities and investments to the banking

entity that sponsors the fund or otherwise may control the fund under the circumstances set forth in the

FAQs.”119

Furthermore, the Agencies clarify in the Preamble that FAQ #16’s reference to a three-year period is an

“example” of the seeding period for RICs and FPFs, and that the Agencies do not intend to “set[] any

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maximum prescribed period for a RIC or FPF seeding period” and “[r]ecogniz[e] that the length of a

seeding period can vary” and “may take some time.”120

(ii) Extension of relief from “banking entity” treatment for certain foreign excluded funds

On July 21, 2017, the federal banking agencies released a policy statement indicating that they would not

propose to take action, during the one-year period ending July 21, 2018, against a foreign banking

entity121

based on attribution of the activities and investments of a “qualifying foreign excluded fund”122

to

the foreign banking entity, or against a qualifying foreign excluded fund as a banking entity, in each case,

where the foreign banking entity’s acquisition or retention of any ownership interest in, or sponsorship of,

the qualifying foreign excluded fund would meet the requirements of the SOTUS exemption as if the

qualifying foreign excluded fund were a covered fund.123

The Preamble states that, in order to accommodate the pendency of the proposal, the Agencies will

extend the one-year stay of enforcement action for an additional year (i.e., until July 21, 2019).124

Relatedly, the Agencies pose a number of questions to solicit comments related to the “banking entity”

status of foreign excluded funds that could support longer-term relief.125

II.B.2. Permitted underwriting and market making-related activities

Under the 2013 Rule, a banking entity may generally engage in underwriting and market making-related

activities involving covered fund ownership interests, subject to the conditions of the exemptions from the

prohibition on proprietary trading for underwriting and market making-related activities, which are

discussed in Parts II.A.3 and II.A.4 of this Memorandum. However, a banking entity’s ability to rely upon

these exemptions with respect to covered fund ownership interests is conditioned on certain quantitative

limitations and on a deduction from regulatory capital. This has led to industry comments that the

exemptions for underwriting and market making-related activities involving covered fund ownership

interests pose monitoring and compliance challenges that go beyond what is required in order to rely

upon the analogous exemptions under the proprietary trading provisions.

Specifically, under the 2013 Rule, if a banking entity acquires or retains any ownership interest in the

covered fund in connection with underwriting or market making-related activities and the banking entity

guarantees, assumes or otherwise insures the obligations or performance of the fund or of any other

covered fund in which the first covered fund invests, then that ownership interest must be counted toward

(i) the so-called “per-fund limitation” on a banking entity’s permitted investment in any single covered fund

(with respect to funds that the banking entity sponsors or advises (among other relationships));126

(ii) the

so-called “aggregate funds limitation” on a banking entity’s total permitted investments in all covered

funds;127

and (iii) the deduction from Tier 1 capital for certain permitted investments in covered funds.128

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The Proposed Rule modifies in two principal respects the 2013 Rule’s treatment of covered fund

ownership interests acquired or retained in connection with underwriting or market making-related

activities:129

Disregarded in calculating aggregate funds limitation and capital deduction. The Proposed

Rule modifies the 2013 Rule by eliminating the requirement that a banking entity include the

value of any ownership interests in a covered fund that the banking entity acquires or retains in

accordance with the underwriting or market making-related activities exemption for purposes of

calculating the aggregate funds limitation and Tier 1 capital deduction, unless the banking entity

sponsors or advises the fund (among certain other relationships).130

Under the Proposed Rule,

banking entities would continue to be required to include in the per-fund limitation, aggregate

funds limitation and capital deduction any ownership interests in a covered fund acquired or

retained in connection with underwriting or market making-related activities if the banking entity

sponsors or advises the fund (among certain other relationships).131

Guarantee, assumption or insurance of obligations or performance. The Proposed Rule

eliminates the requirement in the 2013 Rule to include the value of any ownership interests in a

covered fund that the banking entity acquires or retains in accordance with the underwriting or

market making-related activities exemption for purposes of calculating the per-funds limitation,

the aggregate funds limitation and Tier 1 capital deduction solely on the basis that the banking

entity guarantees, assumes or otherwise insures the obligations or performance of the covered

fund or of any other covered fund in which the first covered fund invests.132

II.B.3. Covered fund activities conducted solely outside of the United States

The 2013 Rule’s implementation of the so-called “SOTUS” exemption133

requires, among other

conditions, that (i) no ownership interest in the covered fund is “offered for sale or sold” to a “resident of

the United States” (defined to mean a “U.S. person” as defined in the SEC’s Regulation S) (the

“Marketing Restriction”)134

and (ii) no financing for the banking entity’s ownership or sponsorship is

provided, directly or indirectly, by any branch or affiliate that is located in the United States or organized

under the laws of the United States or of any U.S. state (the “Financing Restriction”).135

The Proposed Rule modifies these two conditions in the following manner, but otherwise leaves the

SOTUS exemption unchanged from the 2013 Rule:136

Codification of guidance on Marketing Restriction. The Proposed Rule codifies the Agencies’

previously issued guidance (provided in FAQ #13) regarding the Marketing Restriction.137

Specifically, the Proposed Rule provides that an ownership interest in a covered fund is not

“offered for sale or sold to a resident of the United States” only if it is not sold and has not been

sold pursuant to an offering that targets residents of the United States in which the banking entity

or any affiliate of the banking entity participates.138

If the banking entity or an affiliate sponsors or

serves, directly or indirectly, as the investment manager, investment adviser, commodity pool

operator or commodity trading advisor to a covered fund, then the banking entity or affiliate will be

deemed to participate in any offer or sale by the covered fund of ownership interests in the

covered fund.139

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Elimination of Financing Restriction. The Proposed Rule eliminates the Financing Restriction

from the SOTUS exemption for the same reasons described in Part II.A.7 with respect to the

elimination of the analogous restriction from the TOTUS exemption.140

The Agencies explain that

this modification is intended to streamline the requirements of the SOTUS exemption, which are

designed to require that the principal risks of covered fund investments and sponsorship by

foreign banking entities occur and remain solely outside of the United States.141

II.B.4. Permitted risk-mitigating hedging activities

Under the 2013 Rule, the statutory exemption for risk-mitigating hedging activities142

is available with

respect to the prohibition on acquiring or retaining an ownership interest in a covered fund solely in the

context of an acquisition or retention that is designed to demonstrably reduce or otherwise significantly

mitigate the specific, identifiable risks to the banking entity in connection with a compensation

arrangement with an employee of the banking entity or an affiliate thereof that directly provides

investment advisory, commodity trading advisory or other services to the covered fund.143

The Proposed

Rule retains this exemption144

and adds an additional exemption as discussed immediately below.

The 2011 notice of proposed rulemaking issued prior to the adoption of the 2013 Rule indicated that the

Agencies were considering permitting a banking entity to acquire or retain an ownership interest in a

covered fund as a risk-mitigating hedge when acting as an intermediary on behalf of a customer that is

not itself a banking entity to facilitate the exposure by the customer to the profits and losses of the

covered fund.145

However, in adopting the 2013 Rule, the Agencies removed this type of activity from the

scope of the covered funds exemption for permitted risk-mitigating hedging activity based on their

determination that such transactions constituted a high-risk strategy that could threaten the safety and

soundness of the banking entity.146

The Proposed Rule would, in a reversal of the Agencies’ commentary accompanying the 2013 Rule,

permit a banking entity to acquire an ownership interest in a covered fund as a risk-mitigating hedge

when acting as an intermediary on behalf of a customer that is not itself a banking entity to facilitate the

exposure by the customer to the profits and losses of the covered fund.147

In explaining this change, the

Agencies acknowledge that, although a banking entity could be exposed to the risk of the covered fund if

the customer fails to perform, “this counterparty default risk would be present whenever a banking entity

facilitates the exposure by the customer to the profits and losses of a financial instrument and seeks to

hedge its own exposure by investing in the financial instrument.”148

A banking entity that seeks to use a covered fund ownership interest to hedge on behalf of a customer

would need to comply with all the requirements of Section _.13(a) of the Proposed Rule, which generally

track the requirements of the exemption for permitted risk-mitigating hedging activity from the proprietary

trading restriction set forth in Section _.5 of the Proposed Rule (which are modified in certain respects

from the 2013 Rule, as discussed in Part II.A.5 of this Memorandum).

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II.B.5. Name sharing with organized and offered covered funds

Section 204 of the Reform Act amends the statutory restriction on the sharing of names between a

banking entity and a covered fund that the banking entity permissibly organizes and offers. Specifically,

the Reform Act permits funds to share the name or a variation of the same name of the banking entity

that is an investment adviser to the fund so long as (i) the investment adviser is not, and does not share

the name or a variation of the same name as, an insured depository institution, a company that controls

an insured depository institution or a company that is treated as a bank holding company for purposes of

Section 8 of the International Banking Act of 1978 and (ii) the name does not contain the word “bank.”

The NPR does not propose any changes to the 2013 Rule that would implement the Reform Act’s

amendments to the Volcker Rule, although it expressly states that the Agencies will not enforce the 2013

Rule in a manner inconsistent with these amendments. The Agencies indicate that they expect to address

these amendments through a separate rulemaking process.149

II.C. COMPLIANCE PROGRAM AND QUANTITATIVE TRADING METRICS

The 2013 Rule establishes compliance program requirements for all banking entities (with simplified

requirements for smaller banking entities), as well as reporting and metrics collection requirements for

certain banking entities based on their size and the nature of their activities.150

The Agencies propose changes to the compliance program in the Proposed Rule with the stated goals of

(i) reducing burdens and uncertainty for smaller institutions and instead focusing on compliance program

requirements on banking entities with the most significant and complex trading activities;151

(ii) providing

flexibility to build on compliance regimes that already exist at banking entities, including risk limits, risk

management systems, board-level governance protocols and the level at which compliance is

monitored;152

and (iii) simplifying overly prescriptive requirements, including certain elements of the 2013

Rule’s “enhanced” compliance program.153

II.C.1. Compliance program requirement

The key aspects of the Proposed Rule’s compliance program requirement are as follows:

Categorization based on trading assets and liabilities. As explained in Part I of this

Memorandum, the Proposed Rule establishes three categories of banking entities, each defined

based on a specified threshold of trading assets and liabilities and each subject to a different set

of compliance program and other requirements.

Removal of “enhanced” tier of compliance program requirements. The Agencies indicate

that they believe many of the compliance requirements of the 2013 Rule’s “enhanced”

compliance program, as set forth in Appendix B to the 2013 Rule, “could be implemented

effectively if incorporated into a risk management framework already developed and designed to

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fit a banking entity’s organizational and reporting structure.”154

Accordingly, the Proposed Rule

eliminates Appendix B in its entirety. The Agencies further note that the “six-pillar” compliance

program requirement that applies to banking entities with significant trading assets and liabilities

“is consistent with general standards of safety and soundness as well as diligent supervision, the

implementation of which conforms with the traditional risk management processes of ensuring

governance, controls, and records appropriately tailored to the risks and activities of each

banking entity.”155

As under the 2013 Rule, the Proposed Rule’s required compliance program may be implemented on an

enterprise-wide basis or at a business-unit level, as long as the program satisfies all requirements and

can be effectively administered. In either case, the banking entity may use common policies and

procedures to the extent that they are appropriate for more than one trading desk. If an enterprise-wide

program is established, the program will be subject to supervisory review by the appropriate Agency of

each banking entity within the organization, and the organization will be expected to provide each

appropriate Agency with access to all records related to the enterprise-wide program pertaining to any

banking entity supervised by the Agency.156

II.C.2. Quantitative metrics reporting and recordkeeping requirements

The Agencies indicate that, since the adoption of the 2013 Rule and as part of its implementation, the

Agencies have reviewed the metrics submitted by banking entities and considered whether all the

quantitative measurements are useful for all asset classes and markets, as well as for all the trading

activities subject to the metrics requirement, or whether modifications are appropriate. In the Proposed

Rule, the Agencies propose amendments to Appendix A of the 2013 Rule with the stated objectives of

(i) streamlining the metrics reporting and recordkeeping requirements: (ii) reducing compliance-related

inefficiencies relative to the 2013 Rule; and (iii) allowing the collection of data to permit the Agencies to

better monitor compliance with the Volcker Rule.157

As noted in Part A of the Overview, only banking

entities with significant trading assets and liabilities are required to report quantitative trading metrics

under the Proposed Rule.

Summarized below are certain key aspects of the Proposed Rule’s changes to the 2013 Rule’s

quantitative metrics regime:

Changes to calculation and applicability of certain metrics. The Proposed Rule removes the

Inventory Turnover and Customer-Facing Trade Ratio metrics and replaces them with the

Positions and Transaction Volumes metrics, respectively.158

In addition, the proposal provides

that the Inventory Aging metric (renamed as the “Securities Inventory Aging” metric) would only

apply to securities (and not to derivatives, as is the case under the 2013 Rule).159

Furthermore,

the Positions, Transaction Volumes and Securities Inventory Aging metrics would be applicable

only to trading desks that rely upon the exemptions for underwriting or market making-related

activities.160

Finally, the proposal modifies the description of Stressed VaR to align its calculation

with that of Value-at-Risk and provides that Stressed VaR is not required to be reported for

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trading desks whose covered trading activity is conducted exclusively to hedge products excluded

from the definition of “financial instrument.”161

Trading desk information. The proposal would require banking entities to report, for each

trading desk engaged in covered trading activity: (i) the trading desk name and trading desk

identifier; (ii) the type of covered trading activity; (iii) the trading desk description; (iv) the types of

financial instruments and other products; (v) the legal entities that the trading desk uses; (vi) the

legal entity type identification; (vii) the trading day indicator; and (viii) the currency reported and

currency conversion rate.162

Quantitative metrics identifying information. The proposal would require banking entities to

submit, collectively for all relevant trading desks: (i) a Risk and Position Limits Information

Schedule; (ii) a Risk Factor Sensitivities Information Schedule; (iii) a Risk Factor Attribution

Information Schedule; (iv) a Limit/Sensitivity Cross-Reference Schedule; and (v) a Risk Factor

Sensitivity/Attribution Cross-Reference Schedule.163

Narrative Statement. The Proposed Rule includes a new requirement of a Narrative Statement

that must: (i) describe any changes in calculation methods used for quantitative measures and

indicate when such changes occurred; (ii) be prepared and submitted periodically and when there

are any changes in the banking entity’s trading desk structure or strategies;164

(iii) report any

other information the banking entity views as relevant for assessing the information schedules or

quantitative measures; (iv) explain the banking entity’s inability to report a particular quantitative

measurement; and (v) provide notice if a trading desk changes its approach to including or

excluding products that are not financial instruments in its metrics.165

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III. ADDITIONAL AREAS IDENTIFIED FOR COMMENT BY AGENCIES

In the Preamble, the Agencies pose 342 numbered questions for public comment, many of which consist

of multiple sub-questions, relating to specific aspects of the Proposed Rule. The Agencies’ questions

highlight a number of issues that are not addressed through any specific amendment in the Proposed

Rule, but which have been the subject of extensive public comment. In many cases, the Agencies’

questions appear to be designed to inform the Agencies’ consideration of further potential revisions to

significant elements of the Proposed Rule. Accordingly, the ultimate scope and contour of many

significant aspects of the Volcker Rule remain open questions and should be influenced by the comment

process that will follow publication of the NPR.

The below table provides a high-level, non-comprehensive overview of certain topics that the Agencies

identify for comment and a summary of selected questions they pose on each such topic.

Topic Areas Identified for Comment and Questions Posed

Overall Framework and Categorization of Banking Entities

Rulemaking

framework and

Agency coordination

Means to improve the transparency of the Agencies’ implementation of the Volcker Rule.

Steps that could be taken with respect to interagency coordination to make compliance with the Volcker Rule more efficient and to promote the safety and soundness of banking entities and U.S. financial stability.

166

Economic impact

and compliance

costs

Whether certain proposals would meaningfully reduce compliance costs. The specific proposals with respect to which the Agencies pose this question include:

establishing a presumption of compliance for banking entities with limited trading assets and liabilities;

changes to the “trading account” definition;

the use of internally set risk limits to meet the RENTD requirements of the underwriting and market making-related activities exemptions;

changes to streamline the conditions of the risk-mitigating hedging exemption and the TOTUS exemption; and

changes to the metrics reporting requirements and to the compliance program requirements.

167

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Topic Areas Identified for Comment and Questions Posed

Banking entity

categorization and

tailoring

Appropriateness of establishing different requirements for banking entities based on thresholds of trading assets and liabilities.

Appropriateness of the specific thresholds that are proposed to delineate between the three categories of banking entities and the requirements that would apply to each category.

Potential to further tailor application of the regulations by categorizing certain banking entities separately from their subsidiaries and affiliates (e.g., an SEC-registered broker-dealer that operates separately and independently from an affiliate with significant trading assets and liabilities).

168

Proprietary Trading Provisions

Definition of “trading

account”

Appropriateness of replacing the short-term intent prong with the proposed accounting prong, “considering the fact that entities may have discretion over whether certain financial instruments are recorded at fair value.”

169

Appropriateness of the scope of financial instruments proposed to be included in the accounting prong.

Costs of compliance with the dealer prong of the “trading account” definition.

170

Presumption of

compliance with

proprietary trading

prohibition

Appropriateness of the proposed desk-level profit and loss threshold for presumed compliance with the prohibition on proprietary trading.

Appropriateness of the process by which banking entities would notify the appropriate Agency of instances when the threshold is crossed.

Appropriateness of the process by which the Agencies may rebut the presumption of compliance.

171

Implications for

banking entities

regulated by market

regulators

Potential differences in the Proposed Rule’s implications for banking entities regulated by market regulators as compared to other banking entities, including with respect to:

the proposal to replace the short-term intent prong with an accounting prong, including the presumption of compliance;

notice and response procedures, including the requirement that banking entities relying on the presumption of compliance must notify the Agencies of instances when the absolute daily profit and loss threshold has been exceeded; and

costs of compliance.172

Definition of “trading

desk”

Potential consequences of a change to the definition of “trading desk,” including with respect to the ability of banking entities and the Agencies to detect impermissible proprietary trading.

173

Whether it would be appropriate to adopt a potential multi-factor definition of “trading desk” that would be based on the same criteria typically used to establish trading desks for other operational, management and

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Topic Areas Identified for Comment and Questions Posed

compliance purposes. This definition would be:

structured to establish efficient trading for a market sector;

organized to ensure appropriate setting, monitoring and management review of the desk’s trading and hedging limits, current and potential future loss exposures, strategies and compensation incentives; and

characterized by a clearly-defined unit of personnel that typically: (a) engages in coordinated trading activity with a unified approach to its key elements; (b) operates subject to a common and calibrated set of risk metrics, risk levels and joint trading limits; (c) submits compliance reports and other information as a unit for monitoring by management; and (d) books its trades together.

174

Reservation of

authority

Appropriateness of the reservation of authority to allow the appropriate Agency, rather than the Agencies jointly, to determine whether a particular activity is proprietary trading, and the process for the foregoing determination.

175

Underwriting

exemption – RENTD

limits and

presumption of

compliance

Effects of the proposed presumption of compliance for underwriting activity within internally set risk limits, including:

how it would impact capital formation and liquidity of particular markets;

whether further guidance on how to set internal risk limits is necessary;

whether it is appropriately tailored to the underwriting market; and

the process by which the Agencies may rebut the presumption.176

Underwriting

exemption –

Compliance program

and other

requirements

Whether compliance requirements for the underwriting activities exemption should only apply to banking entities with significant trading assets and liabilities.

Whether such requirements should be streamlined for such entities.177

Market making-

related activities

exemption – RENTD

limits and

presumption of

compliance

Effects of the proposed presumption of compliance for market making-related activities within internally set risk limits, including:

how it would impact the liquidity of particular markets;

whether further guidance on how to set internal risk limits is necessary;

whether the proposal would present problems for a trading desk that makes a market in derivatives; and

the process by which the Agencies may rebut the presumption.178

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Topic Areas Identified for Comment and Questions Posed

Market making-

related activities

exemption –

Compliance program

and other

requirements

Whether compliance requirements for the market making-related activities exemption should only apply to banking entities with significant trading assets and liabilities.

Whether such requirements should be streamlined for such entities.179

Market making-

related activities

exemption – Loan-

related swaps

Circumstances in which loan-related swaps should be permissible under the market making-related activities exemption.

Whether such swaps should be excluded from the definition of “proprietary trading” or made a permissible activity.

Whether trading in other types of swaps should also be addressed.180

Market making-

related activities

exemption – Market

making-related

hedging

Whether the Agencies should clarify the ability of banking entities to engage in market making-related hedging.

Whether current restrictions impede the ability of banking entities to effectively and efficiently engage in such hedging.

How effective the current regulations are at reducing risk.181

Permitted risk-

mitigating hedging

activities

Whether to remove the requirement that a correlation analysis be done to determine whether hedging transactions significantly mitigate specific risks.

How the correlation analysis requirement affects a banking entity’s decisions on whether to enter into different types of hedges and the timing of hedging activities.

Whether exemptions should be provided for hedging activity that is accounted for under accounting principles.

The Agencies also solicit comment on:

reductions in compliance requirements for risk-mitigating hedging activities by banking entities that do not have significant trading assets and liabilities; and

an exclusion from enhanced documentation requirements for trading desks that hedge risks of other desks.

182

Liquidity

management

exclusion

Whether the proposal to modify the liquidity management exclusion to include foreign exchange forwards, foreign exchange swaps, or physically-settled cross-currency swaps sufficiently protects against the possibility of banking entities using the exclusion to conduct impermissible speculative trading.

183

Error trades Whether the proposed exclusion to correct bona fide trade errors:

aligns with banking entities’ existing policies and procedures;

is appropriately calibrated and sufficiently clear; and

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Topic Areas Identified for Comment and Questions Posed

does not conflict with the rules of any self-regulatory organization.

184

TOTUS exemption Whether proposed modifications to the TOTUS exemption effectively focus the exemption on the location of the principal actions and risk of the transaction.

Whether these modifications ensure that principal risk remains solely outside the United States.

Whether the proposals raise competitive equity concerns for U.S. banking entities.

185

Covered Fund Provisions

Definition of

“covered fund”

In considering whether to further tailor the 2013 Rule’s general approach to defining the term “covered fund” and the 2013 Rule’s definition of “covered fund” (before applying exclusions), the Agencies solicit comment on:

whether and how to incorporate definitions of “hedge fund” and “private equity fund” into the rule’s definition of “covered fund”;

whether the current definition of “covered fund” is over- or under-inclusive;

whether the definitions of “foreign covered fund” and “commodity pool” effectively address concerns about circumvention of the Volcker Rule;

challenges arising from complying with covered fund restrictions;

costs that would arise from a change in the definition of “covered fund”; and

how proposed modifications to other provisions of the 2013 Rule (e.g., the exemptions for underwriting, market making-related and risk-mitigating hedging activities) may interact with the “covered fund” definition.

186

Alternative

definitional

approaches

Whether an exclusion from the “covered fund” definition should be provided for funds that (i) do not engage in transactions to profit from short-term price movements and (ii) do not invest in illiquid assets.

Whether to revise the base definition of “covered fund” using a characteristics-based approach.

Whether funds that lack certain traits of a hedge fund or private equity fund should be excluded from the definition of “covered fund.” The Agencies note the possibility of leveraging the definitions of “hedge fund” and “private equity fund” from the SEC’s Form PF to determine relevant traits (see below).

187

Hedge fund. Form PF defines “hedge fund” to mean any private fund (other than a securitized asset fund

188): (i) with respect to

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Topic Areas Identified for Comment and Questions Posed

which one or more investment advisers (or related persons of investment advisers) may be paid a performance fee or allocation calculated by taking into account unrealized gains (other than a fee or allocation the calculation of which may take into account unrealized gains solely for the purpose of reducing such fee or allocation to reflect net unrealized losses); (ii) that may borrow an amount in excess of one-half of its net asset value (including any committed capital) or may have gross notional exposure in excess of twice its net asset value (including any committed capital) or (iii) that may sell securities or other assets short or enter into similar transactions (other than for the purpose of hedging currency exposure or managing duration).

189

Private equity fund. Form PF defines “private equity fund” not by reference to specific characteristics or traits, but rather as any private fund that is not a hedge fund, liquidity fund, real estate fund, securitized asset fund or venture capital fund, as those terms are defined in Form PF.

190 In this regard, the Agencies note also that

they understand private equity funds commonly (i) have restricted or limited investor redemption rights; (ii) invest in public and non-public companies through privately negotiated transactions resulting in private ownership of the business; (iii) acquire the unregistered equity or equity-like securities of such companies that are illiquid as there is no public market and third-party valuations are not readily available; (iv) require holding investments long-term; (v) have a limited duration of ten years or less; and (vi) realize returns on investments and distribute the proceeds to investors before the anticipated expiration of the fund’s duration.

191

Exclusions for FPFs

and RICs

Whether the current FPF exclusion captures funds that are sufficiently similar to RICs and excludes those that are insufficiently similar.

Whether the current RIC exclusion is appropriate.

Whether concerns about the use of FPFs to evade the 2013 Rule justify conditions imposed on FPFs but not RICs, or whether the Agencies should address such concerns through, for instance, an anti-evasion provision.

The Agencies also solicit comment on all aspects of the FPF exclusion, including the conditions to the exclusion that:

the fund must be “authorized to offer and sell ownership interests to retail investors in the issuer’s home jurisdiction”;

ownership interests must be sold “predominantly” through “public offerings” outside of the United States; and

ownership interests must be sold predominantly to persons other than the sponsoring banking entity and certain related persons.

Whether previously released FAQ #5, which allows an entity formed and operated pursuant to a written plan to become an FPF to receive the same treatment as an entity formed and operated pursuant to written plans to become a RIC or BDC, should be incorporated into the regulations.

192

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Topic Areas Identified for Comment and Questions Posed

Family wealth

management

vehicles

The Agencies solicit information on family wealth management vehicles, including:

what exclusions from the definition of “investment company” in the Investment Company Act they rely on;

whether they should be excluded from the definition of “covered fund” and how such an exclusion would be structured;

whether such an exclusion would create opportunities for evasion of the Volcker Rule;

what services banking entities provide family wealth management vehicles; and

whether there are similar vehicles that pose similar issues.193

Joint ventures Whether the exclusion for joint ventures has allowed banking entities to continue sharing the risk and cost of financing banking activities through joint ventures.

Whether changes should be made to the exclusion to clarify the condition that joint ventures may not be used to raise money from investors primarily for the purpose of trading in securities.

Whether changes should be made to clarify that the joint venture exclusion is designed to allow banking entities to structure business ventures.

How the term “joint venture” should be defined.194

Whether to incorporate in the Proposed Rule some or all the views expressed by the staffs in FAQ #15,

195 which is widely considered to have

limited significantly the utility of this exclusion.

Securitizations How exclusions from the “covered fund” definition for loan securitizations, qualifying asset-backed commercial paper conduits and qualifying covered bonds have worked in practice.

Whether there are any assets that are not “loans” that should be considered permissible assets under the exclusion (including whether the Agencies should consider permitting a loan securitization vehicle to hold 5% to 10% of assets that are considered debt securities rather than “loans”).

Whether the view expressed in FAQ #4 that servicing assets may be any type of asset, provided that any servicing asset that is a security must be a permitted security, should be incorporated into the regulations.

Whether changes should be made to the definition of “ownership interest” in the context of securitizations.

196

Selected other

issuers

Whether exclusions should be extended for entities, such as small business investment companies, that are excluded from the “covered fund” definition but may not be able to satisfy the relevant exclusion as the entity is liquidated.

Whether municipal securities tender option bond vehicles should be

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Topic Areas Identified for Comment and Questions Posed

excluded from the definition of “covered fund.”197

Underwriting and

market making for a

covered fund

What effects the proposed changes to these exemptions would have on capital-raising activities of issuers.

How to align the relevant restrictions of these exemptions with those for engaging in underwriting and market making-related activities for other financial instruments.

Whether the Agencies should remove the requirement that the banking entity include for purposes of the per-fund limitation, aggregate funds limitation and capital deduction the value of any ownership interests of the covered fund acquired or retained in accordance with the underwriting or market making-related activities exemptions.

Whether any other restrictions on underwriting or market making of ownership interests in covered funds should be included or removed.

198

SOTUS exemption –

Generally

Whether the Proposed Rule’s implementation of the SOTUS exemption is:

effective;

clear regarding when a transaction or activity will be considered to have occurred solely outside the United States; and

consistent with limiting the extraterritorial reach of the Volcker Rule with respect to FBOs.

Whether the Financing Restriction should be retained.

Whether the proposed changes to the exemption create competitive advantages for foreign banking entities.

Whether the proposal regarding the Marketing Restriction is sufficiently clear.

199

Limitations on

relationships with

certain covered

funds (Super 23A) –

Scope and

exemptions

Whether other transactions between banking entities and covered funds should be prohibited or limited.

Whether the exemptions under Section 23A of the Federal Reserve Act and Regulation W should be incorporated into the regulations.

200

Whether to incorporate the quantitative limits in Section 23A of the Federal Reserve Act and Regulation W.

201

Limitations on

relationships with

certain covered

funds (Super 23A) –

FCM activities

Whether clearing services provided by a futures commission merchant (“FCM”) to its customers are a relationship that would raise policy concerns.

Whether the no-action relief provided by the CFTC staff to an FCM on March 29, 2017 and the non-objection of the other Agencies to this relief provides sufficient certainty for market participants.

202

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Compliance Program; Violations

Requirements for

banking entities with

significant trading

assets and liabilities

Whether the six-pillar compliance program requirements should apply only to banking entities with significant trading assets and liabilities and whether the scope of the six-pillar compliance program is appropriate.

203

Requirements for

banking entities with

limited trading

assets and liabilities

Whether to specify notice and response procedures in connection with an Agency determination that the presumption of compliance for banking entities with limited trading assets and liabilities is rebutted.

204

Tailoring of

compliance

programs generally

Whether the proposal to tailor compliance programs based on the type, size, scope and complexity of a banking entity’s activities and business structure would be effective in ensuring that banking entities with significant or moderate trading assets and liabilities comply with the proprietary trading and covered fund requirements and restrictions of the Volcker Rule.

To what extent compliance programs are implemented by registered investment advisers as opposed to other banking entity affiliates or subsidiaries.

205

CEO attestation

requirement

The Agencies solicit comment on the CEO attestation requirement, including with respect to:

its cost;

whether such attestation is redundant in light of existing business practices;

whether the scope of the requirement under the proposed three-tier scheme for banking entities is appropriate; and

whether incorporating the CEO attestation requirement would ensure that a strong governance framework is implemented with respect to compliance with the Volcker Rule.

206

Independent testing,

training and

recordkeeping

requirements

Whether the current independent testing, training and recordkeeping requirements would, if appropriately tailored to the size, scope and complexity of the banking entity’s activities, be effective in ensuring that banking entities with significant or moderate trading assets and liabilities comply with the Volcker Rule.

207

Reporting and

recordkeeping

requirements

Whether certain proposed definitions (i.e., “applicability,” “trading day” and “covered trading activity”) are effective and clear and whether any other terms should be defined.

208

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Topic Areas Identified for Comment and Questions Posed

Quantitative Metrics Reporting and Recordkeeping

Overall assessment

of metrics reporting

requirement

Whether the quantitative metrics regime is an appropriate approach to identifying potentially prohibited proprietary trading.

The costs of reporting quantitative measurements and proposed qualitative reporting requirements.

Whether a trading desk should be permitted not to furnish a quantitative measurement in certain circumstances, or be required to report activity conducted under different exemptions separately.

Whether quantitative measures should be made public in some form.209

Nature and scope of

information

reporting

The Agencies solicit comment on the proposed Trading Desk Information and Quantitative Measurements Identifying Information and the proposed Narrative Statement requirement, including:

whether such proposals are sufficiently clear;

whether such information would be helpful in understanding a trading desk’s covered trading activities and associated risks; and

the costs of preparing such information.210

Frequency and

method of required

calculation and

reporting

Whether the proposed frequency of reporting the Trading Desk Information, Quantitative Measurements Identifying Information and the Narrative Statement is appropriate and effective (specifically, with respect to the proposal to adjust the reporting schedule for banking entities with $50 billion or more in trading assets and liabilities to within 20 days of the end of each calendar month).

Whether implementing the proposed Appendix’s electronic reporting requirement and XML Schema, as well as certain record retention requirements, would be practical or appropriate.

211

Stressed Value-at-

Risk metric

Whether Stressed Value-at-Risk limits should be removed as a reporting requirement for desks engaged in permitted market making-related activity or risk-mitigating hedging activity.

Whether banking entities should be required to report the limit size of both the upper and lower bound of a limit.

212

Comprehensive

Profit and Loss

Attribution metric

Whether to clarify that Residual Profit and Loss is only profit and loss that cannot be attributed to existing or new positions, and to add a separate reporting item for Unexplained Profit and Loss from Existing Position.

How best to specify the calculation for Profit and Loss due to Risk Factor Changes (including, for example, aligning the calculation with “hypothetical” or “Clean P&L” as prescribed by the market risk capital rules; or clarifying the definition to be the sum of all profit and loss attributions regardless of whether they are reported individually).

213

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Topic Areas Identified for Comment and Questions Posed

Inventory Turnover

metric

Whether the Inventory Turnover metric should be removed or replaced.

Whether the proposed Positions metric would be effective in helping distinguish between permitted and prohibited trading activities (including with respect to the identification of high-risk strategies and the evaluation of underwriting and market making-related activities).

214

Customer-Facing

Trade Ratio metric

Whether the Customer-Facing Trade Ratio metric should be removed or replaced.

Whether the proposed Transaction Volumes metric would be effective in helping to distinguish between permitted and prohibited trading activities (including with respect to the evaluation of underwriting and market making-related activities).

Whether detailed instructions are needed regarding how different transaction life cycle events such as amendments, novations, compressions, maturations, allocations, unwinds, terminations, option exercises, option expirations and partial amendments affect the calculation of Transaction Volumes and the Comprehensive Profit and Loss Attribution.

215

Securities Inventory

Aging metric

Whether the proposed Securities Inventory Aging metric is effective in evaluating underwriting or market making-related activity.

Whether inventory aging of derivatives and/or futures is a useful metric for monitoring covered trading activity at trading desks.

216

* * *

ENDNOTES

1 The Agencies are the Federal Reserve, the Office of the Comptroller of the Currency (the “OCC”),

the Federal Deposit Insurance Corporation (the “FDIC”), the Securities and Exchange Commission (the “SEC”) and the Commodity Futures Trading Commission (the “CFTC”). As of the time of publication of this Memorandum, the SEC has yet to take action to approve the NPR, but is scheduled to do so on the date hereof. The Governors of the Federal Reserve and the members of the Board of Directors of the FDIC voted unanimously to approve the NPR at their respective meetings, and Comptroller Joseph Otting stated during the meeting of the Board of Directors of the FDIC that he approved the NPR on behalf of the OCC. At the vote of the CFTC approving the NPR, Commissioner Rostin Behnam dissented from the other two Commissioners.

2 It is expected that the version of the NPR approved by each Agency and related materials

released to the public in connection with each Agency’s approval of its version of the NPR will be posted by each Agency on its website. As of the time of publication of this Memorandum, materials released by the Federal Reserve are available at https://www.federalreserve.gov/newsevents/pressreleases/bcreg20180530a.htm and those of the FDIC are available at https://www.fdic.gov/regulations/reform/volcker/rule.html.

Copyright © Sullivan & Cromwell LLP 2018

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3 Preamble at 16 n.19 (citing statements by Randal K. Quarles, Vice Chair, Federal Reserve;

Daniel K. Tarullo, Former Governor, Federal Reserve; and Martin J. Gruenberg, Former Chair, FDIC). Commentaries from various regulators and policymakers have highlighted concerns with the 2013 Rule’s complexity and compliance burden. See, e.g., Janet L. Yellen, Former Chair, Federal Reserve: “[I]mplementation of [the Volcker Rule] is frankly complex, and I’m certainly open to looking at ways to reduce regulatory burden in that area.” FOMC Press Conference (June 14, 2017), available at https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20170614.pdf; Daniel K. Tarullo, Former Governor, Federal Reserve: “[S]everal years of experience have convinced me that there is merit in the contention of many firms that, as it has been drafted and implemented, the Volcker rule is too complicated.” Departing Thoughts (Apr. 4, 2017), available at https://www.federalreserve.gov/newsevents/speech/tarullo20170404a.htm; Keith A. Noreika, Former Acting Comptroller of the Currency: “I have sought the views of my colleagues at the other federal banking agencies about simplifying the regulatory framework implementing the Volcker Rule. In recent years, many of the nation’s financial institutions have struggled to understand and comply with these regulations, devoting significant resources that could have been put to more productive uses. There is near unanimous agreement that this framework needs to be simplified and clarified.” Fostering Economic Growth: Regulator Perspective: Hearing Before the Senate Banking Committee (June 22, 2017), available at https://www.banking.senate.gov/imo/media/doc/Noreika%20Testimony%206-22-17.pdf.

4 U.S. Department of the Treasury, A Financial System That Creates Economic Opportunities:

Banks and Credit Unions (June 12, 2017), available at https://www.treasury.gov/press-center/press-releases/Documents/A%20Financial%20System.pdf. Pages 71–78 of the Treasury Report discuss the Volcker Rule. For an overview of the Treasury Report, please see our Client Memorandum, Treasury Issues Comprehensive Report on Depository System Regulatory Reforms, dated June 14, 2017, available at https://www.sullcrom.com/siteFiles/Publications/SC_Publication_Treasury_Issues_Comprehensive_Report_on_Depository_System_Regulatory_Reforms.pdf.

5 OCC, Proprietary Trading and Certain Interests in and Relationships With Covered Funds

(Volcker Rule); Request for Public Input, 82 Fed. Reg. 36692 (Aug. 7, 2017). For a discussion of the OCC RFI, please see our Client Memorandum, Volcker Rule: Comptroller of the Currency Releases Request for Information on the Volcker Rule’s Implementation, Application and Administration, dated August 3, 2017, available at https://www.sullcrom.com/volcker-rule-comptroller-of-the-currency-releases-request-for-information-on-the-volcker-rules-implementation-application-and-administration.

6 The NPR indicates that the Agencies expect to conduct a separate rulemaking process to

address the Reform Act’s amendments that affect the Volcker Rule. Preamble at 12. The Reform Act’s two-part test for exemption from the Volcker Rule is summarized in Part I of this Memorandum.

7 Public comment letters responding to the OCC RFI, including 87 unique comment letters, are

available at https://www.regulations.gov/docket?D=OCC-2017-0014. A summary of the comment letters is available at https://occ.gov/topics/capital-markets/financial-markets/trading-volcker-rule/volcker-notice-comment-summary.pdf.

8 OCC, Federal Reserve, FDIC and SEC, Prohibitions and Restrictions on Proprietary Trading and

Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds, 79 Fed. Reg. 5535 (Jan. 31, 2014); CFTC, Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds, 79 Fed. Reg. 5807 (Jan. 31, 2014). Each Agency adopted the 2013 Rule and codified it separately in its respective regulations. See 12 C.F.R. §§ 248 (Federal Reserve); 44 (OCC); 351 (FDIC); and 17

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C.F.R. §§ 255 (SEC); 75 (CFTC). References and citations herein to the 2013 Rule are to the common rule text.

9 For a discussion of the requirements of the 2013 Rule, please see our Client Memorandum,

Volcker Rule: U.S. Agencies Approve Final Volcker Rule, Detailing Prohibitions and Compliance Regimes Applicable to Banking Entities Worldwide, dated January 27, 2014, available at https://www.sullcrom.com/Volcker-Rule-01-27-2014.

10 The Agencies issued on January 10, 2014 an “interim final rule” to provide relief with respect to

banking entities’ legacy interests in so-called “TruPS-backed CDOs.” This interim final rule does not technically amend the 2013 Rule, but rather operates as a “companion rule” to the 2013 Rule. For further discussion of this interim final rule, please see our Client Memorandum, Volcker Rule: Agencies Issue Interim Final Rule Exempting Certain TruPS-Backed CDOs from the Volcker Rule’s Prohibition on Banking Entities’ Holding Ownership Interests in or Sponsoring Covered Funds, dated January 14, 2014, available at https://www.sullcrom.com/Volcker-Rule.

11 The staff of each Agency has released its respective version of each FAQ in substantively

identical form. The FAQs issued to date by the staff of each Agency apply to banking entities over which that Agency has jurisdiction under the Volcker Rule. The FAQs, as prepared by the staff of each Agency and updated from time to time, can be accessed at the public website of each Agency: Federal Reserve (http://www.federalreserve.gov/bankinforeg/volcker-rule/faq.html); FDIC (https://www.fdic.gov/regulations/reform/volcker/faq.html); OCC (https://occ.gov/topics/capital-markets/financial-markets/trading-volcker-rule/volcker-rule-implementation-faqs.html); SEC (https://www.sec.gov/divisions/marketreg/faq-volcker-rule-section13.htm); CFTC (https://www.cftc.gov/LawRegulation/DoddFrankAct/Rulemakings/DF_28_VolckerRule/index.htm).

12 Of particular note are the federal banking agencies’ policy statement regarding the treatment of

foreign excluded funds (as discussed in our Client Memorandum, Volcker Rule: Federal Banking Agencies Release New Guidance on the Treatment of “Foreign Excluded Funds” Under the Volcker Rule, dated July 22, 2017, available at https://www.sullcrom.com/volcker-rule-federal-banking-agencies-release-new-guidance-on-the-treatment-of-foreign-excluded-funds-under-the-volcker-rule) and the Agencies’ guidance regarding the capital treatment of certain ownership interests in covered funds (as discussed in our Client Memorandum, Volcker Rule and Bank Capital: Agencies Release Guidance on Capital Treatment of Banking Entity Investments in TruPS CDOs, dated March 4, 2016, available at https://www.sullcrom.com/volcker-rule-and-bank-capital-agencies-release-guidance-on-capital-treatment-of-banking-entity-investments-in-trups-cdos).

13 OCC RFI at 36693. See also supra note 3.

14 Preamble at 17.

15 Preamble at 17–18.

16 See infra note 25 (discussing the 2013 Rule’s five tiers of compliance program requirements).

17 See text accompanying infra note 30 (noting that the Proposed Rule includes a reservation of

authority that would allow an Agency to require a banking entity with limited or moderate trading assets and liabilities to apply any of the more extensive requirements that would otherwise apply if the banking entity had significant or moderate trading assets and liabilities under certain circumstances).

18 For a discussion of the Reform Act, please see our Client Memorandum, Financial Services

Regulatory Reform Legislation: “Economic Growth, Regulatory Relief, and Consumer Protection

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ENDNOTES (CONTINUED)

Act” is Enacted, dated May 24, 2018, available at https://www.sullcrom.com/financial-services-regulatory-reform-legislation-economic-growth-regulatory-relief-and-consumer-protection-act-is-enacted. See Part II.B.5 of this Memorandum for a discussion regarding the amendment to the name sharing restriction.

19 Preamble at 12.

20 Treasury Report at 77.

21 See supra note 7.

22 OCC RFI at 36694 n.16.

23 In her statement in connection with the Federal Reserve’s approval of the NPR, Governor Lael

Brainard observed that the “requirement of CEO attestation is critical” to the revision of the RENTD framework. Lael Brainard, Governor, Federal Reserve, Statement on the Volcker Rule Proposal, May 30, 2018, available at https://www.federalreserve.gov/newsevents/pressreleases/brainard-statement-20180530.htm. The Preamble underscores this point with respect to the compliance program-related proposals more broadly, noting that the Proposed Rule’s simplification of the compliance program requirements “should be balanced against the requirement for all banking entities to maintain compliance with [the Volcker Rule] and the implementing regulations. Accordingly, the Agencies believe that applying the CEO attestation requirement for banking entities with meaningful trading activities would ensure that the compliance programs . . . are reasonably designed to achieve compliance with [the Volcker Rule] and the implementing regulations as proposed.” Preamble at 218.

24 See infra note 30 (discussing the Agencies’ “reserved authority”).

25 The 2013 Rule’s five tiers of compliance program requirements are as follows. For further detail

regarding the specific requirements associated with each of these tiers, please see Section 10 of our Client Memorandum, Volcker Rule: U.S. Agencies Approve Final Volcker Rule, Detailing Prohibitions and Compliance Regimes Applicable to Banking Entities Worldwide, dated January 27, 2014, available at https://www.sullcrom.com/Volcker-Rule-01-27-2014/.

(1) Banking entities that engage in no restricted activities ( i.e., proprietary trading (other than permitted trading in U.S. government obligations) or covered fund-related activities or investments) are not subject to a compliance program requirement.

(2) Smaller banking entities with total consolidated assets of $10 billion or less as reported on December 31 of the previous two calendar years that engage in restricted activities are subject to a reduced compliance burden, which requires only that such banking entities include in their existing compliance policies and procedures appropriate references to the requirements of the Volcker Rule.

(3) Banking entities that engage in restricted activities and do not fall into any of the other four tiers are required to implement and maintain a compliance program that meets several baseline requirements, commonly referred to as the “standard” compliance program.

(4) Larger banking entities and banking entities with significant trading activities a re subject to “enhanced” compliance program requirements, which adds to the standard program additional and more detailed policies and procedures, internal controls, independent testing and other requirements, as well as an annual CEO certification requirement. This tier applies to banking entities with (A) total consolidated assets of $50 billion or more as of the previous calendar year-end, as calculated on the basis of

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(i) all affiliates and subsidiaries globally, in the case of U.S. banking entities, and (ii) consolidated U.S. operations only, in the case of foreign banking entities; and/or (B) total “trading assets and liabilities,” together with affiliates and subsidiaries, but excluding trading assets and liabilities involving U.S. government obligations, the average gross sum of which over the previous consecutive four quarters, as measured as of the last day of each of the four prior calendar quarters, equals or exceeds $10 billion, as calculated with respect to U.S. banking entities and foreign bank ing entities in the manner described in the foregoing clauses (A)(i) and (ii).

(5) Banking entities with significant trading activities are subject to the “enhanced” compliance program requirements as well as a requirement to calculate and report quantitative trading metrics.

26 Proposed Rule §§ ._2(ff)(2)–(3). See also Preamble at 21–22. Pages 5–6 of Appendix A of this

Memorandum contain the changes made to this provision as between the 2013 Rule and the Proposed Rule.

27 Preamble at 12.

28 The additional documentation requirements for covered funds under § _.20(e) of the 2013 Rule,

which apply unchanged to banking entities with significant trading assets and liabilities under the Proposed Rule, include:

(1) documentation of the exclusions or exemptions other than Section 3(c)(1) or 3(c)(7) of the 1940 Act relied on by each fund sponsored by the banking entity (including all subsidiaries and affiliates) in determining that the fund is not a covered fund;

(2) for each fund sponsored by the banking entity (including all subsidiaries and affiliates) for which the banking entity relies on one or more of the exclusions from the definition of “covered fund” for foreign public funds, foreign pension or retirement funds, loan securitizations, qualifying asset-based commercial paper conduits or qualifying covered bonds, documentation supporting the banking entity’s determination that the fund is not a covered fund;

(3) for each seeding vehicle that will become a RIC or an SEC-regulated BDC, a written plan documenting: the banking entity’s determination that the seeding vehicle will become such a RIC or BDC, 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 RIC or BDC within the time period required under the 2013 Rule; and

(4) for any banking entity that is, or is controlled directly or indirectly by a banking entity that is, located in or organized under the laws of the United States or of any U.S. state, if the aggregate amount of ownership interests in foreign public funds owned by such banking entity (including ownership interests owned by any affiliate that is controlled directly or indirectly by a banking entity that is located in or organized under the laws of the United States or of any U.S. state) exceeds $50 million at the end of two or more consecutive calendar quarters, beginning with the next succeeding calendar quarter, documentation of the value of the ownership interests owned by the banking entity (and such affiliates) in each foreign public fund and each jurisdiction in which any such foreign public fund is organized, calculated as of the end of each calendar

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ENDNOTES (CONTINUED)

quarter, which documentation must continue until the banking entity’s aggregate amount of ownership interests in foreign public funds is below $50 million for two consecutive calendar quarters.

Proposed Rule § _.20(e). See also Preamble at 220–21. Pages 49–50 of Appendix A of this Memorandum contain the changes made to this provision as between the 2013 Rule and the Proposed Rule.

29 Preamble at 34–35.

30 The Proposed Rule also includes a reservation of authority that would allow an Agency to

require a banking entity with limited or moderate trading assets and liabilities to apply any of the more extensive requirements that would otherwise apply if the banking entity had significant or moderate trading assets and liabilities. Proposed Rule at § ._20(h). See also Preamble at 22–23. Page 51 of Appendix A of this Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.

31 See supra note 30.

32 Banking entities with limited trading assets and liabilities have no affirmative obligation to

demonstrate compliance with the Proposed Rule on an ongoing basis. However, if upon examination or audit, the relevant Agency determines that the banking entity has engaged in covered activities, such Agency may rebut the presumption of compliance and require the banking entity to demonstrate compliance with the requirements of the rule applicable to a banking entity with moderate trading assets and liabilities. Proposed Rule § _.20(g). See also Preamble at 222.

33 The “short-term intent prong” includes within the definition of trading account any account used by

a banking entity to purchase or sell one or more financial instruments principally for the purpose of: (i) short-term resale; (ii) benefitting from short-term price movements; (iii) realizing short-term arbitrage profits; or (iv) hedging any of the foregoing. 2013 Rule § _.3(b)(1)(i).

34 2013 Rule § _.3(b)(1)(ii).

35 2013 Rule § _.3(b)(1)(iii).

36 The Preamble explained the removal of the short-term intent prong is meant to address concerns

that the prong requires banking entities and the Agencies to make subjective determinations with respect to each trade a banking entity conducts, and that the 60-day rebuttable presumption may scope in activities that do not involve the types of risks or transactions the statutory definition of proprietary trading appears to have been intended to cover. Preamble at 58–59.

37 Proposed Rule § _.3(b). See also Preamble at 24–25. Pages 6–8 of Appendix A of this

Memorandum contain the changes made to this provision as between the 2013 Rule and the Proposed Rule.

38 Proposed Rule § _.3(b)(1)(i). See also Preamble at 59. Pages 6–7 of Appendix A of this

Memorandum contain the changes made to this provision as between the 2013 Rule and the Proposed Rule.

39 Proposed Rule § _.3(b)(1)(ii). See also Preamble at 59. Pages 6–7 of Appendix A of this

Memorandum contain the changes made to this provision as between the 2013 Rule and the Proposed Rule.

40 Proposed Rule § _3(b)(2). See also Preamble at 59. Page 7 of Appendix A of this Memorandum

contains the changes made to this provision as between the 2013 Rule and the Proposed Rule. The Agencies note that they are proposing to retain the “market risk capital prong” and the

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“dealer prong” because “both prongs provide clear lines and well -understood standards for purposes of determining whether or not a purchase or sale of a financial instrument is in the trading account.” Preamble at 60.

41 Proposed Rule § _.3(b)(3). See also Preamble at 61. Pages 7–8 of Appendix A of this

Memorandum contain the changes made to this provision as between the 2013 Rule and the Proposed Rule. For this purpose, “applicable accounting standards” means U.S. generally accepted accounting principles, or such other accounting standards applicable to a banking entity that the relevant Agency determines are appropriate and that the banking entity uses in the ordinary course of its business in preparing its consolidated financial statements. Proposed Rule § _.2(b). See also Preamble at 26 n.34. Page 2 of Appendix A of this Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.

42 As discussed further in Part II.A.2 of this Memorandum, the Proposed Rule does not change the

definition of “trading desk” from the 2013 Rule. However, the Agencies’ solicitation of comments regarding alternatives to the current definition suggests that the Agencies are considering revisions to this definition.

43 Proposed Rule § _.3(c). See also Preamble at 68. Pages 7–8 of Appendix A of this Memorandum

contain the changes made to this provision as between the 2013 Rule and the Proposed Rule.

44 Preamble at 26. The Agencies clarify that, “if the positions of a trading desk have recently

significantly contributed to the financial position of the banking entity, such that the absolute P&L-based threshold is exceeded, the proposed trading-desk-level presumption would become unavailable and the banking entity would be required to comply with more extensive requirements of the rule to ensure compliance.” Preamble at 68. A banking entity may choose to demonstrate ongoing compliance for activity captured by the accounting prong rather than calculating the profit and loss measurement for presumed compliance described above and relying on the presumption of compliance. Preamble at 67.

45 Preamble at 70 n.71.

46 Proposed Rule § _.3(c)(3)(i). See also Preamble at 71. Page 8 of Appendix A of this

Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.

47 Proposed Rule § _.3(g)(1). See also Preamble at 71–72. Page 12 of Appendix A of this

Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.

48 Preamble at 67.

49 Preamble at 61–62.

50 Preamble at 81. See also 2013 Rule §§ _.4(a)(2);_.4(b)(2).

51 2013 Rule § _.3(e)(13).

52 Preamble at 82.

53 Preamble at 82–83.

54 BHC Act §13(d)(1)(B) (12 U.S.C. § 1841(d)(1)(B)).

55 2013 Rule § _.4(a).

56 For purposes of the 2013 Rule, an “underwriting position” is the set of long or short positions in

one or more securities held by a banking entity or its affiliate, and managed by a particular trading desk, in connection with a particular distribution of securities for which the banking

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ENDNOTES (CONTINUED)

entity or an affiliate is acting as an underwriter. 2013 Rule § _.4(a)(6). A “distribution” includes an offering of securities: (i) whether or not subject to registration under the Securities Act, that is distinguished from ordinary trading transactions by the presence of special selling efforts and methods; or (ii) made pursuant to an effective registration statement under the Securities Act. 2013 Rule § _.4(a)(3). An “underwriter” is either: (i) a person who has an agreement with an issuer or selling security holder to purchase securities for distribution or to otherwise engage in or manage a distribution for or on behalf of the issuer or selling security holder; or (ii) a person who has agreed to participate or is participating in a distribution of such securities for or on behalf of the issuer or selling security holder. 2013 Rule § _.4(a)(4).

57 Preamble at 90.

58 Preamble at 90.

59 Proposed Rule §§ _.4(a)(8)(i)(A); _.4(a)(8)(i)(B)(1)–(3). See also Preamble at 93. Pages 14–15 of

Appendix A of this Memorandum contain the changes made to this provision as between the 2013 Rule and the Proposed Rule.

60 Preamble at 27.

61 Preamble at 93–94.

62 Proposed Rule § _.4(a)(8)(ii). See also Preamble at 94. Page 15 of Appendix A of this

Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.

63 Proposed Rule § _.4(a)(8)(iii). See also Preamble at 94. Page 15 of Appendix A of this

Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.

64 Preamble at 95.

65 Proposed Rule § _.4(a)(8)(iv). See also Preamble at 95. Page 15 of Appendix A of this

Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.

66 2013 Rule § _.4(a)(2)(iii).

67 Proposed Rule § _.4(a)(2)(iii). See also Preamble at 100. Page 13 of Appendix A of this

Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.

68 Preamble at 101.

69 BHC Act §13(d)(1)(B).

70 2013 Rule § _.4(b).

71 The 2013 Rule defines “financial exposure” to mean the aggregate risks of one or more

financial instruments and any associated loans, commodities or foreign exchange or currency held by a banking entity or its affiliate and managed by a particular trading desk as part of the trading desk’s market making-related activities. 2013 Rule § _.4(b)(4).

72 The 2013 Rule defines “market-maker inventory” to mean all the positions in the financial

instruments for which the trading desk stands ready to make a market that are managed by the trading desk, including the trading desk’s open positions or exposures arising from open transactions. 2013 Rule § _.4(b)(5).

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73

The 2013 Rule defines “clients, customers and counterparties” for purposes of the market making-related activities exemption to mean “market participants that make use of the banking entity’s market making-related services by obtaining such services, responding to quotations, or entering into a continuing relationship with respect to such services.” 2013 Rule § _.4(b)(3). A trading desk or other organizat ional unit of a second entity is not a “client, customer or counterparty” of a trading desk of the first entity, however, if the second entity has $50 billion or more in total trading assets and liabilities (as measured for purposes of the 2013 Rule’s quantitative trading metrics reporting requirements), unless: (i) the first trading desk documents how and why the second trading desk should be treated as a “client, customer, or counterparty” of the trading desk or (ii) the purchase or sale is conducted anonymously on an exchange or similar trading facility that permits trading on behalf of a broad range of market participants. 2013 Rule § _.4(b)(3)(i). The Proposed Rule does not change this definition other than by noting that the $50 billion trading assets and liabilities threshold referred to above should be calculated based on the same methodology that is used to determine whether a banking entity has “significant trading assets and liabilities.”

74 Preamble at 105.

75 Preamble at 104.

76 Preamble at 104–05.

77 Proposed Rule § _.4(b)(6)(i)(B). See also Preamble at 108. Page 17 of Appendix A of this

Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule. As with the presumption of compliance with the underwriting exemption’s RENTD requirement, the Agencies indicate that they expect a banking entity to establish the requisite limits “according to its own internal analyses and processes around conducting its market making activities,” which should include an “ongoing and internal assessment” of RENTD. Preamble at 109–10.

78 Proposed Rule § _.4(b)(6)(iii). See also Preamble at 109. Page 17 of Appendix A of this

Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule. The Agencies indicate that they would expect to closely monitor and review any instances of a banking entity exceeding a risk limit as well as any temporary or permanent increase to a trading desk limit. Preamble at 110.

79 Proposed Rule § _.4(b)(6)(ii). See also Preamble at 110. Page 17 of Appendix A of this

Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.

80 Proposed Rule § _.4(b)(6)(iv). See also Preamble at 110. Page 17–18 of Appendix A of this

Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.

81 2013 Rule § _.4(b)(2)(iii); Proposed Rule § _.4(b)(2)(iii). See also Preamble at 116. Page 15 of

Appendix A of this Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule. As is the case with respect to the underwriting exemption, the Agencies clarify that banking entities that do not have significant trading assets and liabilities are not relieved of the obligation to comply with the other requirements of the exemption for market making-related activities, but the elimination of the compliance program requirement for such banking entities is intended to provide these banking entities with “an appropriate amount of flexibility to tailor the means by which they seek to ensure compliance with the underlying requirements of the exemption for market making-related activities, and to allow them to structure their internal compliance measures in a way that takes into account the risk profile and market making activity of the particular trading desk.” Preamble at 117.

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82

Proposed Rule § _.5. See also Preamble at 27. Pages 18–20 of Appendix A of this Memorandum contain the changes made to this provision as between the 2013 Rule and the Proposed Rule.

83 2013 Rule § _.5.

84 2013 Rule § _.5(b)(1)–(2).

85 Proposed Rule § _.5(b). See also Preamble at 307.

86 Proposed Rule §§ _.5(b)(1)(i)(C); _.5(b)(1)(ii)(B); _.5(b)(1)(ii)(D)(2). See also Preamble at 130–

31. Pages 18–19 of Appendix A of this Memorandum contain the changes made to this provision as between the 2013 Rule and the Proposed Rule.

87 Preamble at 130.

88 Preamble at 130.

89 Proposed Rule § _.5(c)(4). See also Preamble at 134–35. Page 20 of Appendix A of this

Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.

90 Proposed Rule § _.5(c)(4)(ii). See also Preamble at 134–35. Page 20 of Appendix A of this

Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.

91 Preamble at 135.

92 Proposed Rule § _.5(b)(1)(i)(C). See also Preamble at 129. Page 18 of Appendix A of this

Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.

93 Preamble at 128.

94 Preamble at 128–29.

95 2013 Rule § _.3(d)(3).

96 The Proposed Rule’s definitions of “foreign exchange forward” and “foreign exchange swap”

reference the corresponding definitions of such terms in the Commodity Exchange Act. Proposed Rule § _.3(d)(3). See also 7 U.S.C. §§ 1a(24) and 1a(25).

97 The Proposed Rule defines a “cross-currency swap” as a swap in which one party exchanges

with another party principal and interest rate payments in one currency for principal and interest rate payments in another currency, and the exchange of principal occurs on the date the swap is entered into, with a reversal of the exchange of principal at a later date that is agreed upon when the swap is entered into. The Preamble states that this definition is consistent with regulations pertaining to margin and capital requirements for covered swap entities, swap dealers, and major swap participants. Proposed Rule § _.3(f). See also Preamble at 77 n.78 (citing 12 CFR § 45.2; 12 CFR § 237.2; 12 CFR § 349.2; 17 § CFR 23.151).

98 Proposed Rule § _.3(e)(3). See also Preamble at 76. Pages 8–9 of Appendix A of this

Memorandum contain the changes made to this provision as between the 2013 Rule and the Proposed Rule.

99 Preamble at 76.

100 See Proposed Rule §§ _.3(e)(3)(i)–(vi). See also Preamble at 77. Pages 8–9 of Appendix A of

this Memorandum contain the changes made to this provision as between the 2013 Rule and the Proposed Rule.

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101

Preamble at 77–78.

102 Proposed Rule § _.3(e)(10). See also Preamble at 79. Page 10 of Appendix A of this

Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.

103 Preamble at 27.

104 Preamble at 80.

105 BHC Act § 13(d)(1)(H).

106 2013 Rule § _.6(e)(3).

107 Proposed Rule § _.6(e)(3). See also Preamble at 140. Pages 23–24 of Appendix A of this

Memorandum contain the changes made to this provision as between the 2013 Rule and the Proposed Rule.

108 Proposed Rule § _.6(e)(3). See also Preamble at 140. Pages 23–24 of Appendix A of this

Memorandum contain the changes made to this provision as between the 2013 Rule and the Proposed Rule.

109 Preamble at 141.

110 Preamble at 142–43.

111 Preamble at 142.

112 Preamble at 146.

113 Preamble at 146.

114 BHC Act § 13(a)(1).

115 2013 Rule § _.10(b).

116 Preamble at 43–45.

117 For a discussion of the response to FAQ #14, please see our Client Memorandum, Agencies

Release New Guidance Providing Clarification Regarding Banking Entity Status of Certain Foreign Public Funds and Restricting Scope of Joint Venture Exclusion, dated June 12, 2015, available at https://www.sullcrom.com/volcker-rule-agencies-release-new-guidance-providing-clarification-regarding-banking-entity-status.

118 FAQ #16 is available on the Federal Reserve’s website at https://www.federalreserve.gov/

bankinforeg/volcker-rule/faq.htm.

119 Preamble at 49.

120 Preamble at 46.

121 For purposes of the policy statement, “foreign banking entity” means a banking entity that is not,

and is not controlled directly or indirectly by a banking entity that is located in or organized under the laws of the United States or any U.S. State. See also infra note 123.

122 For purposes of the policy statement (see infra note 123), a “qualifying foreign excluded fund”

means, with respect to a foreign banking entity, an entity that:

(1) Is organized or established outside the United States and the ownership interests of which are offered and sold solely outside the United States;

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(2) Would be a covered fund were the entity organized or established in the United States, or

is, or holds itself out as being, an entity or arrangement that raises money from investors primarily for the purpose of investing in financial instruments for resale or other disposition or otherwise trading in financial instruments;

(3) Would not otherwise be a banking entity except by virtue of the foreign banking entity’s acquisition or retention of an ownership interest in, or sponsorship of, the entity;

(4) Is established and operated as part of a bona fide asset management business; and

(5) Is not operated in a manner that enables the foreign banking entity to evade the requirements of the Volcker Rule or implementing regulations.

123 For a discussion of the policy statement, please see our Client Memorandum, Federal Banking

Agencies Release New Guidance on the Treatment of “Foreign Excluded Funds” Under the Volcker Rule, dated July 22, 2017, available at https://www.sullcrom.com/volcker-rule-federal-banking-agencies-release-new-guidance-on-the-treatment-of-foreign-excluded-funds-under-the-volcker-rule.

124 Preamble at 49.

125 Preamble at 52–54 (Questions #18–21).

126 2013 Rule §§ _.11(c)(2); _.12(a)(2)(ii). The “per-fund limitation” provides that the banking entity’s

(and its affiliates’) permitted ownership interest in a single covered fund that it organizes and offers generally may not exceed 3% of the total outstanding “ownership interests” of the covered fund at any time one year or later after the “date of establishment” of the fund. Such other relationships (in addition to sponsoring or serving as investment adviser or commodity trading advisor to the fund) are that the banking entity otherwise acquires and retains an ownership interest in such covered fund in reliance upon the organizing and offering exemptions under Section _.11(a) or (b) of the 2013 Rule and the Proposed Rule. 2013 Rule § _.11(c)(2). The Supplementary Information to the 2013 Rule (the “2013 Rule Preamble”) notes that a right to put the ownership interest in the covered fund to the banking entity would be considered a guarantee for this purpose; however, the restriction does not apply to arrangements not designed to guarantee the obligations or performance of the covered fund, however, such as entering into a liquidity facility or providing a letter of credit for a covered fund.

2013 Rule

Preamble at 5723.

127 2013 Rule §§ _.11(c)(2); _.12(a)(2)(iii). The “aggregate funds limitation” provides that the

aggregate value of the banking entity’s ownership interests in covered funds held under the organizing and offering and underwriting and market making-related activities exemptions may not exceed 3% of the banking entity’s Tier 1 capital, derived according to a specific calculation.

128 2013 Rule §§ _.11(c)(2); _.12(d). Under the 2013 Rule, all covered fund ownership interests held under the organizing and offering and underwriting and market making-related activities exemptions must be deducted on a dollar-for-dollar basis from the banking entity’s actual Tier 1 capital for regulatory capital purposes.

129 Proposed Rule § _.11(c). See also Preamble at 194–95. Page 36 of Appendix A of this

Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.

130 Proposed Rule § _.11(c). Page 36–37 of Appendix A of this Memorandum contain the changes

made to this provision as between the 2013 Rule and the Proposed Rule.

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131

Proposed Rule § _.11(c)(2). See supra note 126 (discussing such other relationships). See also Preamble at 194.

132 Proposed Rule § _.11(c)(2). Page 36 of Appendix A of this Memorandum contains the changes

made to this provision as between the 2013 Rule and the Proposed Rule.

133 The Volcker Rule includes a statutory exemption for “[t]he acquisition or retention of any equity, partnership, or other ownership interest in, or the sponsorship of, a hedge fund or a private equity fund by a banking entity pursuant to paragraph (9) or (13) of [Section 4(c) of the BHC Act] solely outside of the United States, provided that no ownership interest in such hedge fund or private equity fund is offered for sale or sold to a resident of the United States and that the banking entity is not directly or indirectly controlled by a banking entity that is organized under the laws of the United States or of one or more [U.S.] States.” BHC Act § 13(d)(1)(I). The 2013 Rule Preamble explains that “the purpose of this statutory exemption appears to be to limit the extraterritorial application of the statutory restrictions on covered fund activities and investments, while preserving national treatment and competitive equality among U.S. and foreign banking entities within the United States.” 2013 Rule Preamble at 5738.

134 2013 Rule §§ _.13(b)(1)(iii); _.10(d)(8).

135 2013 Rule §§ _.13(b)(1)(iv); _.13(b)(4)(iv).

136 Proposed Rule § _.13(b). See also Preamble at 204–08. Pages 42–44 of Appendix A of this

Memorandum contain the changes made to this provision as between the 2013 Rule and the Proposed Rule.

137 Following the issuance of the 2013 Rule, the Marketing Restriction became the subject of

uncertainty and industry comment, as it was unclear whether foreign banking entities would be able to rely on the SOTUS exemption with respect to investments in third-party covered funds, such as offshore feeder funds with U.S. tax-exempt investors or other covered funds, where the fund sponsor or investors other than the foreign banking entity had engaged in U.S. marketing activities. The staffs of the Agencies issued guidance through a response to FAQ #13 clarifying that the Marketing Restriction applies only to the activities of the foreign banking entity (including its affiliates) that is seeking to rely on the SOTUS exemption and not to the activities of third parties, including the sponsor of the covered fund, other investors and the covered fund itself. Thus, a foreign banking entity’s ability to rely on the exemption would not be lost as a result of third parties’ marketing or selling activities to residents of the United States, provided that the foreign banking entity has not itself offered for sale or sold an ownership interest in the fund to a resident of the United States or participated in such an offer or sale. Client Memorandum, Agencies Release New Volcker Rule FAQ with Critical Guidance for Foreign Banking Entities and Fund Sponsors; Clarify That U.S. Marketing Restriction Under “SOTUS” Covered Fund Exemption Does Not Apply to Third Parties, dated February 27 2015, available at https://www.sullcrom.com/volcker-rule-agencies-release-new-volcker-rule-faq-with-critical-guidance-for-foreign-banking-entities-and-fund-sponsors.

138 Proposed Rule § _.13(b)(3). See also Preamble at 205–07. Page 43 of Appendix A of this

Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.

139 Proposed Rule § _.13(b)(3). See also Preamble at 205–07. Page 43 of Appendix A of this

Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.

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ENDNOTES (CONTINUED)

140

Proposed Rule § _.13(b)(4). See also Preamble at 203. Page 44 of Appendix A of this Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.

141 Preamble at 203.

142 BHC Act § 13(d)(1)(C).

143 See 2013 Rule § _.13(a)(1).

144 Proposed Rule § _. 13(a)(1). See also Preamble at 199. Page 42 of Appendix A of this

Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.

145 See Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and

Relationships With, Hedge Funds and Private Equity Funds, 76 Fed. Reg. 68846 (Nov. 7, 2011).

146 2013 Rule Preamble at 5737. As the Agencies explain in the Preamble, “[t]he Agencies were

concerned that these transactions could expose the banking entity to the risk that the customer will fail to perform, thereby effectively exposing the banking entity to the risks of the covered fund, and that a customer’s failure to perform may be concurrent with a decline in value of the covered fund, which could expose the banking entity to additional losses.” Preamble at 198.

147 Proposed Rule § _.13(a)(1)(ii). See also Preamble at 199. Page 42 of Appendix A of this

Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.

148 Preamble at 199.

149 Preamble at 12.

150 2013 Rule § _.20.

151 Preamble at 213–14.

152 Preamble at 225.

153 Preamble at 224–26.

154 Preamble at 225.

155 Preamble at 225.

156 2013 Rule Preamble at 5758.

157 Preamble at 239–41.

158 Appendix at para. III.a. See also Preamble at 244.

159 Preamble at 286–88.

160 Preamble at 276, 282, 287.

161 Appendix at para. IV.a.3. See also Preamble at 271.

162 Appendix at para. III.b. See also Preamble at 245–53.

163 Appendix at para. III.c. See also Preamble at 256–60.

164 Preamble at 262.

165 Appendix at para. III.d. See also Preamble at 262. Page 57 of Appendix A of this Memorandum

contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.

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ENDNOTES (CONTINUED)

166

Preamble at 17 (Questions #1–2).

167 Preamble at 296–313 (Questions #302–342).

168 Preamble at 38–41 (Questions #3–11).

169 Preamble at 62 (Question #24).

170 Preamble at 62–66 (Questions #23–38).

171 Preamble at 72–74 (Questions #39–48).

172 Preamble at 66, 73–74, 87, 98–99, 114 (Question #38, 44, 47, 63, 76, 95).

173 Preamble at 84–85 (Questions #57–59).

174 Preamble at 82–83.

175 Preamble at 87 (Questions #60–63).

176 Preamble at 95–99 (Questions #64–77).

177 Preamble at 102 (Questions #78–81).

178 Preamble at 111–15 (Questions #82–96).

179 Preamble at 118 (Questions #97–100).

180 Preamble at 122–23 (Questions #101–107).

181 Preamble at 126 (Questions #108–112).

182 Preamble at 135–37 (Questions #113–122).

183 Preamble at 78–79 (Questions #49–51).

184 Preamble at 80–81 (Questions # 52–56).

185 Preamble at 147–50 (Questions #123–130).

186 Preamble at 152–56 (Questions #131–139).

187 Preamble at 176–82 (Questions #160–171).

188 Form PF defines “securitized asset fund” to mean any private fund whose primary purpose is to

issue asset-backed securities and whose investors are primarily debtholders.

189 Preamble at 177.

190 Form PF defines (i) “liquidity fund” to mean any private fund that seeks to generate income by

investing in a portfolio of short-term obligations in order to maintain a stable net asset value per unit or minimize principal volatility for investors; (ii) “real estate fund” to mean any private fund that is not a hedge fund, that does not provide investors with redemption rights in the ordinary course and that invests primarily in real estate and real estate-related assets; (iii) “securitized asset fund” to mean any private fund whose primary purpose is to issue asset-backed securities and whose investors are primarily debtholders (as noted at supra note 188); and (iv) “venture capital fund” to mean any private fund meeting the definition of venture capital fund in Rule 203(l)-1 under the Investment Advisers Act of 1940. Preamble at 178 n.172.

191 Preamble at 178–79.

192 Preamble at 160–71 (Questions #140–154).

193 Preamble at 173–75 (Questions #155–159).

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ENDNOTES (CONTINUED)

194

Preamble at 185–86 (Questions #172–175).

195 Preamble at 185 (Question #173).

196 Preamble at 186–90 (Questions #176–180).

197 Preamble at 190–92 (Questions #181–182).

198 Preamble at 195–97 (Questions #183–185).

199 Preamble at 207–08 (Questions #189–193).

200 Preamble at 212–13 (Questions #194–202).

201 Preamble at 213 (Question #199).

202 Preamble at 212 (Question #195).

203 Preamble at 217 (Question #203).

204 Preamble at 223 (Question #209).

205 Preamble at 228–31 (Questions #210–212).

206 Preamble at 218–20 (Questions #204–208).

207 Preamble at 235 (Question #214).

208 Preamble at 244 (Questions #215–218).

209 Preamble at 289–94 (Questions #285–301).

210 Preamble at 253–63 (Questions #220–244).

211 Preamble at 264–68 (Questions #245–256).

212 Preamble at 270–72 (Questions #257–260).

213 Preamble at 273–75 (Questions #261–262).

214 Preamble at 277–79 (Questions #263–270).

215 Preamble at 284–86 (Questions #271–279).

216 Preamble at 288–89 (Questions #280–284).

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New York

Thomas C. Baxter Jr. +1-212-558-4324 [email protected]

Whitney A. Chatterjee +1-212-558-4883 [email protected]

H. Rodgin Cohen +1-212-558-3534 [email protected]

Elizabeth T. Davy +1-212-558-7257 [email protected]

Mitchell S. Eitel +1-212-558-4960 [email protected]

Michael T. Escue +1-212-558-3721 [email protected]

Jared M. Fishman +1-212-558-1689 [email protected]

C. Andrew Gerlach +1-212-558-4789 [email protected]

Wendy M. Goldberg +1-212-558-7915 [email protected]

Charles C. Gray +1-212-558-4410 [email protected]

Joseph A. Hearn +1-212-558-4457 [email protected]

Shari D. Leventhal +1-212-558-4354 [email protected]

Marion Leydier +1-212-558-7925 [email protected]

Erik D. Lindauer +1-212-558-3548 [email protected]

Mark J. Menting +1-212-558-4859 [email protected]

Camille L. Orme +1-212-558-3373 [email protected]

Stephen M. Salley +1-212-558-4998 [email protected]

Rebecca J. Simmons +1-212-558-3175 [email protected]

William D. Torchiana +1-212-558-4056 [email protected]

Donald J. Toumey +1-212-558-4077 [email protected]

Marc Trevino +1-212-558-4239 [email protected]

Benjamin H. Weiner +1-212-558-7861 [email protected]

Page 57: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

-57- Volcker Rule June 5, 2018 SC1: 4666080v3

Mark J. Welshimer +1-212-558-3669 [email protected]

George H. White III +1-212-558-4328 [email protected]

Michael M. Wiseman +1-212-558-3846 [email protected]

Washington, D.C.

Eric J. Kadel, Jr. +1-202-956-7640 [email protected]

William F. Kroener III +1-202-956-7095 [email protected]

Stephen H. Meyer +1-202-956-7605 [email protected]

Jennifer L. Sutton +1-202-956-7060 [email protected]

Andrea R. Tokheim +1-202-956-7015 [email protected]

Samuel R. Woodall III +1-202-956-7584 [email protected]

Los Angeles

Patrick S. Brown +1-310-712-6603 [email protected]

William F. Kroener III +1-310-712-6696 [email protected]

Paris

William D. Torchiana +33-1-7304-5890 [email protected]

Melbourne

Robert Chu +61-3-9635-1506 [email protected]

Tokyo

Keiji Hatano +81-3-3213-6171 [email protected]

Page 58: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

SC1:46

Subp

§ __.

the BFedeInsuramenU.S.C

and rby ceand lforeigof theestabrelati

respe13(b)sectiothe F(incluis tre(12 UOCC2(12)5301

of therestrientityprovi

Boardrequiundeviolat

1

71524.5

(Text

part A––A

1 Autho

(a) Bank Holdieral Reservrance Act, nded (12 UC. 3101 et

(b) restrictionsertain bankoan holdingn bankinge Bank Hoblishing proonships w

(c) ect to bank)(2) of the on 13(e) o

Federal Reuding a baated as a

U.S.C. 310C, FDIC, CF) of the Do(12)).

(d) e BHC Actctions und

y, even if ssions of la

(e) d to imposrements o

er section 1tion of this

[N.B.: SVV (12 compar

tual Com

Authority a

rity, purp

Authority. ng Compave Act, as as amend

U.S.C. 184t seq.).

Purpose. s on propriking entitieng compang organizaolding Comohibitions

with covere

Scope. Thking entitieBank Hold

of that Act eserve Sysnk holdingbank hold

06), and anFTC, or SEodd-Frank

Relationsht or this pader sectionsuch activitaw.

Preservatise on a baor restrictio13 of the Bs part prov

Section __.C.F.R. § 2

rison is dra

Volcker mparison

and Defin

ose, scop

This part any Act of amended

ded (12 U.41 et seq.)

Section 13ietary trades, includinnies, otherations, andmpany Act

and restriced funds, a

his part imes for whicding Comp(12 U.S.C

stem, any cg companying compa

ny subsidiaEC is the pWall Stree

hip to otheart, and non 13 of BHties are au

tion of authnking entit

ons with reBank Holdiided unde

.1 of this A248.1). Thawn from t

Rule Impof the 20

itions

pe, and re

(Regulatio1956, as a(12 U.S.CS.C. 1818; and the I

3 of the Baing and onng state mr companie certain suby defininctions on p

and explain

plements sch the Boapany Act (1. 1851(e))company ty and savinany for purary of the fprimary finet Reform

er authorititwithstandC Act and

uthorized f

hority. Nothty identifie

espect to ang Compar any othe

Appendix Ahe remaindthe commo

Appendix

plementin013 Rule

lationship

on VV) is isamended (C. 221 et s8); the BanInternation

ank Holdinn investmeember banes that conubsidiariesg terms usproprietaryning the st

section 13ard is autho12 U.S.C. . These inthat controngs and lorposes of sforegoing

nancial regand Cons

ies. Excepding any otd this part sfor the ban

hing in thised in paragany activityany Act or er applicab

A is drawnder of the bon rule tex

x -1-

ng Regulagainst t

p to other

ssued by t(12 U.S.Ceq.); sectik Holding

nal Banking

ng Companents in or rnks, bank ntrol an inss thereof. Tsed in the y trading atatute's req

3 of the Baorized to is1851(b)(2clude any

ols an insuoan holdingsection 8 oother than

gulatory agumer Prot

t as otherwther provisshall applynking entity

s part limitgraph (c) oy, investme

this part, oble provisio

from the Fbase text t

xt of the 20

ations the Propo

r authoritie

the Board . 1851), ason 8 of theCompanyg Act of 19

ny Act estarelationshipholding co

sured depoThis part imstatute an

and on invequirements

ank Holdingssue regul2)) and tak

state banured deposg companyof the Intern a subsidigency (as dtection Act

wise providsion of lawy to the acy under ot

ts in any wof this sectent, or relaor addition

on of law.

Federal Rethat was u013 Rule.]

osed Rul

es.

under secs well as ue Federal y Act of 195978, as am

ablishes pps with coompanies,ository insmplementsnd related testments is.

g Companations unde actions k that is a sitory instity), any comrnational Bary for whdefined in t of 2010 (

ded underw, the prohi

tivities of aher applica

way the aution additio

ationship cnal penaltie

eserve’s Rused to gen

Appendix

le)1

ction 13 of under the Deposit 56, as

mended (1

rohibitionsovered fund savings

stitution, s section 1terms, n or

ny Act withder sectionunder member o

tution mpany thaBanking Acich the section 12 U.S.C.

r section 1ibitions ana banking able

thority of tonal covered es for

Regulationnerate this

x A

2

s ds

13

h n

of

at ct

3 nd

he

s

SC1:46

§ __.

Act o

princdeterbusin

Holdi

mean

purpo

(cd)(

(cd)(

4(k)(4defindefinas th(cd)(

receiRefo

U.S.C

71524.5

2 Definit

Unless

(a) of 1956 (12

(b) iples, or srmines areness in pre

(b)(c) ing Compa

(c)(d)

ns:

oses of se

1)(i), (ii), o

1)(i), (ii), o

4)(H) or (I)ed under 1ed in secte portfolio1)(i), (ii), o

ver under rm and Co

(d)(e)

(e)(f)

(f)(g) C. 78c(a)(5

tions.

otherwise

Affiliate ha2 U.S.C. 1

Applicableuch other

e appropriaeparing its

Bank holdany Act of

Banking e

(1) Ex

(i)

(ii)

(iiiection 8 of

(ivor (iii) of thi

(2) Ba

(i) or (iii) of thi

(ii)) of the BH13 CFR 10ion 103(3)

o companyor (iii) of thi

(iiithe Feder

onsumer P

Board me

CFTC me

Dealer ha5)).

specified,

as the sam841(k)).

e accountinaccountingate and thaconsolida

ding compa1956 (12

entity.

xcept as pr

Any i

) Any c

) Any cthe Interna

v) Any ais section.

anking enti

A covis section;

) A porHC Act (1207.50, that) of the Smy or portfoliis section;

) The Fral DepositProtection A

ans the Bo

ans the Co

s the sam

, for purpo

me meanin

ng standag standardat the bank

ated financ

any has thU.S.C. 18

rovided in

insured de

company t

company tational Ba

affiliate or

ity does no

vered fund

rtfolio com2 U.S.C. 18t is control

mall Busineio concern or

FDIC actint InsuranceAct.

oard of Go

ommodity

e meaning

Appendix

oses of this

ng as in se

rds meansds applicabking entity

cial statem

he same m841).

paragraph

epository in

that contro

that is treanking Act

subsidiary

ot include:

d that is no

mpany held843(k)(4)(Hlled by a sess Investmn is not itse

ng in its coe Act or Ti

overnors o

Futures T

g as in sec

x -2-

s part:

ction 2(k)

s U.S. genble to a ba

y uses in thents.

meaning as

h (cd)(2) o

nstitution;

ols an insu

ated as a bof 1978 (1

y of any en

ot itself a b

d under theH), (I)), or mall businment Act oelf a banki

orporate caitle II of the

of the Fede

Trading Co

ction 3(a)(5

of the Ban

nerally accanking enthe ordinary

s in section

f this secti

ured depos

bank holdin12 U.S.C. 3

ntity descr

banking en

e authorityany portfo

ness invesof 1958 (15ng entity u

apacity or e Dodd-Fr

eral Reserv

ommission

5) of the E

nk Holding

epted accity that they course o

n 2 of the B

ion, bankin

sitory instit

ng compan3106); and

ibed in pa

ntity under

y containedolio concertment com5 U.S.C. 6under para

as conservrank Wall S

ve System

.

Exchange A

Appendix

g Company

ounting e [Agency]of its

Bank

ng entity

tution;

ny for d

ragraphs

paragraph

d in sectiorn, as

mpany, as 662), so lonagraphs

vator or Street

m.

Act (15

x A

y

hs

n

ng

Page 59: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

SC1:46

Depo

Comsectio

comm

1a(24term

desc

foreig2(c)(2

Exch

transguida1a(47is def

Legaof tha

seq.)

Com

Curre

the Bsectio

71524.5

(g)(h) osit Insura

(h)(i)

modity Exon 3(a)(68

modity, for

4) of the Cis defined

ribed in se

gn currenc2)(D)(i)); a

ange Act

saction thaance, or ot7) of the Cfined in se

al Certaintyat Act (7 U

(i)(j)

(j)(k) ).

(k)(l) modity Ex

(l)(m)

(m)(n) ency, and

(n)(o) Board’s Reon 1(b)(7)

Depositorynce Act (1

Derivative

(1) Ex

(i) change Ac

8) of the Ex

(ii)r deferred

(iiiCommodity

in section

(ivection 2(c)

(v)cy describeand

(vi(7 U.S.C.

(2) A d

(i) at the CFTCther action

Commodityection 3(a)

(ii)y for Bank

U.S.C. 27a

Employee

Exchange

Excluded change Ac

FDIC mea

Federal bathe FDIC.

Foreign baegulation K

of the Inte

ry institutio2 U.S.C. 1

e.

xcept as pr

Any sct (7 U.S.Cxchange A

) Any pshipment o

) Any fy Exchangen 1a(25) of

v) Any a(2)(C)(i) of

) Any aed in sectio

) Any t23(a) or (b

derivative

Any cC and SECn as not wiy Exchange(68) of the

) Any iProducts (a)).

e includes

e Act mean

commoditct (7 U.S.C

ans the Fe

anking age

anking orgK (12 CFR ernational

on has the 1813(c)).

rovided in

swap, as tC. 1a(47)),Act (15 U.S

purchase oor delivery

foreign exce Act (7 Uf the Comm

agreemenf the Comm

agreemenon 2(c)(2)(

transactionb));

does not i

consumer,C have furthin the dee Act (7 U

e Exchang

identified bAct of 200

a member

ns the Sec

ty has the C. 1a(19)).

ederal Dep

encies me

ganization 211.21(o)Banking A

Appendix

same mea

paragraph

that term is, or securitS.C. 78c(a

or sale of ay that is int

change fo.S.C. 1a(2modity Exc

t, contractmodity Ex

t, contract(D)(i) of th

n authorize

include:

, commercrther defineefinition of .S.C. 1a(4e Act (15

banking pr00 (7 U.S.C

r of the imm

curities Exc

same mea.

osit Insura

eans the Bo

has the sa)), but doeAct of 1978

x -3-

aning as in

h (hi)(2) of

s defined ity-based s

a)(68));

a commodtended to

rward (as 24)) or forechange Ac

t, or transachange Ac

t, or transahe Commo

ed under s

cial, or othed by jointf swap, as 47)), or secU.S.C. 78c

roduct, as C. 27(b)), t

mediate fa

change Ac

aning as in

ance Corp

oard, the O

ame means not inclu8 (12 U.S.C

n section 3

f this sectio

n section swap, as th

dity, that isbe physica

that term ieign exchact (7 U.S.C

action in foct (7 U.S.C

action in a odity Excha

section 19

er agreemt regulationthat term

curity-basec(a)(68)); o

defined inthat is sub

amily of the

ct of 1934

n section 1

oration.

Office of th

ning as in sude a foreigC. 3101(7)

3(c) of the

on, derivat

1a(47) of that term is

s not an exally settled

is defined ange swapC. 1a(25));

oreign currC. 2(c)(2)(C

commoditange Act (

of the Co

ment, contrn, interpreis defined ed swap, aor

n section 4bject to sec

e employe

(15 U.S.C

1a(19) of th

he Comptr

section 21gn bank, a)), that is o

Appendix

Federal

tive means

the s defined in

xcluded d;

in section p (as that

rency C)(i));

ty other tha7 U.S.C.

mmodity

ract, or tation, in section

as that term

02(b) of thction 403(a

ee.

C. 78a et

he

roller of the

1.21(o) ofas defined organized

x A

s:

n

an

n m

he a)

e

f in

SC1:46

undeState

officiaof ins

alloca

compunderegulprovi

Fedeinstitu

worldliabiliStatemeas$1,00

that t

recei

that tasset

the D

secudelivetranstermiconverequi

71524.5

er the laws es Virgin Is

(o)(p) al or agensurance co

(p)(q) ated to on

(q)(r) pany, primerwritten byator or a fsions of se

(r)(s) eral Deposution that

(t)

dwide consties involv

es) the avesured as o00,000,000

the bankin

(s)(u) vable that

(t)(v) the bankints and liab

(u)(w) Dodd-Fran

(v)(x) rity futuresery. With r

saction for nation (preyance ofre.

of the Coslands, or t

Foreign incy, of any ompanies

General ae or more

Insurancearily and py insurancforeign insection 13 o

Insured desit Insurancis describe

Limited tra

(1) Thsolidated bving obligaerage grosof the last d0; and

(2) Thg entity sh

Loan meais not a se

Moderate g entity do

bilities.

Primary fink Wall Stre

Purchase s productsrespect to future deliior to its sc, or exting

mmonweathe Comm

nsurance recountry otunder fore

account meseparate

e companypredominace companurance regof the BHC

epository ice Act (12 ed in sectio

ading asse

he bankingbasis, tradtions of or

ss sum of wday of eac

he [Agencyhould not b

ans any loaecurity or d

trading asoes not ha

nancial regeet Reform

includes a, purchasea commodivery. Withcheduled muishing of

alth of Puemonwealth

regulator mther than t

eign insura

eans all of accounts.

y means a antly engagies, subjecgulator, anC Act (12 U

institution U.S.C. 18

on 2(c)(2)(

ets and liab

g entity hasing assets

r guaranteewhich overch of the fo

y] has not be treated

an, lease, derivative.

ssets and lave signific

gulatory agm and Con

any contrae includes dity future,h respect tmaturity darights or o

Appendix

erto Rico, Gof the Nor

means the the Unitedance law.

f the assets

company ged in writct to supernd not opeU.S.C. 185

has the sa813(c)), bu(D) of the

bilities me

s, togethers and liabiled by the r the previour previou

determineas having

extension .

liabilities mcant trading

gency hasnsumer Pro

act to buy, any contr

, purchaseo a derivaate), assigobligations

x -4-

Guam, Amrthern Mar

insurance States tha

s of an ins

that is orgting insurarvision as rated for t51).

ame meanut does notBHC Act (

ans, with r

r with its aities (excluUnited Staous conseus calenda

ed pursuang limited tra

of credit,

means, witg assets a

s the sameotection Ac

purchase,act, agree

e includes tive, purch

gnment, exs under, a

merican Sariana Islan

e commissiat is engag

surance co

ganized asnce or reinsuch by a he purpos

ing as in st include a(12 U.S.C.

respect to

ffiliates anuding tradates or anyecutive fouar quarters

nt to § .20(ading asse

or secured

th respect and liabilitie

e meaning ct (12 U.S

, or otherwement, or trany contra

hase includxchange, oderivative

amoa, the Uds.

ioner, or aged in the

ompany ex

s an insuransuring risstate insu

se of evadi

section 3(can insured . 1841(c)(2

a banking

nd subsidiaing assetsy agency o

ur quarterss, is less th

g) or (h) oets and liab

d or unsec

to a bankies or limite

as in sect.C. 5301(1

wise acquirransactionact, agreemdes the exor similar tr, as the co

Appendix

United

a similar supervisio

xcept those

ance sks urance ng the

c) of the depository

2)(D)).

g entity, tha

aries on a s and of the Unite, as

han

of this part bilities.

cured

ing entity, ed trading

tion 2(12) o12)).

re. For n for futurement, or xecution, ransfer or ontext may

x A

on

e

y

at:

ed

of

e

y

Page 60: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

SC1:46

that q211.2

secudelivetranstermiconverequi

U.S.C

Exch

(15 U

insurlegallossethe aincom

entity

tradinquartor ex

the b

paragassetguaraconso

organpurpoand lUnite

71524.5

(y) qualifies as23(a), (c),

(z)

(aa) rity futuresery. With r

saction for nation (preyance ofre.

(bb) C. 78c(a)(1

(cc) ange Act

(dd) U.S.C. 78c

(ee) rance comly segrega

es, whetheapplicable cme, gains,

(ff)

y, that:

ng assets ters, as mexceeds $10

banking en

graph (3), ts and liabanteed by olidated ba

nization oroses of thiiabilities in

ed States)

Qualifyings such undor (e)).

SEC mea

Sale and ss productsrespect to future deliior to its sc, or exting

Security h10)).

Security-b(15 U.S.C

Security fuc(a)(55)).

Separate pany in co

ated from ter or not recontract, cor losses

Significan

(1) Sig

(i) and liabiliteasured a0,000,000,

(ii)tity should

(2) Witrading as

bilities (excthe Unitedasis.

(3)

(i) r a subsidis paragrap

nvolving obof the com

g foreign bader section

ns the Sec

sell each i, such terma commodivery. Withcheduled muishing of

has the me

based swa. 78c(a)(7

uture has t

account monnection wthe insuranealized, frocredited toof the insu

t trading a

gnificant tr

The bties the avs of the las,000; or

) The [d be treate

ith respectssets and lcluding tradd States o

With ary of a foph (ff) meabligations mbined U.S

anking orgn 211.23(a

curities an

nclude anyms includedity future,h respect tmaturity darights or o

eaning spe

ap dealer h1)).

the meani

means an awith one once compa

om assets or chargeurance com

assets and

rading ass

banking enverage grosst day of e

[Agency] hed as havin

t to a bankliabilities foding assetr any agen

respect tooreign bankans the traof or guaraS. operatio

Appendix

ganization a), (c) or (e

d Exchang

y contract e any contr, such termo a derivaate), assigobligations

ecified in s

has the sam

ng specifie

account esor more insany’s otheallocated t

ed against mpany.

liabilities.

ets and lia

ntity has, tss sum of

each of the

has determng significa

king entity or purposets and liabncy of the

o a bankingking organading asseanteed by ons of the

x -5-

means a fe) of the B

ge Commi

to sell or oract, agreems includetive, such

gnment, exs under, a

ection 3(a

me meanin

ed in secti

stablished surance cor assets, uto such acsuch acco

abilities me

together wwhich ove

e four prev

mined pursant trading

other thanes of this pbilities invoUnited Sta

g entity thanization, traets and liab

the Unitedtop-tier for

foreign baoard’s Reg

ssion.

otherwise ement, or te any contr

terms inclxchange, oderivative

)(10) of th

ng as in se

on 3(a)(55

and maintontracts to under whicccount, areount witho

eans, with

with its affilier the prevvious calen

suant to § g assets an

n a bankinparagraph olving obligates) on a

at is a foreading assebilities (excd States oreign bank

anking orgagulation K

dispose otransactionract, agreelude the exor similar tr, as the co

e Exchang

ection 3(a)

5) of the Ex

tained by ahold asse

ch incomee, in accordut regard t

respect to

iates and svious consndar quarte

.20(h) of thnd liabilitie

g entity de(ff) means

gations of oworldwide

eign bankinets and liacluding tra

or any agenking organ

Appendix

anization K (12 CFR

of. For n for futureement, or xecution, ransfer or ontext may

ge Act (15

)(71) of the

xchange A

an ets that are, gains, andance withto other

o a banking

subsidiarieecutive fouers, equals

his part thaes.

escribed ins trading or e

ng abilities for ading assency of the ization

x A

e

y

e

Act

e nd h

g

es, ur s

at

n

ets

SC1:46

(incluopera

agenbankin thesubs

Rico,North

Com

or aginsur

Exch

Subp

§ __.

not etradininstru

by a

the p

move

purchthis s

markcapitainsurcalcu

71524.5

uding all suating, loca

cy, or sub that opera

e United Sidiary.

(gg) , Guam, Ahern Maria

(hh) pany Act o

(ii) gency, of arance law.

(jj) ange Act

part B––P

3 Prohib

(a) engage in png accounuments.

(b) banking e

purpose of:

ements;

hases or ssection;

ket risk capal rule cov

red deposiulates risk-

ubsidiariesated, or org

(ii)bsidiary of ates or contates sole

State meamerican S

ana Islands

Subsidiaryof 1956 (12

State insua State tha

Swap dea(7 U.S.C.

Proprietary

bition on p

Prohibitionproprietaryt of the ba

Definition ntity to:

(i) :

sales of fin

(2)(1)

(i) pital rule covered posittory institu- based ca

s, affiliatesganized in

) For pa banking ntrols that ly by virtue

ans any StSamoa, thes.

y has the s2 U.S.C. 1

urance regt is engag

aler has the1a(49)).

y Trading

proprietar

n. Except ay trading. Panking enti

of trading

Purch

(A)

(B)

(C)

(D) ancial inst

Purchovered potions), if thution, bankapital ratios

s, branchesthe United

purposes oentity is lobranch, a

e of opera

tate, the De United S

same mea841(d)).

ulator meaed in the s

e same me

ry trading

as otherwiProprietaryity in any p

account. (

hase or se

Short-te

Benefitt

Realizin

Hedgingtruments d

hase or sesitions and

he bankingk holding cs under the

Appendix

s, and aged States).

of paragrapocated in tagency, or ting or con

istrict of Ctates Virgi

aning as in

ans the inssupervision

eaning as

.

ise providey trading mpurchase o

(1) Trading

ell one or m

erm resale

ting from a

ng short-te

g one or mdescribed i

ell one or md trading pg entity, or company, oe market r

x -6-

encies of th

ph (ff)(3)(i)the United subsidiary

ntrolling th

Columbia, tin Islands,

n section 2

surance con of insura

in section

ed in this smeans engor sale of o

g account

more finan

e;

actual or e

erm arbitra

more positiin paragra

more finanpositions (oany affilia

or savingsrisk capital

he foreign

) of this seStates; ho

y is not cone U.S. bra

the Comm and the C

(d) of the

ommissionance comp

1(a)(49) o

subpart, a gaging as pone or mo

means an

ncial instru

xpected s

age profits;

ions resultphs (b)(1)

ncial instruor hedges

ate of the bs and loan rule; or

banking o

ection, a Uowever, thnsidered toanch, agen

monwealth Commonw

Bank Hold

ner, or a sipanies und

of the Com

banking eprincipal fore financia

ny account

ments prin

hort-term

; or

ting from th(i)(A), (B),

ments thaof other m

banking enholding co

Appendix

organizatio

.S. branchhe foreign o be locatency, or

of Puerto ealth of th

ding

milar officder State

mmodity

entity may or the al

t that is us

ncipally for

price

he or (C) of

t are both market riskntity, is an ompany, a

x A

on

h,

ed

e

ial

sed

r

k

and

Page 61: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

SC1:46

direcUniteto casupeon Ba

the b

purchtradinentitythe fidemopurchparag

finanacco

for a gain reflecthe b

(c)(1)detersubp

71524.5

tly or indired States opital requirvisor thatanking Su

banking en

hase (or sang accouny holds thenancial insonstrate, bhase (or segraph (b)(1

cial instrumunting sta

(c)

trading acor net losscting realizbanking en

)(ii) of this rmined thaart B.

(ii)rectly by a or any Statrements ut is consistpervision,

(3)(2) (ii)tity:

(i)(to swcoor

(ii)bainsbu

(4) (Cale) of a fint of the ba

e financial strument wbased on aell) the fina1)(i) of this

(3) Pument that ndards.

Presumpt

(1) (i) ccount defis on the trazed and untity’s fair v

(ii)depreacthe

(2) Thsection by

at one or m

) With banking ete, purcha

under a matent with thas amend

) Purchase

(A) Is liceengage in

wap dealernnection wregistered

)(B) Is engased swap strument issiness.; or

) Rebuttabnancial ins

anking entiinstrumen

within sixtyall relevantancial insts section.

urchase or is recorde

tion of com

Each tradined in parading desknrealized gvalue for su

) If the sumetermined ieceding 90

ctivities of te prohibitio

he [Agencyy providing

more of the

respect toentity that iase or sell arket risk frhe market ded from ti

e or sell on

ensed or ren the businr, to the exwith the acd as such;

gaged in thdealer ou

s purchaser

ble presumstrument bity under p

nt for fewery days of tht facts andrument pri

r sell one od at fair va

mpliance.

ing desk tragraphs (k’s portfoligains and uch financ

m of the abin accorda0-calendarthe tradingon in parag

y] may rebg written ne banking e

Appendix

o a bankings, located one or moramework risk frameme to time

ne or more

egistered, ness of a dxtent the inctivities thaor

he businestside of thed or sold

mption for cby a bankinparagraph r than sixtyhe purcha

d circumstaincipally fo

or more finalue on a r

hat does n(b)(1) or (bo of financlosses sin

cial instrum

bsolute valance with pr-day periog desk shagraph (a) o

ut the presotice to thentity’s ac

x -7-

g entity thain or orga

ore financiaestablishe

ework puble.

e financial

or is requdealer, swanstrument iat require t

ss of a deae United Sin connec

certain purng entity s(b)(1)(i) ofy days or sse (or saleances, thaor any of th

nancial instrecurring b

not purchab)(2) of thiscial instrumce the pre

ments.

lues of theparagraph od does noall be presuof this sec

sumption oe bankingtivities vio

at is not, aanized undal instrumeed by the hlished by t

instrumen

ired to be ap dealer, is purchasthe bankin

aler, swap States, to ttion with th

rchases anhall be pref this sectisubstantiae), unless t the bankhe purpose

truments, wbasis unde

ase or sell s section mments eachevious bus

e daily net (c)(1)(i) of

ot exceed umed to betion.

of complia entity thalates the p

and is not cder the lawents that ahome-couhe Basel C

nts for any

licensed oor security

sed or soldng entity to

dealer, orthe extent he activitie

nd sales. Tesumed toon if the b

ally transfethe bankin

king entity es describ

with respeer applicab

financial inmay calculh businessiness day,

gain and lf this secti$25 millione in compl

ance in part the [Agen

prohibitions

Appendix

controlled ws of the are subjectntry Committee

y purpose,

or registerey-based d in o be license

r security-the

es of such

The o be for theanking rs the risk ng entity cadid not ed in

ect to a ble

nstrumentslate the nes day, , based on

oss figureion for the n, the liance with

ragraph ncy] has s under

x A

t

e

if

ed,

ed

e

of an

s et

n

s

h

SC1:46

exceeacco

a con

curre

delive

bankwhichstate

banksecuunderight partie

term excha

71524.5

eds the $2rdance wit

(d)

ntract of sa

ency);

ery; or

(e)

ing entity th the bankd asset, a

ing entity trity tempo

er which thto terminaes;

is definedange swap

(3) If a25 million tth any poli

(i)

(ii)ins

(iiiwil

Financial

(1) Fin

(i)

(ii)

(iiiale of a co

(2) A f

(i)

(ii)

(iii

Proprietar

(1) that arises

king entity t stated pr

(2) that arisesrarily to ore lender re

ate the tran

(3) An in sectionp (as that

a trading dthreshold iicies and p

Promptly

) Demonsstruments

) Demonsll maintain

instrumen

nancial ins

A sec

) A der

) A conommodity f

financial in

A loa

) A com

(A)

(B)

(C)

(D)

) Forei

ry trading.

Any purchs under a rhas simult

rices, and

Any purchs under a tr from anotetains the nsaction a

ny purchasn 1a(24) ofterm is de

desk operain that parprocedures

notify the

trate that tcomply wi

strate, with complian

nt.

strument m

curity, incl

rivative, in

ntract of safor future d

nstrument

an;

mmodity th

An excl

(B) A de

(C) A co

An optio

ign exchan

Proprieta

hase or sarepurchasetaneously on stated

hase or satransactionther party economicnd to reca

se or sale of the Commfined in se

Appendix

ating pursuragraph at s adopted

[Agency];

the tradingith subpart

h respect toce with su

means:

uding an o

cluding an

ale of a codelivery.

does not i

hat is not:

luded com

erivative;

ontract of

on on a co

nge or cur

ary trading

ale of one oe or reversagreed, indates or o

ale of one on in which pursuant t

c interests all the loan

of a securmodity Excection 1a(2

x -8-

uant to parany point,by the [Ag

g desk’s put B; and

o the tradibpart B on

option on a

n option on

ommodity f

include:

mmodity (ot

sale of a c

ontract of s

rrency.

g does not

or more finse repurchn writing, toon demand

or more finthe bankinto a writtenof an owned security

ity, foreignchange Ac25) of the C

ragraph (c, the bankigency]:

urchases a

ng desk, hn an ongoi

a security;

n a derivat

for future d

ther than f

commodity

sale of a c

include:

nancial inshase agreeo both purd with the s

nancial insng entity len securitieer of suchy on terms

n exchangect (7 U.S.CCommodit

)(1)(ii) of ting entity s

and sales

how the baing basis.

tive; or

delivery, o

foreign exc

y for future

ommodity

struments bement pursrchase andsame coun

struments bends or boes lending security,

s agreed b

e forward C. 1a(24), fty Exchang

Appendix

his sectionshall, in

of financia

anking ent

r option on

change or

e delivery;

for future

by a suant to d sell a nterparty;

by a orrows a agreemenand has th

by the

(as that foreign ge Act (7

x A

n

al

ity

n

or

nt he

Page 62: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

SC1:46

U.S.Cliquidbank

secutypesmanainstru

instruthe liqactuaa pos

sold finstruexpe

liquidpurpoincludestim

analyinstruliquidparag

and e

entityfinan

clearfinan

entity

the bconn

in coproce

entity

71524.5

C. 1a(25))dity managing entity t

ritiesfinancs, and risksagement, auments ma

uments coquidity of tal or expecsition take

for liquidityuments thect to give

dity managoses, to anding devia

mated and

ysis, and inuments thadity managgraph (de)

expectatio

y that is a dcial instrum

ring agenccial marke

y, so long a

banking enection with

nnection weeding;

y that is ac

, or physicgement in athat, with r

(i) cial instrums of these and the liqay or must

(ii)ntemplatethe bankincted short-n for such

(iiiy manageme market, crise to app

(ivgement pun amount t

ations fromdocument

(v)ndependenat are not pgement an)(3) of this

(vins regardi

(4) Anderivativesments;

(5) Any, a memb

et utility;

(6) Anas:

(i) tity or its ch delivery,

(ii)with a judic

(7) Ancting solely

cally-settleaccordancrespect to

Specments to bsecurities

quidity circt be used;

) Requd and auth

ng entity, a-term priceshort-term

) Requment purpcredit, andpreciable p

v) Limitrposes, tothat is con

m normal oted pursua

) Inclunt testing tpermitted d in accordsection; a

) Is coing liquidity

ny purchass clearing

ny excludeber of a de

ny purchas

The pcustomers clearing,

) The pcial, admin

ny purchasy as agent

d cross-cuce with a dsuch finan

cifically conbe used forsfinancial inumstances

uires that ahorized byand not fore movemem purpose

uires that aposes be hd other riskprofits or lo

s any secugether wit

nsistent witperations

ant to meth

des writtento ensure under §§ _dance with

and

nsistent wy manage

se or sale oorganizati

ed clearingerivatives c

se or sale o

purchase (, includingor settlem

purchase (nistrative, s

se or sale ot, broker, o

Appendix

urrency swdocumentencial instru

ntemplatesr liquidity mnstruments in which

any purchay the plan br the purponts, realizis;

any securitighly liquid

ks of whichosses as a

uritiesfinanh any otheth the banof the banhods spec

n policies that the pu__.6(a) or h the liquid

with [Agencment;

of one or mon or a cle

activities clearing or

of one or m

(or sale) sg to prevenent activity

(or sale) sself-regula

of one or mor custodia

x -9-

wap, by a bed liquidity uments:

s and authmanagemes that are the partic

ase or salebe principaose of shoring short-t

tiesfinancid and limith the banka result of s

ncial instruer instrumeking entity

nking entityified in the

and proceurchase an(b) of this

dity manag

cy]’s super

more finanearing age

by a bankrganization

more finan

atisfies annt or close y; or

atisfies anatory organ

more finanan;

banking enmanagem

horizes theent purposconsistent

cular secur

e of securially for thert-term resterm arbitra

al instrumted to secuking entity short-term

uments puents purchy’s near-tey or any afe plan;

edures, intend sale of subpart a

gement pla

rvisory req

ncial instruency in con

king entity tn, or a mem

ncial instru

n existing dout a failu

n obligationnization, or

ncial instru

ntity for thement plan o

e particularses, the amt with liquiritiesfinanc

tiesfinancie purpose osale, benefage profits

ents purchuritiesfinandoes not r

m price mov

rchased ohased or sorm fundingffiliate ther

ernal contrsecurities

are for the an describ

quirements

ments by nnection w

that is a mmber of a

ments by

delivery obure to deliv

n of the bar arbitratio

ments by

Appendix

e purpose of the

r mount, dity

cial

ial of managifitting froms, or hedgi

hased or ncial reasonablyvements;

r sold for old for sucg needs, reof, as

rols, financial purpose o

bed in

s, guidance

a banking with clearin

member of designate

a banking

bligation ofver, in

anking ention

a banking

x A

of

ng m ing

y

ch

of

e,

ng

a d

f

ity

SC1:46

entitybankStatebankentity

entitythat tmay Board

madeis a sfinandispo

subp

the id

Exch

Exch

sale for fuU.S.C

anothpaymenterwhen

the C

regulExch

regul

71524.5

y through aing entity t

es or a foreing entity ay; or

y in the ordthe bankinthe bankind.

e in error bsubsequencial instrum

osition.

(e)(f) art:

dentity of t

ange Act

ange Act

(as that teuture deliveC. 1a(27))

her party pments in anred into, wn the swap

Commodity

ation, is eange Act

ation, is p

(8) Ana deferredthat is estaeign soveras trustee

(9) Andinary coug entity div

ng entity re

(10) Anby a bankinnt transactment is pro

Definitio

(1) Anhe other p

(2) Cle(15 U.S.C

(3) Co(7 U.S.C.

(4) Coerm is definery (as tha).

(5) Crprincipal annother curr

with a reverp is entered

(5)(6) De

(i) y Exchang

(ii)xempt from(7 U.S.C.

(iiiermitted to

(6)(7) Excontract m

ny purchas compensablished areign, if the

for the be

ny purchasrse of collevests the fetain such

ny purchasng entity inion to corromptly tra

on of other

nonymous party(ies) to

earing age. 78c(a)(23

ommodity h1a(9)), exc

ontract of sned in sectat term is d

ross-currennd interestrency, andrsal of the d into.

erivatives c

A dere Act (7 U

) A derm the regis7a-1); or

) A foro clear for

xchange, umarket, sw

se or sale oation, stoc

and adminie purchaseenefit of pe

se or sale oecting a definancial ininstrumen

se (or salen the coursrect such ansferred to

r terms rel

means thao the purc

ency has th3)).

has the sacept that a

sale of a ction 1a(13defined in s

ncy swap mt rate paym

d the exchaexchange

clearing or

rivatives cU.S.C. 7a-1

rivatives cstration re

eign deriva foreign

unless theap execut

Appendix

of one or mck-bonus, stered in ae or sale isersons who

of one or mebt previonstrument nt for longe

) of one orse of condan error, ao a separa

lated to pr

at each pachase or sa

he same m

ame meana commod

ommodity 3) of the Cosection 1a

means a sments in oange of pr

e of princip

rganization

clearing org1);

clearing orgquirement

atives cleaboard of tr

e context oion facility

x -10-

more finanprofit-sharaccordancs made diro are or we

more finanusly contraas soon aer than suc

r more finaducting a pnd the erro

ately-mana

roprietary t

arty to a puale.

meaning a

ing as in sity does no

y for future ommodity a(27) of the

swap in whne currencrincipal occpal at a late

n means:

ganization

ganizationts under se

aring organrade that is

otherwise ry, or foreign

ncial instruring, or pece with the rectly or inere emplo

ncial instruacted in go

as practicach period p

ancial instrpermitted ooneously paged trade

trading. Fo

urchase or

s in sectio

section 1a(ot include

delivery mExchangee Commod

hich one pcy for princcurs on theer date tha

registered

that, pursection 5b o

nization ths registere

requires, mn board of

ments by nsion plan law of thedirectly byyees of th

ments by ood faith, pble, and inpermitted

ruments thor excludepurchased

e error acc

or purpose

r sale is un

on 3(a)(23)

(9) of the Cany secur

means a coe Act (7 U.dity Excha

arty exchacipal and ie date the at is agree

d under se

suant to CFof the Com

hat, pursuaed with the

means anyf trade reg

Appendix

a banking n of the e United y the e banking

a banking provided n no eventby the

hat was d activity o

d (or sold) ount for

es of this

naware of

) of the

Commoditrity;

ontract of S.C. 1a(13nge Act (7

anges withnterest ratswap is d upon

ection 5b o

FTC mmodity

ant to CFTe CFTC.

y designateistered wit

x A

t

or

ty

3)) 7

h te

of

TC

ed th

Page 63: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

SC1:46

clearor sasuch clearproceagendesigclear

manapurchclearproceagendesigclear

manamemutility

manaorgan

a cleamitigamarkrefere

savincapita

71524.5

ring organiale necessa

purchase ring organiedures of tcy, the rul

gnated finaring agenc

agement ohase or saring organiedures of tcy, the rul

gnated finaring agenc

agement ober of a de

y;

agement onization, o

aring agenate the ris

ket utility thence the m

ngs and loaal rule tha

the CFTCas definedsecurity-bExchange

(7)(8) Ex

(i) zation, a cary to corr or sale is zation, thethe derivates or proc

ancial mary, the rule

(ii)of a defaultale is condzation, thethe derivates or proc

ancial mary, the rule

(iiiof a defaulterivatives

(ivof the defaor a design

(v)ncy, a derik to the cle

hat would rmember or

(8)(9) Des803(4) of t

(9)(10) Iss1933 (15 U

(10)(11) Mfinancial inthose term

(i) an holdingt is applica

, or, for pud under seased swap

e Act (15 U

xcluded cl

With clearing agrect tradingconducted

e Commodtives clearcedures of ket utility ts or proce

) Any pt or threateucted in ace Commodtives clearcedures of ket utility ts or proce

) Any pt or threateclearing o

v) Any pult or threa

nated finan

) Any pvatives cleearing ageresult fromr an affiliat

signated finthe Dodd-

suer has thU.S.C. 77b

Market risknstrument ms are res

In theg companyable to the

urposes of ection 3(a)(p executio

U.S.C. 78c

learing act

respect togency, or ag errors md in accorddity Excharing organithe clearin

that is neitedures of t

purchase oened immiccordancedity Excharing organithe clearin

that is neitedures of t

purchase oened immi

organizatio

purchase oatened defncial marke

purchase oearing orgaency, deriv

m the clearte of the m

nancial maFrank Act

he same mb(a)(4)).

k capital ruthat is botpectively d

e case of ay, or insuree banking e

Appendix

f securities(1) of the E

on facility, a(a)(77)).

tivities mea

o customera designatade by or dance withnge Act, Cization, or,ng agencyher a derivhe designa

or sale in cinent defaue with, for tnge Act, Cization, or,ng agencyher a derivhe designa

or sale in cinent defau

on, or a me

or sale in cfault of a cet utility; an

or sale thaanization, vatives cleing by a m

member.

arket utility(12 U.S.C

meaning as

ule coveredth a coverdefined:

a banking ed depositoentity; and

x -11-

s or securitExchange as defined

ans:

r transactioted financion behalf

h, for transCFTC regu, for transay, or, for travatives cleated financ

connectionult of a custransaction

CFTC regu, for transay, or, for travatives cleated financ

connectionult of a meember of a

connectionclearing agnd

at is requiror a desig

earing orgamember of

y has the sC. 5462(4))

s in sectio

d position aed position

entity thatory institut

d

ty-based sAct (15 U

d under se

ons cleareal market of a custo

sactions clulations, anactions cleansactions

earing orgacial marke

n with andstomer prons clearedulations, anactions cleansactions

earing orgacial marke

n with andember of aa designate

n with andgency, a de

red by the gnated finaanization, osecurity-b

same mea).

n 2(a)(4) o

and tradinn and a tra

t is a bank tion, under

swaps, an .S.C. 78c(ction 3(a)(

ed on a deutility, any

omer provieared on and the ruleeared on a s cleared oanization net utility;

related toovided thad on a derivnd the ruleeared on a s cleared oanization net utility;

related toa clearing aed financia

related toerivatives

rules or prancial maror designabased swa

ning as in

of the Secu

ng position ading posit

holding cor the mark

Appendix

exchange(a)(1)), or (77) of the

rivatives y purchaseded that a derivatives or

clearing on a nor a

o the at such vatives

es or clearing

on a nor a

o the agency, a al market

o the clearing

rocedures ket utility t

ated financps that

section

urities Act

means a tion, as

ompany, ket risk

x A

e,

e

ves

of to cial

of

SC1:46

comprisk cbank

or saacco

of onsectioexpla

notice[Agenrespoafter time so rethe cgood

as mdeter

will dthe bone othe d

71524.5

pany or sacapital rule holding co

(g)

ale of one ount as def

e or more on, the [Aganation of

e. The resncy] consionse mustthe date operiod wh

equires, proonsent of cause.

ay be spermination.

ecide, basbanking enor more finecision in

(ii)avings and e is applicaompany o

(11)(12) Mcontainedpart 324, a

(12)(13) Missued by,any politicany politicor more S

(13)(14) Tbanking eaccount o

Reservati

(1) Thor more finfined at 12

(2) No

(i) financial igency] willthe determ

(ii)

sponse shoder in dect be in writon which then, in the ovided thathe bankin

cified by th

(iiised on a retity, wheth

nancial inswriting. Th

) In theloan hold

able, under savings a

Market risk in subparas applica

Municipal s, or an oblcal subdiviscal subdivisStates or po

Trading desntity that pf the bank

ion of Auth

he [Agencynancial ins U.S.C. 18

otice and R

Noticinstrumentl notify themination.

) Resp

(A) ould includciding wheting and dehe bankingopinion of

at the bankng entity. I

(B) he [Agenc

) After eview of thher to maintruments ihe notice w

e case of aing compar the markand loan h

k capital rurt F of 12 Cable.

security meigation gusion theresion thereolitical sub

sk means purchases king entity

hority:

y] may detstruments b851(h)(6).

Response

ce. When tts is for the

e banking e

ponse.

The bande any mather the puelivered to g entity recf the [Agenking entity n its discre

Failure y] shall co

the close he bankingntain the [As for the trwill include

Appendix

a banking any, other ket risk capholding com

ule means CFR part 3

eans a secaranteed aof, or any of, or any

bdivisions t

the smalleor sells fin

or an affili

ermine, onby a banki

Procedure

the [Agence trading aentity in wr

nking entittters that turchase orthe desig

ceived thency], the acis informeetion, the

to respondonstitute a

of bankingg entity’s reAgency]’s rading acce an expla

x -12-

entity thatthan a banpital rule thmpany.

the marke3, 12 CFR

curity that as to princagency ormunicipal thereof.

est discretnancial insate thereo

n a case-bing entity e

es.

cy] determaccount unriting of the

ty may resthe bankinr sale is fonated [Age notice. Thctivities or

ed promptly[Agency] m

d within 30waiver of

g entity’s response adetermina

count. Thenation of t

t is affiliatenking entithat is appl

et risk capiparts 208

is a directcipal or inter instrumencorporate

e unit of ostruments of.

by-case baeither is or

ines that tnder parage determin

spond to ang entity wor the tradinency] offiche [Agencyr condition y of the nemay exten

0 days or sany object

response pand other iation that th banking ethe decisio

ed with a bty to whichicable to th

tal rule thaand 225,

t obligationerest by, antality of a

e instrumen

rganizatiofor the tra

asis, that ar is not for

the purchagraph (g)(1nation and

ny or all iteould have ng accoun

cial within 3y] may shoof the ban

ew time ped the time

such othertions to the

period, thenformationhe purchaentity will bon.

Appendix

bank holdinh a market he affiliate

at is or 12 CFR

n of or a State or a State or ntality of o

n of a ding

purchasethe trading

ase or sale1) of this provide a

ems in thethe

nt. The 30 days orten the nking entityeriod, or wie period for

r time perioe [Agency

e [Agency] n concernise or sale

be notified

x A

ng

ed

R

one

e g

e

an

e

y ith r

od y]’s

ing of of

Page 64: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

SC1:46

§ __.

doesparag

perm

secu

undeof clieof theotherliquid

liabiliinternensuincludindep

may

(a)(8activicoun

unde

each

that rdemolimit(s

activipropr

activi

71524.5

4 Permit

(a)

not apply graph (a).

mitted unde

rities and t

erwriting poents, custoe market forwise redudity, matur

ties, the bnal compliare the banding reasopendent te

purchase,

)(i) of this ities, includterparties,

erwriting po

trading de

require revonstrable as), and ind

ities descrrietary trad

ity describ

tted unde

Underwriti

(1) Peto a bank

(2) Reer paragrap

(i) the trading

(ii)osition areomers, or or the relece the undity, and de

(iiibanking enance prog

nking entityonably desesting iden

sell, or m

section;bading the re, on the:

osition; an

esk’s comp

view and aanalysis ofdependent

(ivribed in thisding; and

(v)bed in this

rwriting a

ting activiti

ermitted unking entity's

equiremenph (a)(1) o

The bg desk’s un

) (A) Te designedcounterpavant type derwriting epth of the

) In thetity has esram requiry’s compliasigned writtifying and

(A) anage as

(B) ased on theasonably

(1)

(2) d

(3)

(C) pliance wit

(D) approval off the basist review of

v) The cs paragrap

) The bparagraph

and marke

ies.

nderwritings underwri

nts. The unof this sect

banking ennderwriting

The amoun not to exc

arties, andtof securityposition w market fo

e case of astablished red by subance with tten policied addressi

The propart of its

Limits foe nature aexpected

Amount

Level o

Period o

Internalth its limits

Authorizf any trades for any tef such dem

compensaph (a) are

banking enh (a) in acc

Appendix

et making

g activitiesiting activit

nderwritingtion only if

ntity is actg position

nt and typeceed the retaking intoy, and (B)

within a reaor the relev

a banking and imple

bpart D of the require

es and prong:

oducts, insunderwriti

or each traand amoun

near term

t, types, a

f exposure

of time a s

l controls as; and

zation proe that wouemporary omonstrable

ation arrandesigned

ntity is licecordance w

x -13-

-related a

s. The prohties condu

g activities :

ing as an uis related

e of the seeasonably account treasonabl

asonable pvant type o

entity withements, mathis part thements of

ocedures, i

struments oing activitie

ading desknt of the tra

m demands

nd risk of i

es to relev

security ma

and ongoin

cedures, ild exceed or perman analysis a

gements onot to rew

ensed or rewith applic

activities.

hibition conucted in ac

of a banki

underwriteto such di

curities in y expectedthe liquiditye efforts a

period, takof security;

h significanaintains, ahat is reasparagraphnternal co

or exposues;

k, in accorading desks of clients

its underw

vant risk fa

ay be held

ng monitor

ncluding ea trading ent increaand appro

of personsward or ince

egistered tcable law.

ntained in ccordance

ing entity a

er for a disstribution;

the trading near termy, maturity

are made ting into ac;

nt trading aand enforceonably deh (a) of thi

ontrols, ana

res each t

rdance withk’s underws, custome

writing posi

ctors arisi

d;

ring and a

escalation desk’s lim

ase to a traval;

s performinentivize pr

to engage

Appendix

§__.3(a) with this

are

stribution o

g desk’s m demandsy, and depto sell or

ccount the

assets andes an signed to s section, alysis, and

trading des

h paragrapwriting ers, or

tion;

ng from its

nalysis of

procedureit(s),

ading desk

ng the rohibited

in the

x A

of

s th

d

d

sk

ph

s

es

k’s

SC1:46

a dist

undeprese

state

unde

to:

holde

issue

issue

distri

(a), sdistri

(a), ubankparticunde

paragrefer partic

requifinanenfor

sectioexceebase

71524.5

tribution o

er the Secuence of sp

ment unde

erwriter me

er for distri

er or selling

er or selling

bution of s

selling secbution is m

underwritining entity ocular distrierwriter.

graph (a), to market

cular distri

rements ocial instrumrces the lim

on shall beed the read on the n

(3) Def securities

(i) urities Act pecial sellin

(ii)er the Sec

(4) Deeans:

(i)

ibution;

g security

g security

(ii)such secur

(5) Deurity holde

made.

(6) Deng positionor its affiliabution of s

(7) Dethe terms participanbution for

(8) Re

(i)

of paragrapment if themits descri

e availableasonably enature and

efinition of s means:

An ofof 1933, thng efforts a

) An ofcurities Act

efinition of

A per

(A)

(B) holder; or

(C) holder; or

) A perrities for or

efinition of er means a

efinition of n means thate, and msecurities f

efinition of client, cus

nts that mawhich the

ebuttable p

Risk

(A) ph (a)(2)(iie banking eibed in par

(B) e with respxpected namount o

distributio

ffering of shat is distinand selling

ffering of st of 1933.

underwrite

rson who h

Purchas

Engage

Manage

rson who hr on behalf

selling seany person

underwritihe long or smanaged bfor which s

client, cusstomer, anay transacbanking e

presumptio

limits.

A banki)(A) of thisentity has ragraph (a

The prepect to limiear term d

of the tradin

(1)

Appendix

on. For pur

securities, nguished fg methods

securities m

er. For pur

has agree

se securiti

e in a distr

e a distribu

has agreef of the iss

curity holdn, other tha

ing positioshort posity a particusuch bank

stomer, annd counterpt with the b

entity is ac

on of comp

ing entity ss section westablishe

a)(8)(i)(B) a

esumption ts for each

demands ong desk’s

Amount, t

x -14-

rposes of t

whether ofrom ordin; or

made purs

rposes of t

d with an i

ies from th

ibution of s

ution of se

d to particsuer or sel

der. For puan an issu

on. For purtions in onular tradingking entity o

nd counterprparty, on abanking en

cting as un

pliance.

shall be prwith respeced and impand does n

describedh trading dof clients, cunderwriti

ypes, and

this paragr

or not subjary trading

suant to an

this parag

issuer or s

he issuer o

securities

ecurities fo

cipate or isling secur

urposes of uer, on who

rposes of tne or moreg desk, in or affiliate

rparty. For a collectiventity in conderwriter.

resumed toct to the puplements, not exceed

d in paragrdesk that acustomersng activitie

risk of its

raph (a),

ect to regig transacti

n effective

raph (a),

selling sec

or selling s

for or on b

r or on be

participatity holder.

this paragose behalf

this paragre securitiesconnectionis acting a

purposes e or individnnection w

o meet theurchase omaintainsd such lim

raph (8)(i)(are designes, or countees, on the:

underwriti

Appendix

stration ions by the

registratio

curity holde

security

behalf of th

half of the

ting in a

graph f a

raph s held by an with a as an

of this dual basis,with a

e r sale of a, and its.

(A) of this ed not to erparties, :

ing positio

x A

e

on

er

he

a

,

n;

Page 65: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

SC1:46

from

parag[Agenlimitscusto

paragthe elimit(s

of thifacts reasowill p

§__.3acco

are p

exporelateotheraccoapproinstru

tradinan oncoun

finan

invenand rinclud

liabiliinternensu

71524.5

its underw

graph (a)(8ncy] on an

s are desigomers, or c

graph (a)(8extent that s), in each

s section mand circu

onably expprovide not

(b)

3(a) does rdance wit

permitted u

sure routined to its finrwise enteunt, in comopriate for uments;

ng desk’s ngoing basterparties,

cial instrum

ntory of finrisks, of ording throu

ties, the bnal compliare the ban

writing pos

(ii)8)(i) of this

n ongoing bgned not tocounterpar

(iii8)(i) of thisany limit is

h case in th

(ivmay be remstances,pected neatice of any

Market ma

(1) Penot apply tth this para

(2) Reunder para

(i) nely standnancial expr into long

mmerciallyr the liquidi

(ii)market-masis, the rea, based on

(Ament(s); a

(Bancial instr associategh block tr

(iiibanking enance prog

nking entity

ition; and

) Supes section sbasis. Anyo exceed trties.

) Repos section, as exceedehe form an

v) Rebubutted by , that a traar term dey such dete

aking-relat

ermitted mto a bankinagraph (b)

equiremenagraph (b)(

The ts ready toposure and and short

y reasonabity, maturit

) The aaker invenasonably en:

) the liquidnd

) Demonsttruments, aed with finarades;

) In thtity has esram requiry’s complia

(2)

(3)

ervisory reshall be suy review ofhe reason

orting. Witha banking

ed and (B) nd manner

utting the pthe [Agencding desk mands of ermination

ted activiti

arket makng entity's).

nts. The ma(1) of this s

rading deso purchased is willingt positions ble amountty, and dep

amount, tytorymakin

expected n

dity, matur

trable anaand markeancial instr

he case of stablished red by subance with

Appendix

Level of e

Period of

view and object to suf such limitably expe

h respect tentity shaany tempo

r as directe

presumptiocy] if the [Ais engaginclients, cu to the ban

ies—

king-related market m

arket makisection on

sk that este and sell og and avail

in those tyts and thropth of the

ypes, and g related a

near term d

ity, and de

lysis of hiset and otheruments in

a bankingand imple

bpart D of the require

x -15-

exposures

time a sec

oversight. upervisory ts will inclucted near

to any limiall promptlyorary or peed by the [

on. The prAgency] deng in activ

ustomers, onking entit

d activitiesmaking-rela

ing-relatednly if:

tablishes aone or morlable to quypes of finoughout mmarket for

risks of theactivities ademands o

epth of the

storical cuser factors rn which the

g entity withements, mathis part thements of

to relevan

curity may

The limitsreview an

ude assesterm dema

t identifiedy report to ermanent [Agency].

resumptionetermines

vity that is nor counterty in writing

s. The prohated activit

d activities

and managre types of

uote, purchnancial ins

market cyclr the releva

e financialare designeof clients,

e market fo

stomer deregarding e trading d

h significaaintains, ahat is reasparagraph

t risk facto

be held.

describednd oversighsment of wands of cli

d pursuantthe [Agenincrease t

n in paragr, based onnot based rparties. Thg.

hibition coties conduc

of a bank

ges the finf financial hase and struments fes on a baant types o

l instrumened not to ecustomers

or the relev

mand, curthe amoun

desk make

nt trading and enforceonably deh (b) of thi

Appendix

ors arising

d in ht by the whether thients,

t to ncy] (A) to o any

raph (a)(8)n all relevaon the

he [Agency

ntained in cted in

king entity

ancial instrumen

sell, or for its ownasis of financia

nts in The exceed, ons, or

vant types

rrent nt, types,

es a marke

assets anes an signed to s section,

x A

he

)(i) ant

y]

nts

al

n

of

et,

d

SC1:46

includindep

to pu

reducwith tand estrateand ithe a

amoupresc

inven

instru

arisin

held;

each

that rdemodeskof su

liabilisectiothe li

activipropr

desc

paragindivimakiconti

71524.5

ding reasopendent te

rchase an

ce or othethe limits rexposuresegies eachnventoryp

actions take

unt of the tcribed by i

ntory;

uments, an

ng from its

trading de

require revonstrable a’s limit(s) ich demon

ties, Tto thon is excemits as pro

ities descrrietary trad

ribed in th

graph (b) oidual basisng-relatednuing rela

onably desesting iden

nd sell in a

rwise signrequired uns each tradh trading dpositions; aen by the

trading den accorda

nd exposu

financial e

esk’s comp

view and aanalysis ths consistestrable an

(ivhe extent t

eeded, the omptly as

(v)ribed in thisding; and

(viis paragra

(3) Deof this secs refer to md services tionship w

signed writtifying and

(A) ccordance

(B) ificantly mnder parag

ding desk mdesk may uand the protrading de

(C) sk's markence with p

res the tra

exposure;

(D) pliance wit

(E) approval ofhat the basent with thenalysis and

v) In ththat any limtrading depossible a

) The s paragrap

) The aph (b) in a

efinition of tion, the te

market parby obtainin

with respec

tten policied addressi

The finae with para

The actmitigate pro

graph (b)(2may use fouse to manocess, straesk to mitig

Limits foet making-paragraph

(1)

(2) ading desk

(3) and

(4)

Internalth its limits

Authorizf any tradesis for any e requiremd approval

he case of mit identifieesk takes aafter the lim

compensaph (b) are

banking eaccordance

client, cuserms clientrticipants tng such se

ct to such s

Appendix

es and prong:

ancial instagraph (b)(

tions the tromptly the 2)(iii)(C) ofor risk mannage the riategies, angate these

or each tra-related ac(b)(2)(ii6)(

The amou

The amouk may use

The level

The period

l controls as; and

zation proe that woutemporary

ments of th;

a bankinged pursuaaction to bmit is exce

ation arrandesigned

entity is licee with app

stomer, ant, customehat make ervices, reservices, p

x -16-

ocedures, i

ruments e(2)(i) of thi

rading desrisks of itsf this sectinagement isks of its nd personn

risks are

ading deskctivities, th(i) of this s

unt, types,

unt, types, for risk ma

of exposu

d of time a

and ongoin

cedures, ild exceed y or permais paragra

g entity withant to paragbring the traeeded;

ngements onot to rew

ensed or rplicable law

nd counterper, and couuse of the

esponding provided th

nternal co

each tradinis section;

sk will takes financial ion; the propurposesmarket manel responand contin

k, based oat address

section, on

and risks

and risks anagemen

res to rele

a financial

ng monitor

ncluding ea trading

anent increaph (b), an

h significagraph (b)(2ading des

of personsward or ince

registered w.

rparty. For unterparty, banking eto quotatio

hat:

ontrols, ana

ng desk sta

e to demonexposure oducts, ins; the technaking-relatnsible for enue to be e

on the natus the facton:;

of its mark

of the pront purpose

evant risk f

instrumen

ring and a

escalation desk’s limease to a td indepen

nt trading 2)(iii)(C) ok into com

s performinentivize pr

to engage

purposes , on a colleentity's maons, or ent

Appendix

alysis and

ands ready

nstrably consistenstruments,niques andted activitieensuring theffective;

ure and ors

ket-maker

ducts, es;

factors

nt may be

nalysis of

procedureit(s), trading dent revie

assets anof this mpliance w

ng the rohibited

e in activity

of ective or arket tering into

x A

y

t , d es

hat

es

ew

d

ith

y

a

Page 66: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

SC1:46

entityassetsubpconta

tradincoun

anonrange

(b), fiassocaffiliarelate

paraginstruparagdesk'

requifinanenfor

sectioexceebase

posit

instru

from

parag[Agenlimitscusto

71524.5

y is not a cts and liabart Dthe mained in § _

ng desk orterparty of

ymously oe of marke

financial exciated loan

ate and maed activitie

graph (b), uments forgraph (b)(2's open po

rements ocial instrumrces the lim

on shall beed the read on the n

ions;

uments, an

its financia

graph (b)(6ncy] on an

s are desigomers, or c

(i) client, custbilities of $methodolog__.2 of thi

r other orgf the tradin

on an exchet participa

(4) Dexposure mns, commoanaged byes.

(5) Demarket-m

r which the2)(i) of thisositions or

(6) Re

(i)

of paragrapment if themits descri

e availableasonably enature and

nd exposu

al exposur

(ii)6)(i) of this

n ongoing bgned not tocounterpar

A tratomer, or c50 billion ogy describs part, unl

(A) anizationa

ng desk fo

(B) hange or sants.

efinition of means the a

odities, or y a particul

efinition of aker inven

e trading ds section, texposures

ebuttable p

Risk

(A) ph (b)(2)(iie banking eibed in par

(B) e with respxpected namount o

res the tra

re; and

) Supes section sbasis. Anyo exceed trties.

ding desk counterparor more ased in definless:

The traal unit of thr purposes

The purimilar trad

financial eaggregateforeign exar trading

market-mntory positiesk standthat are ms arising fr

presumptio

limits.

A banki) of this seentity has ragraph (b

The prepect to limiear term d

of the tradin

(1)

(2) ading desk

(3)

(4)

ervisory reshall be suy review ofhe reason

Appendix

or other orty of the trs measurenition of “s

ding desk he entity shs of paragr

rchase or ing facility

exposure. risks of on

xchange ordesk as p

maker invenions means ready toanaged byrom open t

on of comp

ing entity section withestablishe

b)(6)(i)(B) a

esumption ts for each

demands ong desk’s

Amount, t

Amount, tk may use

Level of e

Period of

view and object to suf such limitably expe

x -17-

organizatiorading des

ed in accorignificant t

documenthould be trraph (b)(2

sale by they that perm

For purpone or morer currency

part of the t

ntory. posins all of the make a my the tradintransaction

pliance.

shall be prh respect toed and impand does n

describedh trading dof clients, cmarket ma

ypes, and

ypes, and for risk ma

exposures

time a fina

oversight. upervisory ts will inclucted near

onal unit ofsk if that otrdance wittrading ass

ts how andreated as ) of this se

e trading dmits trading

oses of thise financial

y, held by atrading de

itions. For e positions

market in ang desk, inns.

resumed too the purcplements, not exceed

d in paragrdesk that acustomersaking-relat

risks of its

risks of thanagemen

to relevan

ancial instr

The limitsreview an

ude assesterm dema

f another bther entity h §__.20(dsets and li

d why a paa client, cu

ection; or

desk is cong on behal

s paragrapinstrumen

a banking esk's marke

the purposs in the finaccordancencluding th

o meet thehase or samaintainsd such lim

raph (6)(i)(are designes, or counteted activiti

s market-m

he productnt purpose

t risk facto

rument ma

describednd oversighsment of wands of cli

Appendix

banking has tradin

d)(1) of abilities”

articular ustomer, o

nducted f of a broa

ph nts and anentity or itset making-

ses of thisancial e with he trading

e ale of a , and its.

(A) of this ed not to erparties, es, on the

maker

s, es;

ors arising

ay be held

d in ht by the whether thients,

x A

ng

or

ad

ny s -

s

:

.

he

SC1:46

paragthe elimit(s

of thifacts reasowill p

§ __.

doesrelateand dsuch

signif

and ereasosectio

regardocumay to su

and a

and imay signifdemothe s

proce

limitasignifspecforeig

71524.5

graph (b)(6extent that s) , in eac

s section mand circu

onably expprovide not

5 Permit

(a) not apply ed to indivdesigned tpositions,

(b)

ficant trad

enforces aonably deson, includi

rding the pmentationuse in its rch position

authorizati

ndependebe used foficantly mionstrates tpecific, ide

edures, an

ation, any aficantly miific, identifgn exchan

(iii6)(i) of thisany limit ish case in t

(ivmay be remstances,pected neatice of any

tted risk-m

Permitted to the riskidual or agto reduce t, contracts

Requirem

(1) Thing assets

(1)an internal signed to eng:

positions, t indicatingrisk-mitigans, contrac

on proced

ent testing or hedgingtigate the that the heentifiable r

(2)

nd internal

adjustmentigate andfiable risksge risk, int

) Repos section, as exceedethe form a

v) Rebubutted by , that a traar term dey such dete

mitigating

d risk-mitigak-mitigatingggregated the specifi

s, or other

ments.

e risk-mitigs and liabil

)(i) The bcomplianc

ensure the

(i)(A)techniquesg what posating hedgicts or othe

(ii)(Bdures, inclu

(iii)(Cdesigned

g may reasspecific, id

edging actirisk(s) bein

)(ii) The r

(i)(A)controls re

(ii)(Bnts to the h demonstr

s, includingterest rate

orting. Witha banking

ed and (B) nd manne

utting the pthe [Agencding desk mands of ermination

g hedging

ating hedgg hedging positions,c risks to tholdings.

gating hedities are pe

banking ence programe banking e

) Reasons and stratsitions, conng activitie

er holdings

) Inteuding relev

C) Theto ensure

sonably bedentifiable ivity demong hedged

risk-mitiga

) Is condequired un

) At the inhedging acrably reducg market rie risk, com

Appendix

h respect tentity shaany tempo

er as direct

presumptiocy] if the [Ais engaginclients, cu to the ban

activities

ging activitactivities contractsthe bankin

dging activermitted u

ntity has em requiredentity’s com

nably desigtegies thatntracts or oes, as wels;

ernal controvant escal

e conduct othat the p

e expectedrisk(s) be

onstrably red;

ating hedgi

ucted in ander this s

nception octivity, is deces or otheisk, countemodity pri

x -18-

to any limiall promptlyorary or peted by the

on. The prAgency] deng in activ

ustomers, onking entit

s.

ties. The pof a banki

s, or other ng entity in

vities of a bnder parag

establishedd by subpampliance w

gned writtet may be uother holdil as positio

ols and onation proc

of analysisositions, te

d to demoneing hedgeeduces or

ng activity

ccordanceection;

of the hedgesigned toerwise sigerparty or oce risk, ba

t identifiedy report to ermanent [Agency].

resumptionetermines

vity that is nor counterty in writing

prohibition ng entity inholdings o connectio

banking engraph (a) o

d and impleart D of thiswith the re

en policiesused for heings a parton and agi

ngoing moncedures; an

s, includingechniquesnstrably reed, and suc

otherwise

y:

e with the w

ging activito reduce onificantly mother cred

asis risk, o

d pursuantthe [Agenincrease t

n in paragr, based onnot based rparties. Thg.

containedn connecti

of the bankon with and

ntity that hof this sec

ements, ms part that equirement

s and procedging, incticular trading limits w

nitoring, mnd

g correlatios and strateduce or otch correlat

e significan

written pol

ty, includinr otherwismitigates o

dit risk, curor similar ri

Appendix

t to ncy] (A) to o any

raph (b)(6)n all relevaon the

he [Agency

in §__.3(aion with anking entity d related t

as ction only if

maintains is ts of this

cedures cluding ding desk with respec

manageme

on analysiegies that therwise tion analysntly mitigat

licies,

ng, withoute one or morrrency or sks, arisin

x A

)(i) ant

y]

a) nd

to

f:

ct

ent,

s,

sis tes

t

re

ng

Page 67: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

SC1:46

in coentityposit

any swith t

mana

proce

mitigarisks sectiouponholdi

activiout in

risk-mtradin

not hsectio

limitasignifor othbasiscontridentliquid

entitythis s

comprequifinanis:

71524.5

nnection wy, based uions, contr

significant this sectio

agement b

edures req

ate and dethat devel

on and the the facts ngs of the

ity by the bn paragrap

mitigating ng.

ave signifon only if t

ation, any aficantly miher credit rs risk, or siracts, or otified unde

dity thereof

y to ensuresection and

(c)

ply with therements ocial instrum

with and repon the faracts or ot

new or adn;

by the bank

quired und

emonstrablop over time underlyinand circum banking e

banking enph (b)(21)(

hedging a

(2)icant tradinthe risk- m

adjustmentigate onerisk, curreimilar risksther holdinrlying and f; and

e that the hd is not pro

Documen

(1) A be requiremof paragrapments mad

elated to idacts and ciher holdin

(iii) (Cdditional ris

(iv)(Dking entity

(A)(1er paragra

(B)(2bly reducesme from thng positionmstances oentity and t

ntity to ensii) of this s

(3)(iii) ctivities ar

) The rng assets

mitigating h

(i) At thents to the h or more sncy or fores, arising inngs of the b

hedging p

(ii) Is suhedging acohibited pr

tation requ

banking enments of paph (c)(4) ode in relian

dentified porcumstancgs and the

C) Dosk that is n

D) Is sy that:

1) Is caph (b)(1)(

2) Is ds or otherwhe risk-mitns, contracof the undthe risks a

(C)(3) sure that thsection and

The comre designe

risk-mitigaand liabilitedging ac

e inceptionhedging acspecific, ideign exchan connectibanking enpositions, c

bject, as activity satisroprietary

uirement.

ntity that haragraphs of this sectince on this

Appendix

ositions, cces of the e risks and

oes not givnot itself he

subject to

consistent (i) of this s

designed towise signiftigating hects, and otherlying an

and liquidit

Requhe hedgingd is not pro

mpensatioed not to re

ating hedgities are pe

ctivity:

n of the hectivity, is deentifiable r

ange risk, ion with anntity, basecontracts o

appropriatesfies the retrading.

has signific(c)(2) andion are mes section f

x -19-

ontracts, oidentified ud liquidity t

ve rise, at edged con

continuing

with the wection;

o reduce oficantly mitdging activher holdingd hedgingty thereof;

ires ongoing activity sohibited pr

on arrangeeward or in

ng activitieermitted un

edging actiesigned torisks, incluinterest rand related ed upon theor other ho

e, to ongoiequiremen

cant tradind (3) of thiset, with resfor risk-mit

or other hounderlyingthereof;

the inceptntemporan

g review, m

written hedg

or otherwistigates thevities undegs of the b positionsand

ng recalibrsatisfies throprietary

ments of pncentivize

es of a bannder parag

ivity, includo reduce ouding markate risk, co

to identifiee facts andoldings an

ing recalibnts set out

g assets as section, uspect to antigating he

oldings of tg and hedg

ion of the eously in a

monitoring

ging polici

se significae specific, iertaken unbanking en, contracts

ration of thhe requiremtrading; an

persons peprohibited

nking entitgraph (a) o

ding, withor otherwisket risk, commodity ped positiond circumstd the risks

bration by tin paragra

and liabilitiunless theny purchasedging purp

Appendix

the bankinging

hedge, to accordanc

and

es and

antly identifiablender this ntity, baseds and othe

he hedgingments set nd

erforming d proprieta

ty that doeof this

out e

ounterpartyprice risk, ns, tances of ts and

the bankinaph (b)(2)

es must e se or sale poses that

x A

ng

ce

e

d r

g

ry

es

y

the

ng of

of t

SC1:46

respohedg

respopurchexpopolici§__.4tradin

tradin

this ssale,

contrreduc

desig

respo

compyearsreque

to the

writtethe sand

hedgwritteinstrulimits

unde

activi

71524.5

onsible foring activity

onsible forhases or ssure, techies and pro4(b)(2)(iii)(ng desk m

ng desks.

section, a bdocumen

racts, or otce;

gned to ful

onsible for

pliance wits in a formest, or suc

e purchase

en list of prpecific typ

ing activityen, pre-appument for hs shall be a

ertaken by

ities by the

(i) r the undery is design

(ii)r the undersales are dnique, or socedures (B) of this ay use for

(iii

(2) In banking ent:

(i) ther holdin

(ii)fill; and

(iiir the hedge

(3) A bth the requ

m that allowch longer p

(4) The or sale o

(i) re-approve

pe of hedgi

(ii)y (includinproved hehedging acappropriate

the trading

e trading d

Not erlying posined to redu

) Estabrlying posi

designed tostrategy thestablishesubpart asr hedging;

) Estab

connectiontity must,

The sngs of the b

) The s

) The te.

banking enuirements ows the banperiod as r

he requiremof a financi

The fed financiaing activity

) At theg the purcdging limitctivities une for the:

(A) g desk;

(B) desk; and

(C)

establishedtions, contuce;

blished bytions, conto reduce, bhat is not sed under ps a producor

blished to

n with any at a minim

specific, idbanking en

specific ris

trading des

ntity must of this parking entity

required un

ments of pial instrum

financial inal instrumey for which

e time the chase or sats for the trndertaken

Size, ty

Financi

Levels a

Appendix

d by the sptracts, or o

y the speciftracts, or obut that is specificallyaragraph (

ct, instrume

hedge agg

y purchasemum, and

dentifiable ntity that th

sk-mitigatin

sk or othe

create andragraph (c)y to prompnder other

aragraphsent descri

nstrument ents that ah the financ

financial iale of the frading desfor one or

ypes, and r

al instrum

and durati

x -20-

pecific tradother holdi

fic trading other holdieffected th

y identified(b)(1) of thent, expos

gregated p

e or sale idcontempo

risk(s) of the purchas

ng strategy

r business

d retain re) for a peri

ptly producr law or this

s (c)(2) andbed in par

purchasedre commocial instrum

nstrumentfinancial insk purchasmore othe

risks of the

ents purch

on of the r

ding desk ngs the ris

desk estangs the rishrough a f in the trad

his sectionsure, techn

positions a

dentified inoraneously

the identifise or sale

y that the

s unit that

ecords suffiod that is

ce such recs part.

d (3) of thiragraph (c

d or sold isonly used bment is be

t is purchanstrument)sing or seller trading

e hedging

hased and

risk expos

establishinsks of whic

ablishing osks of whicfinancial inding desk's or under

nique, or s

across two

n paragrapy with the p

ied positiois designe

purchase

is establis

ficient to deno less thcords to th

s section d)(1) of this

s identifiedby the tradeing purcha

ased or sol) compliesling the findesks. Th

activities c

d sold for h

ures being

Appendix

ng or ch the

r ch the nstrument, s written

trategy su

o or more

h (c)(1) of purchase o

ns, ed to

or sale is

hing and

emonstratan five

he Board o

do not apps section if

d on a ding desk fased or so

ld, the s with nancial he hedging

commonly

hedging

g hedged.

x A

ch

f or

te

on

ply f:

for old;

g

y

Page 68: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

SC1:46

§ __.

in §__that i

guarathe FFedeSyste(12 U

any m

FDICcorpoTitle

contaobligabankforeig

contrdirecUnite

guarato in whichsove

depo

§__.3or isswhichsoveestab

of thesecu

71524.5

6 Other

(a) __.3(a) does:

anteed by,Federal Naeral Home em institutU.S.C. 200

municipal s

C for purpoorate capaII of the D

(b)

ained in §_ation of, o of which tgn soverei

rolled by a tly or indir

ed States;

anteed by,paragraphh the foreigreign; and

ository inst

3(a) does sued or guh the foreigreign, by ablished und

e Board's Rrities deale

permitted

Permitted es not app

(1) An

(2) An, an agenc

ational MorLoan Banion charte

01 et seq.)

(3) Ansecurity; o

(4) Anose of facilacity or as odd-Frank

Permitted

(1) Aff__.3(a) doer issued othe foreigngn, by a b

(i) banking e

rectly contr

(ii), the foreigh (b)(1)(i) ogn sovere

(iiiitution.

(2) Fonot apply t

uaranteed gn soverea foreign eder the law

(i) Regulationer;

d proprieta

d trading in ly to the p

n obligation

n obligationcy of the Urtgage Assk, the Fedred under ;

n obligationor

n obligationitating the conservat

k Wall Stre

d trading in

ffiliates of fes not appr guaranten sovereigbanking en

The bentity that rolled by a

) The fgn sovereigof this sectign is a me

) The p

oreign affilito the purcby, a foreiign is a me

entity that iws of the U

The fn K (12 CF

ary tradin

domestic urchase o

n of, or iss

n, participaUnited Statsociation, tderal Agric

and subje

n of any St

n of the FDdisposal o

tor or receeet Reform

foreign go

foreign banply to the peed by, a fon is a memtity, so lon

banking enis organize

a top-tier b

financial ingn under ttion is orgaember), or

purchase o

iates of a Uchase or sgn sovereember), ors owned o

United Sta

foreign entFR 211.2(j

Appendix

ng activitie

governmer sale by a

sued or gu

ation, or otes, the Gothe Federaultural Mo

ect to the p

tate or any

DIC, or anyof assets aiver under

m and Cons

overnment

nking entitpurchase ooreign sovmber), or ang as:

ntity is orged under tanking en

nstrument the laws ofanized (incr any agen

or sale as

U.S. bankisale of a fineign (includr any agenor controlletes or any

tity is a for)), or is reg

x -21-

es.

ent obligata banking e

aranteed b

ther instruovernmental Home L

ortgage Coprovisions

y political s

y entity foracquired or the Fedesumer Pro

t obligation

ties in the or sale of avereign (inany agency

ganized unthe laws oftity that is

is an obligf which thecluding anncy or polit

principal i

ing entity. nancial insding any mncy or polited by a bay State, so

reign bankgulated by

tions. The entity of a

by, the Un

ment of, ot National oan Mortg

orporation oof the Far

subdivision

rmed by oror held by tral Deposi

otection Ac

ns.

United Staa financial cluding any or politic

der or is df a foreignorganized

gation of, oe foreign by multinattical subdiv

s not mad

The prohibstrument thmultinationatical subdivnking entitlong as:

k, as definey the foreig

prohibitionfinancial i

ited States

or issued oMortgage

gage Corpoor a Farm rm Credit A

n thereof,

r on behalthe FDIC iit Insurancct.

ates. The pinstrumen

ny multinatcal subdivis

directly or i sovereign

d under the

or issued obanking enional centrvision of th

de by an in

bition conthat is an oal central bvision of thty organize

ed in sectign sovereig

Appendix

n containenstrument

s;

or Associatiooration, a Credit

Act of 197

including

f of the n its

ce Act or

prohibitionnt that is antional centsion of suc

ndirectly n and is noe laws of th

or ntity referreral bank ofhat foreign

sured

tained in bligation obank of hat foreigned or

on 211.2(jgn as a

x A

d t

on,

1

n n tral ch

ot he

ed f

n

of,

n

j)

SC1:46

guara(incluagen

finanUnite

applya sim

custo

the fi

not aprincsell) aown a

in §__that i

instru

insurjurisd

Finanand fthat ais insstabi

sale o

71524.5

anteed by,uding any cy or polit

ced by an ed States o

(c)

y to the pumilar fiducia

omer; and

nancial ins

apply to theipal in a tra financialaccount to

(d) __.3(a) does an insur

uments so

rance comdiction in w

ncial Stabiforeign juria particulasufficient tolity of the U

(e)

of financia

(ii), the foreigmultinationical subdiv

(iii affiliate thor of any S

Permitted

(1) Fidrchase or ary capaci

(i)

(ii)struments

(2) Rise purchaseransaction l instrumeno offset a c

Permitted es not apprance com

(1) Thlely for:

(i)

(ii)

(2) Thpany inves

which such

(3) Thlity Oversiisdictions,

ar law, reguo protect thUnited Sta

Permitted

(1) Thal instrume

) The fgn sovereignal centralvision of th

) The fhat is locatState.

d trading on

duciary trasale of finty, so long

The t

) The b.

skless prine or sale oin which t

nt from a ccontempor

d trading byly to the ppany or an

he insuranc

The g

) A sep

he purchasstment law

h insurance

he appropright Councas approp

ulation, or he safety aates.

d trading ac

he prohibitients by a b

financial ingn under tl bank of what foreign

financial inted in the U

n behalf of

ansactionsancial inst

g as:

transaction

banking en

ncipal tranof financial the bankincustomer, raneous sa

y a regulaturchase on affiliate o

ce compan

general ac

parate acc

se or sale iws, regulate company

riate Federcil and the priate, havwritten guand sound

ctivities of

ion containbanking en

Appendix

nstrument the laws ofwhich the f sovereign

nstrument United Sta

f customer

. The prohtruments b

n is condu

ntity does

sactions. Tinstrumeng entity, afpurchasesale to (or p

ted insuranr sale of fiof an insur

ny or its af

ccount of t

count esta

is conducttions, and y is domic

ral bankingrelevant i

ve not jointuidance dedness of th

foreign ba

ned in §__ntity if:

x -22-

is an obligf which theforeign sovn; and

is owned bates or org

rs.

hibition conby a bankin

cted for th

not have o

The prohibnts by a bafter receivs (or sells)purchase f

nce companancial insrance com

ffiliate purc

he insuran

blished by

ted in comwritten guiled; and

g agenciesnsurance tly determiescribed inhe covered

anking enti

_.3(a) does

gation of, oe foreign evereign is

by the foreanized un

ntained in ng entity a

he account

or retain b

bition contaanking entving an ord) the financrom) the c

any. The pstruments pany if:

chases or

nce compa

y the insura

pliance wiidance of

s, after concommissioned, after paragraph

d banking e

ities.

s not apply

or issued oentity is orga member

eign entity der the law

§__.3(a) dacting as tr

t of, or on

eneficial o

ained in §_ity acting a

der to purccial instrumcustomer.

prohibition by a bank

sells the f

any; or

ance comp

ith, and suthe State

nsultation oners of thnotice andh (d)(2) of entity, or th

y to the pu

Appendix

or ganized r), or any

and is notws of the

does not rustee or in

behalf of,

ownership

__.3(a) doas risklesshase (or

ment for its

containedking entity

inancial

pany;

ubject to, thor

with the he States d commenf this sectiohe financia

urchase or

x A

t

n

a

of

oes s

s

d

he

nt, on al

Page 69: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

SC1:46

contrState

parag

of thi

pursu(e)(1

requi

organof seapplic

bankof anfollow

the U

bankthe b

bankof the

parag

(incluexecof the

decisthe la

mitigadirecor org

proviorgan

71524.5

rolled by a e;

graph (9) o

s section.

uant to par)(ii) of this

rements o

nization, thction 211.cable; or

ing organiy State an

wing requir

United Stat

ing entity obanking en

ing entity oe banking

graph (e) i

uding anyrute such pe United S

sion to puraws of the

ating hedgtly or on aganized un

ded, direcnized unde

(i) banking e

(ii)or (13) of s

(iii

(2) A pragraph (9section on

(i) of paragrap

(ii)he banking23(a), (c)

zation, thend the banrements:

tes exceed

outside of tity in the

outside of entity in th

(3) A pf:

(i) relevant pepurchase oStates or of

(ii)rchase or s

United St

(iiiging relatea consolidander the la

(ivctly or indirer the laws

The bentity that

) The psection 4(c

) The p

purchase o9) or (13) only if:

The pph (e) of th

) (A) Wg entity meor (e) of th

(B) e banking king entity

d total asse

the UnitedUnited Sta

the Unitedhe United S

purchase o

The bersonnel oor sale) is f any State

) The bsell as prinates or of

) The pd to the in

ated basis aws of the

v) No frectly, by as of the Un

banking enis organize

purchase oc) of the B

purchase o

or sale of fof section 4

purchase ohis section

With respeceets the quhe Board's

With resentity is no

y, on a fully

(1) ets of the

(2) d States eates; or

(3) d States eStates.

or sale by

banking enf the banknot locatede;

banking enncipal is noany State

purchase ostrumentsby any braUnited Sta

financing foany branchnited State

Appendix

ntity is noted under t

or sale by HC Act; an

or sale me

financial in4(c) of the

or sale is cn; and

ct to a banualifying fos Regulatio

spect to a ot organizey-consolid

Total assebanking e

Total revexceed tota

Total net ixceeds tot

a banking

ntity engagking entity d in the Un

ntity (incluot located ; and

or sale, incs purchaseanch or afates or of

or the banh or affiliatees or of an

x -23-

t organizedthe laws of

the bankinnd

eets the re

nstrumentsBHC Act

conducted

nking entityoreign banon K (12 C

banking eed under tated basis

ets of the bntity held i

enues derival revenue

income detal net inco

g entity is p

ging as prior its affilianited State

ding relevin the Unit

cluding aned or sold, ffiliate that any State;

king entitye that is loy State; an

d or directlf the Unite

ng entity is

equirement

s by a banfor purpos

d in accord

y that is a king organ

CFR 211.23

entity that ithe laws ofs, meets a

banking enin the Unit

ved from ts derived

erived fromome derive

permitted f

incipal in tate that ares or organ

ant personted States

ny transactis not accis located

;.

y’s purchasocated in thnd

ly or indireed States o

s made pu

ts of parag

nking entityses of para

dance with

foreign banization re3(a), (c) or

is not a forf the Unitet least two

ntity held oted States

the businefrom the b

m the busined from th

for purpos

he purcharrange, negnized unde

nnel) that m or organiz

tion arisingcounted for in the Un

ses or salehe United

Appendix

ectly or of any

ursuant to

graph (e)(3

y is made agraph

the

anking equirementr (e)), as

reign ed States oo of the

outside of ;

ss of the business o

ness of thee busines

es of this

ase or salegotiate or er the laws

makes thezed under

g from riskr as principited States

es is States or

x A

3)

ts

or

f

e s

e

s

e

k-pal s

SC1:46

entity

entityarran

actingclear

intermexchaagen

contrthe U

of a fbankin thesubs

mean

Exch

Com

sectiosuch

sectioregul

§ __.

unde

entity

to a h

finan

71524.5

y, other tha

y if no persngement, n

g as princring agenc

mediary acange or sicy or deriv

rolled by, oUnited Stat

foreign ban that opera

e United Sidiary.

ns an unaf

ange Act o

modity Ex

on 15F of ; or

on 4f of thation as s

7 Limita

(a) er §§__.4 t

y and its cl

high-risk a

cial stabili

(v)an:

sonnel of snegotiation

ipal, providy or deriva

cting as agmilar tradivatives cle

(4) Foor is actingtes or orga

(5) Fonking entitates or contates sole

(6) Foffiliated en

(i) or exempt

(ii)change Ac

(iiithe Excha

(ive Commouch.

ations on p

No transahrough __

(1) Invlients, cus

(2) Reasset or a h

(3) Poty of the U

) The p

(A) such U.S. n, or execu

(B) ded the puatives clea

(C) gent, proving facility

earing orga

or purposeg on behalfanized und

or purposety is considntrols that ly by virtue

or purposetity, acting

A brot from regis

) A swct or exem

) A secange Act o

v) A futudity Excha

permitted

ction, clas_.6 if the tra

volve or retomers, or

esult, direchigh-risk tr

ose a threaUnited Stat

purchase o

A purchentity that ution of su

A purchurchase oraring organ

A purchided the puand is pro

anization a

s of this paf of, or at tder the law

s of this padered to bbranch, a

e of opera

s of this pag as an inte

oker or deastration or

wap dealer mpt from re

curity-baser exempt f

ures commange Act o

proprieta

ss of transaansaction,

esult in a mr counterpa

ctly or indirrading stra

at to the sates.

Appendix

or sale is n

hase or saare locatech purcha

hase or sar sale is prnization ac

hase or saurchase oromptly cleaacting as a

aragraph (the directio

ws of the U

aragraph (e located

agency, or ting or con

aragraph (ermediary

aler register excluded

registeredegistration

ed swap dfrom regist

mission meor exempt f

ary tradin

actions, or, class of t

material coarties;

rectly, in aategy; or

afety and s

x -24-

not conduc

le with theed in the Uase or sale

le with an omptly cle

cting as a c

le throughr sale is coared and sa central co

(e), a U.S.on of, any

United Stat

(e), a U.S.in the Unitsubsidiary

ntrolling th

(e), unaffili, that is:

ered with tfrom regu

d with the Cor exclude

ealer registration or e

erchant refrom regis

g activitie

r activity mransaction

nflict of int

material e

soundness

cted with o

e foreign oUnited Stat;

unaffiliateeared and central cou

h an unaffilonducted asettled throounterpart

entity is aother entit

tes or of an

branch, ated Statesy is not cone U.S. bra

iated mark

the SEC uulation as s

CFTC unded from re

stered withexcluded f

gistered wtration or e

es.

may be deens, or activ

terest betw

exposure b

s of the ba

or through

perations tes are inv

ed market isettled thrunterparty

liated markanonymouough a cleaty,.

any entity tty that is, lny State.

agency, or ; howevernsidered toanch, agen

ket interme

under sectisuch;

der sectiongulation a

h the SECfrom regula

with the CFexcluded f

emed permvity would:

ween the b

by the ban

anking enti

Appendix

any U.S.

of a U.S. volved in th

intermediarough a ; or

ket usly on an aring

that is, or ilocated in

subsidiary, the foreigo be locatency, or

ediary

ion 15 of th

n 4s of the s such;

under ation as

FTC under from

missible

banking

nking entity

ty or to the

x A

he

ary

is

y gn ed

he

r

y

e

Page 70: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

SC1:46

bankin anentitywith rtaken

or en

conflmannunde

clientmateintere

informsepadesigconflor cospecreasothe cor co

sectio

held a sub

in by subst

§§ __

Subp

§ __.relat

71524.5

(b)

ing entity ay transacty's interestrespect to n at least o

ngaging in

ict of interener sufficieerstand the

t, customeerially adveest; or

mation barration of p

gned, takinict of intere

ounterpartyific transaconably knoonflict of in

ounterparty

(c) on:

by a bankbstantial fin

a bankingtantial fina

_.8__.-.9

part C––C

10 Prohionships w

(a)

Definition

(1) Foand its clieion, class ts being msuch tran

one of the

(2) Prthe specif

(i)

est, togethent to perme conflict o

er, or counerse effect

(ii)rriers that personnel, ng into conest from iny. A bankinction, clasow that, nonterest may.

Definition

(1) Higing entity, nancial los

(2) Higg entity, sigancial loss

[Reserve

Covered Fu

ibition onwith a cov

Prohibition

of materia

or purposeents, custoof transac

materially asaction, clactions in

ior to effecfic activity,

Time

(A) her with otmit a reasof interest;

(B) terparty thon the clie

) Informare memoor function

nsiderationnvolving orng entity ms or type ootwithstanday involve

of high-ris

gh-risk asssignifican

ss or would

gh-risk tragnificantly or would p

ed]

unds Acti

n acquiringvered fun

n.

al conflict o

s of this seomers, or cctions, or adverse to ass of tranparagraph

cting the s the banki

ely and effe

Has maher neces

onable clieand

Such dihe opportuent, custom

mation barorialized in ns, or limitn the naturr resulting

may not relof transactding the baor result in

sk asset an

set meanstly increasd pose a t

ding strateincrease t

pose a thr

ivities and

g or retaind.

Appendix

of interest.

ection, a mcounterparactivity thatthe interesnsactions, h (b)(2) of

pecific tranng entity:

ective disc

ade clear, sary inform

ent, custom

isclosure inity to negmer, or co

rriers. Haswritten po

tations on re of the bain a matery on such tions or acanking entn a materia

nd high-ris

s an asset se the likelhreat to th

egy meansthe likelihoreat to the

d Investm

ning an ow

x -25-

material corties existst would invsts of its cor activitythis sectio

nsaction o

closure.

timely, andmation, in mer, or cou

s made in gate, or suounterparty

s establisholicies andtypes of aanking entrially adveinformatio

ctivity, the btity's estabally advers

sk trading s

or group oihood that

he financia

s a tradingood that thfinancial s

ments

wnership

onflict of ints if the banvolve or relient, custo

y, and the on.

or class or

d effectivereasonabl

unterparty

a mannerubstantiallyy created b

ed, mainta procedure

activity, thatity's busin

erse effect on barriersbanking enblishment ose effect o

strategy. F

of related at the bankil stability o

g strategy the bankingstability of

interest i

terest betwnking entitesult in theomer, or cbanking en

type of tra

e disclosure detail anto meanin

r that provy mitigate, by the conf

ained, andes, such a

at are reasness, to preon a clien

s if, in the cntity knowof informat

on a client,

For purpos

assets thang entity wof the Unit

that would entity wouthe United

n and hav

Appendix

ween a y engages

e banking ounterpartntity has n

ansactions

re of the nd in a ngfully

ides the any flict of

d enforced as physicasonably event the t, customecase of ans or shouldtion barrie customer

ses of this

at would, if would incued States.

d, if engageuld incur ad States.

ving certa

x A

s

ty not

s,

l

er, ny d

ers, r,

ur .

ed a

ain

SC1:46

princfund.

owne

a cus

bene

pensaccoheld who a

goodpractthan

for a

the c

bene

cove

Investhat A

Exch

unde

as a

pool

beenand (

71524.5

ipal, direct

ership inte

stomer; an

eficial owne

ion plan ordance witor controllare or wer

faith, provticable, ansuch perio

customer

ustomer; a

eficial owne

(b) red fund m

stment CoAct (15 U.S

ange Act

er 17 CFR

commodit

are owned

publicly o(3); or

(1) Extly or indire

(2) Parest in a co

(i)

nd

ership of s

(ii)f the bankth the law ed directlyre employe

(iiivided that d in no evod permitte

(ivthat is not

and

ership of s

Definition means:

(i) mpany AcS.C. 80a-3

(ii)(7 U.S.C.

4.7; or

y pool ope

d by qualif

offered to p

xcept as otectly, acqu

aragraph (aovered fun

Actin

(A)

(B) such owne

) Throuking entity of the Uni

y or indirecees of the

) In thethe bankinent may thed by the B

v) On bt a covered

(A)

(B) such owne

of covered

An isct of 1940 (3(c)(1) or (

) Any c1a(10)) fo

(A)

(B) erator in co

fied eligible

persons w

therwise puire or reta

a)(1) of thind by a ba

ng solely as

The act

The banrship inter

ugh a defe(or an affilted Statesctly by the banking e

e ordinary ng entity dhe bankingBoard; or

behalf of cud fund, so

The act

The banrship inter

d fund. (1)

ssuer that w(15 U.S.C.(7));

commodityr which:

The com

(1) A coonnection

(2) e persons

(3) ho are not

Appendix

rovided inain any ow

is section dnking enti

s agent, b

tivity is con

nking entitrest;

erred compiate thereo

s or a foreibanking e

entity (or an

course of divests the g entity ret

ustomers along as:

tivity is con

nking entitrest.

) Except as

would be a. 80a-1 et

y pool und

mmodity p

ommodity with the o

Substantiaunder 17

Participatit qualified

x -26-

this subpawnership in

does not inty:

roker, or c

nducted fo

ty and its a

pensation,of) that is egn sovere

entity as trun affiliate t

collectingownership

tain such o

as trustee

nducted fo

ty and its a

s provided

an investmseq.), but

der section

pool operat

pool operaperation o

ally all parCFR 4.7(a

ion units oeligible pe

art, a banknterest in o

nclude acq

custodian,

or the acco

affiliates do

, stock-bonestablishe

eign, if the ustee for tthereof);

a debt prep interest aownership

or in a sim

or the acco

affiliates do

d in paragr

ment compfor section

n 1a(10) of

tor has cla

ator is regiof the comm

rticipation ua)(2) and (

of the commersons und

king entity or sponsor

quiring or

so long as

ount of, or

o not have

nus, profit-ed and admownershiphe benefit

eviously coas soon asinterest fo

milar fiducia

ount of, or

o not have

raph (c) of

pany, as den 3(c)(1) o

f the Comm

aimed an e

istered witmodity poo

units of the3); and

modity pooder 17 CFR

Appendix

may not, a covered

retaining a

s;

on behalf

e or retain

-sharing, oministered p interest ist of person

ontracted s or longer

ary capaci

on behalf

e or retain

this sectio

efined in thor 3(c)(7) o

modity

exemption

th the CFTol;

e commod

ol have noR 4.7(a)(2)

x A

as d

an

of,

or in s

ns

in

ity

of,

on,

he of

TC

dity

ot )

Page 71: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

SC1:46

by a State

the o

that rother

there

direc

(b)(1on anCom3(c)(

agenforeiglocateor su

bankinclud

inves

more

indireor of bankunles

and

71524.5

banking ee, an entity

ownership

raises monr dispositio

eof); or

tly or indir

)(iii) of thisn exclusionpany Act o1) and 3(c

cy, or subgn bank thed in the Ubsidiary.

(c) ing agencde:

stors in the

e public off

ectly by a bany State ing entity

ss ownersh

(iiintity that is

y that:

interests o

ney from inon or other

rectly by th

(2) Ans section ifn or exemof 1940 (15c)(7) of tha

(3) Fobsidiary of hat operateUnited Sta

Notwithstaies, the SE

(1) Fo

(i)

e issuer's h

ferings out

(ii)banking enand any is

may not rehip interes

) For as, located

(A) of which ar

(B) nvestors prwise tradi

(C)

hat banking

n issuer shf, were theption from5 U.S.C. 8t Act.

or purposea foreign bes or contrtes solely

anding parEC, and th

oreign publ

Subje

(A)

(B) home juris

(C) tside of the

) With ntity that isssuer for wely on the sts in the is

(A)

(B)

(C)

any bankinin or orga

Is organre offered

Is, or hoprimarily fong in secu

(1) Has

(2) g entity (or

hall not be e issuer su

m the defini80a-1 et se

s of paragbanking enrols that brby virtue o

ragraph (bhe CFTC jo

lic funds.

ect to para

Is organ

Is authodiction; an

Sells owe United S

respect tos, located which suchexemptionssuer are s

Such sp

Such is

Affiliate

Appendix

ng entity thnized und

nized or esand sold s

olds itself or the purp

urities; and

s as its spo

Has issuer an affiliat

deemed tobject to Ution of “inv

eq.) other t

graph (b)(1ntity is locaranch, ageof operatin

b) of this seointly dete

agraphs (ii

nized or es

orized to ond

wnership iStates.

o a bankingin or organh banking n in paragrsold predo

ponsoring

ssuer;

es of such

x -27-

hat is, or iser the laws

stablishedsolely outs

out as beinose of inve

d

onsor that

ed an ownete thereof)

o be a cov.S. securitvestment cthan the e

)(iii) of thisated in theency, or sung or contr

ection, unlrmine othe

) and (iii) b

stablished

offer and se

nterests p

g entity thanized undeentity actsraph (c)(1)ominantly t

banking e

sponsorin

controlleds of the Un

outside thside the Un

ng, an entesting in s

banking e

ership inte).

vered fundties laws, tcompany” xclusions

s section, e United Stubsidiary isrolling the

ess the aperwise, a c

below, an

outside o

ell owners

redominan

at is, or is er the lawss as spons)(i) of this sto persons

entity;

g banking

d directly onited State

he United nited State

tity or arransecurities f

ntity (or an

erest that is

under parthe issuer under the contained

a U.S. bratates; hows not consU.S. branc

ppropriate covered fu

issuer tha

f the Unite

ship interes

ntly throug

controlleds of the Unsor, the spsection fors other tha

entity or s

Appendix

or indirectlyes or of an

States andes;

ngement for resale o

n affiliate

s owned

ragraph could rely Investme in section

anch, wever, the idered to bch, agency

Federal und does n

t:

ed States;

sts to retai

gh one or

directly onited Stateonsoring r such issu

an:

such issue

x A

y ny

d

or

nt n

be y,

not

il

r es

uer

er;

SC1:46

“publjurisd

in the

havin

regulavaila

intereexce

less aempldirecbank

may the psimila

affilia

the band

arranfor re

or ac

trans

pens

71524.5

ic offeringdiction outs

e jurisdictio

ng a minim

atory authable.

ests of whpt that:

any amouoyees or dtors if theiing entity)

be held bypurpose of ar concern

ates and o

banking en

ngement thesale or ot

cquisition t

saction.

ion, retirem

(iii” means aside the U

on in which

mum level o

hority in su

(2) Which are ow

(i) nts outstandirectors or ownersh; and

(ii)y a third paestablishi

ns.

(3) Jone or more

(i)

(ii)tity or affil

(iiihat raises her dispos

(4) Ac

(i) ransaction

(ii)

(5) Foment, or si

(i)

(D)

) For pa distributionited State

(A) h such dis

(B) of net wort

(C) uch jurisdic

Wholly-ownewned direct

Up tonding unde

of the bankip interest

) Up toarty if the ong corpora

oint venturee unaffiliat

Is co

) Is in iate, other

) Is nomoney fro

sition or ot

cquisition v

Formn; and

) That

oreign pensimilar bene

Orga

Directo

purposes oon (as defies to inves

The disstribution is

The disth or net in

The issction, offer

ed subsidiatly or indire

o five percer paragra

king entity t was acqu

o 0.5 perceownershipate separa

es. A joint ted person

mprised o

the businer than inve

ot, and doeom investoherwise tra

vehicles. A

med solely

exists only

sion or retefits that is

anized and

Appendix

rs and em

of paragrapined in §__stors, inclu

stribution cs being ma

stribution dnvestment

uer has filring disclos

aries. An eectly by th

ent of the aph (c)(2)(or such af

uired while

ent of the ep interest isateness or

venture bens, provide

f no more

ess of engasting in se

es not holdrs primarilading in se

An issuer:

for the pu

y for such

tirement fus:

d administe

x -28-

ployees of

ph (c)(1)(i)_.4(a)(3) ouding retai

complies wade;

does not reassets; an

ed or submsure docum

entity, all oe banking

entity's ouii) of this sffiliate (inc employed

entity's ous acquiredaddressin

etween a bed that the

than 10 u

aging in acecurities fo

d itself out y for the pecurities.

rpose of e

period as

unds. A pla

ered outsid

f such ent

)(C) of thisof subpart l investors

with all app

estrict avaind

mitted, witments that

of the outst entity (or

utstanding section, maluding formd by or in t

tstanding or retaine

ng bankrup

banking enjoint ventu

naffiliated

ctivities thor resale or

as being, purpose of

engaging in

necessary

an, fund, o

de the Unit

ities.

s section, tB) of secu

s, provided

plicable req

ilability to i

h the apprt are public

tanding owan affiliate

ownershipay be heldmer emplothe service

ownershiped by the thptcy, insolv

ntity or anyure:

co-ventur

at are permr other dis

an entity oinvesting

n a bona fi

y to effect

r program

ted States

Appendix

the term urities in and that:

quirements

investors

ropriate cly

wnership e thereof),

p interestsd by oyees or e of the

p interests hird party vency, or

y of its

rers;

missible foposition;

or in securitie

ide merger

uate the

providing

s;

x A

ny

s

s,

for

or

es

r

Page 72: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

SC1:46

regulplan,

foreig

no balosse

purpothe bpolicy

or ho

than

all thesolely

timelyrelateeach

requi

that m

asset

interesectio

requi

sectio

parag

71524.5

ation as a fund, or p

gn soverei

anking entes.

ose of allobanking eny:

oldings of t

in complia

e conditiony of:

y distributied or incid asset me

rements o

meet the re

ts or holdin

est in an eon;

rements o

on, the iss

graph (c)(8

(ii)a pension, program is

(iiigns or any

(6) Instity other th

(7) Baowing one

tity or enti

(i) the separa

(ii)ance with a

(8) Lo

(i) ns of this p

ion of procental to puets the req

of paragrap

equiremen

(ii)ngs of the

equity or de

of paragrap

(iiisuing entity

8)(i)(B) of t

) A broretirementorganized

) Estaby political s

surance cohan the ins

ank ownedor more baties is ben

Contate accoun

) Particapplicable

oan securit

Scopparagraph

(A)

(B) ceeds to hourchasing quirements

(C) ph (c)(8)(iv

(D) nts of para

) Impeissuing en

(A) ebt securit

(B) ph (c)(8)(iv

(C)

) Permy may hold

(A) this sectio

oad-basedt, or similad and adm

blished forsubdivision

ompany sesurance co

d life insuraanking entneficiary, p

rols the invnt; or

cipates in superviso

tizations.

pe. An issu (c)(8) and

Loans a

Rights oolders of sor otherwis of parag

Interestv) of this s

Specialagraph (c)(

ermissible ntity shall n

A securty other tha

A derivav) of this s

A comm

mitted secud securities

Cash eon; or

Appendix

d plan for ear plan undministered;

r the benefn thereof.

eparate acompany pa

ance. A setities to pu

provided th

vestment d

the profitsory guidanc

uing entity d the asse

as defined

or other assuch securise acquiriraph (c)(8

t rate or foection; an

l units of b(8)(v) of th

assets. Fonot include

rity, includan as perm

ative, otheection; or

modity forw

urities. Nots if those s

quivalents

x -29-

employeesder the lawand

fit of citize

ccounts. A articipates

eparate accurchase a lhat no ban

decisions

s and lossece regardi

for asset-bts or holdi

in §__.2(s

ssets desigrities and rng and ho)(iii) of this

oreign exchd

beneficial inis section.

or purposee any of th

ing an assmitted in pa

er than a d

ward contr

twithstandisecurities

s for purpo

s or citizenws of the ju

ens or resid

separate s in the acc

count that ife insuranking entity

regarding

es of the sng bank o

backed sengs of whi

su) of subp

gned to asrights or otolding the ls section;

hange deri

nterest an.

es of this phe followin

set-backedaragraph (

erivative t

act.

ing paragrare:

ses of the

s that is suurisdiction

dents of on

account, pcount's pro

is used sonce policy y that purc

the under

eparate acowned life i

ecurities thich are com

part A;

ssure the sther assetoans, prov

ivatives th

d collatera

aragraph g:

d security, (c)(8)(iii) o

hat meets

raph (c)(8)

rights and

Appendix

ubject to in which th

ne or more

provided thofits and

olely for thfor which hases the

rlying asse

ccount othinsurance

hat satisfiesmprised

servicing os that are vided that

at meet th

al certificat

(c)(8), the

or an of this

the

)(ii)(A) of th

d assets in

x A

he

e

hat

he

ets

her .

s

or

he

tes

his

n

SC1:46

with r

be limcond

loansparag

exchaother

assetbene

bene

is useeconparagfinan

is cresecu

benedirec

all of

secu

that aacqudirecthe d

asset397 d

bindi

71524.5

respect to

mited to intitions:

s, the assegraph (c)(8

ange risksr assets de

ts or holdineficial intere

eficial intere

ed for the omic risksgraph (c)(8cial expos

eated solelritization; a

eficial interetion of the

the follow

ritization u

are permisired by thetly from thistribution

t-backed sdays or les

ng commit

the loans

(ivterest rate

et-backed 8)(i)(B) of t

s related toescribed in

(v)ngs of the est issued

est or colla

sole purpos and bene8) and doesure;

ly to satisfand

est or collae same ent

(9) Qu

(i) wing require

under para

ssible for loe asset-bae issuing eof the ass

securities, ss; and

tment to p

(B) supporting

v) Derive or foreign

(A) securities,this sectio

(B) o the loansn paragrap

) Specissuing en

d by a spec

(A) ateral cert

(B) ose of tranefits of the es not dire

(C) fy legal req

(D) ateral certtity that init

ualifying as

An isements:

(A)

agraph (c)(

oan securiacked comentity of thset-backed

(B) comprised

(C) rovide full

Securitig the asse

vatives. Thn exchange

The wri, or the con

on; and

The ders, the asseph (c)(8)(i)(

cial units ontity may icial purpos

The speificate mee

The spensferring toassets thactly or indi

The spequirements

The speificate andtiated the

sset-backe

ssuing enti

The ass

(1) (8)(i) of this

(2) itizations umercial pa

he asset-bad securities

The assd of a resid

A regulaand unco

Appendix

ies receiveet-backed

he holdingse derivativ

itten termsntractual r

rivatives reet-backed (B) of this

of beneficianclude cose vehicle,

ecial purpoets the req

ecial unit oo the issuinat are permirectly tran

ecial unit os or otherw

ecial purpod the issuinloan secur

ed comme

ty for asse

set-backed

Loans ands section;

Asset-bacunder paraaper conduacked secs;

set-backeddual intere

ated liquidnditional li

x -30-

ed in lieu osecurities.

s of derivaves that sa

s of the derights of ot

educe the securities,section.

al interest allateral cer, provided

ose vehiclequirements

of beneficiang entity fomissible fonsfer any in

of beneficiawise facilita

ose vehicleng entity aritization.

ercial pape

et-backed

d commerc

d other assand

cked securagraph (c)(uit as part curities or d

d commercest and sec

dity provideiquidity cov

of debts pr.

atives by thatisfy all of

rivative dirther assets

interest ra, or the co

and collatertificates athat:

e that issus in this pa

al interest or the loanor loan secnterest in a

al interest ate the str

e that issure establis

er conduits

commerci

cial paper

sets perm

rities supp(8)(i) of thiof an initia

directly fro

cial paper curities wit

er has enteverage wit

reviously c

he issuing the follow

rectly relats describe

ate and/or ntractual r

eral certificand specia

ues the spearagraph (c

or collatern securitizacuritizationany other

or collaterructuring o

ues the speshed unde

s.

al paper th

conduit ho

issible for

orted soles section aal issuanceom an unde

conduit isth a legal m

ered into ath respect

Appendix

contracted

entity shawing

te to the d in

foreign rights or

cates. Thel units of

ecial unit oc)(8);

ral certificaation the s under theconomic

ral certificaof the loan

ecial unit oer the

hat satisfie

olds only:

a loan

ely by asseand e either erwriter in

ssues only maturity of

a legally to all of th

x A

all

e

of

ate

his or

ate

of

es

ets

f

he

Page 73: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

SC1:46

outst(othebacke

mean

Fede

Bank

10a oholdiof the

in §2consamen

loansof cothe c

bond

definunco(c)(10

forth uncoand tsuch

sectioreceismal

type

71524.5

tanding aser than anyed securit

ns:

eral Depos

k Holding C

of the Homng compae Bank Ho

11.21(q) oistent withnded, and

s or other avered bononditions

means:

ition of fornditionally0)(i) of this

in paragranditionallythe entity iforeign ba

on 103(3) ved from tl business

permitted

set-backey residual iies.

(ii)

sit Insuranc

Company A

me Ownersny's activit

olding Com

of the Boar the Capitthat is sub

(10) Qu

(i) assets as

nds, providin paragra

(ii)

reign banky guarantes section; o

aph (c)(10)y guarantes a whollyanking org

(11) SB

(i) of the Smthe Small Bs investme

(ii)

under par

d securitieinterest) in

) For p

(A) ce Act (12

(B) Act of 195

(C) s' Loan Acties are pe

mpany Act

(D) rd's Regulal Accord bject to su

(E)

ualifying co

Scopprovided i

ded that theaph (c)(8)(i

) Cove

(A) king organied by an eor

(B) )(i) of this ed by an e

y-owned suganization.

BICs and p

That all BusineBusiness Ant compan

) The b

(A) ragraph (1

es issued bn the even

purposes o

A deposU.S.C. 18

A bank 56 (12 U.S

A savinct (12 U.S.Cermissible of 1956 (1

A foreigation K (12for the Bach standa

The Un

overed bon

pe. An entin paragrae assets ini) of this se

ered bond.

A debt oization, theentity that

A debt osection, prentity that ubsidiary, a

public welf

is a small ss InvestmAdministrany, which n

business o

Designe1) of sectio

Appendix

by the asst that fund

of this para

sitory insti813(c));

holding co.C. 1841(a

gs and loaC. 1467a)for a finan

12 U.S.C.

gn bank wh2 CFR 211

asel Commrds, or a s

ited States

nds.

ty owning ph (c)(8) on the pool ection.

For purpo

obligation e paymentmeets the

obligation rovided thmeets theas defined

fare investm

business ment Act oation noticenotice or li

of which is

ed primarion 5136 o

x -31-

et-backedds are requ

agraph (c)(

tution, as

ompany, aa)), or a su

an holding, provided

ncial holdin1843(k)), o

hose home1.21(q)), h

mittee on basubsidiary

s or a fore

or holdingof this sectare compr

oses of thi

issued byt obligation

e conditions

of an entitat the pay

e definition d in paragr

tment fund

investmenof 1958 (15e to procecense has

s to make i

ly to promof the Revis

commercuired to red

(9), a regu

defined in

as defined ubsidiary th

companyall or subs

ng companor a subsid

e country shas adopteanking Suthereof; or

eign sovere

g a dynamtion for therised solel

s paragrap

y an entity ns of whichs set forth

ty that meyment oblig

of foreignraph (c)(2)

ds. An issu

nt compan5 U.S.C. 66ed to qual

s not been

nvestmen

ote the pused Statut

cial paper cdeem mat

ulated liqui

section 3

in sectionhereof;

y, as definestantially any under sdiary there

supervisored capital spervision, r

eign.

ic or fixed e benefit ofy of asset

ph (c)(10),

that meetsh are fully in paragra

ets the cogations are banking o

) of this se

er:

ny, as defin62), or thaify for a lic revoked;

ts that are

ublic welfartes of the U

Appendix

conduit uring asse

dity provid

(c) of the

2(a) of the

ed in sectioall of the section 4(keof;

r, as definestandards as

pool of f the holdes that mee

, a covered

s the and aph

nditions see fully and organizatioction, of

ned in at has cense as aor

e:

re, of the United

x A

et-

der

e

on

k)

ed

ers et

d

et

on

a

SC1:46

Statefamil

qualif47 of

the Inpursu§__.2Inves

“inveother

compelectdeverequi

operafacilitundeCons

SEC,sectio

will b

acco[Agenits bu

the E

Board

Com

71524.5

es (12 U.Sies (such a

fied rehabf the Intern

nvestmentuant to a w20(e)(3) ofstment Co

stment cor than the e

pany pursuion, or thalopment crements o

ations. An tating the d

er the Fedesumer Prot

, and the Con 13 of th

be promptly

(d)

unting prinncy] deterusiness in

Exchange A

d's Regula

pany Act o

.C. 24), inas providin

bilitated bunal Revenu

(12) Re

(i) t Companywritten planf subpart Dmpany Ac

(ii)mpany” unexclusions

(iiiuant to sec

at is formedompany a

of section 6

(13) Ississuer tha

disposal oeral Depostection Ac

(14) Ot

(i) CFTC jointhe BHC Ac

(ii)y made pu

Definition

(1) Apnciples, or mines are preparing

(2)(1) AsAct (15 U.

(3)(2) Diration O (12

(4)(3) Issof 1940 (15

cluding theng housing

(B) ilding or ceue Code o

egistered in

That y Act of 19n to becomD and that ct of 1940 (

) That nder the Ins contained

) That ction 54(a)d and opers describe61 of the In

suers in coat is an entf assets ac

sit Insuranct.

ther exclud

Any itly determict.

) A detublic.

of other te

pplicable asuch otheappropriaits consol

sset-backeS.C. 78c(a

rector has 2 CFR 215

suer has th5 U.S.C. 8

e welfare og, services

Qualifieertified his

of 1986 or a

nvestment

is register940 (15 U.Sme a regist

complies (15 U.S.C.

may rely onvestment d in sectio

has electe) of that Acrated pursed in §__.2nvestment

onjunction tity formedcquired in ce Act or T

ded issuer

issuer thatine the exc

terminatio

erms relate

accounting er accountate and thaidated fina

ed securitya)(79).

the same5.2(d)(1)).

he same m80a-2(a)(22

Appendix

of low- ands, or jobs);

ed rehabilitstoric struca similar S

t companie

red as an iS.C. 80a-8tered inveswith the re. 80a-18);

on an exclCompany

on 3(c)(1) a

ed to be rect (15 U.Ssuant to a w20(e)(3) oft Company

with the Fd by or on the FDIC'

Title II of th

rs.

t the approclusion of

n made un

ed to cove

standardsing standa

at the bankancial state

y has the m

meaning

meaning as2)).

x -32-

d moderat or

tation expecture, as suState histo

es and exc

investmen8), or that stment comequiremen

usion or ey Act of 19and 3(c)(7

egulated a.C. 80a-53written plaf subpart Dy Act of 19

FDIC's recebehalf of t's capacityhe Dodd-F

opriate Fedwhich is c

nder parag

ered funds.

s means Uards applicking entity ements.

meaning sp

as provide

s in sectio

te-income

enditures wuch terms ric tax cred

cluded ent

nt companyis formed mpany as

nts of secti

exemption 40 (15 U.S) of that A

s a busine3) and hasan to becomD and that 940 (15 U.

eivership othe FDIC fy as conseFrank Wall

deral bankconsistent w

graph (c)(1

. For purpo

U.S. generacable to a buses in th

pecified in

ed in sectio

n 2(a)(22)

communit

with respeare definedit program

tities. An is

y under seand operadescribedon 18 of th

from the dS.C. 80a-1ct; or

ess develos not withdme a busincomplies wS.C. 80a-6

or conservfor the purervator or r Street Re

king agencwith the pu

14)(i) of thi

oses of thi

ally accepbanking en

he ordinary

Section 3

on 215.2(d

of the Inv

Appendix

ties or

ect to a ed in sectiom.

ssuer:

ection 8 of ated d in he

definition o1 et seq.)

opment rawn its ness with the 60).

vatorship pose of receiver eform and

cies, the urposes of

is section

is subpart:

ted ntity that thy course of

(a)(79) of

d)(1) of the

vestment

x A

on

of

f

:

he f

e

Page 74: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

SC1:46

purpowhos

intere

genemanarightsacce

share

coverightsacce

(the pundeoutst

payaarisinor chand p

coveunde

the ri

interewhichcomm

entityperfotradinformemay

emplretaincontr

71524.5

ose vehiclese name th

est. An “ot

eral partneager, invess of a credleration ev

e of the inc

red fund as of a credleration ev

positive diferlying assetanding int

ble by the ng from theharge-offs opayable on

red fund, oerlying asse

ghts in pa

est held byh the entitymodity trad

y (or emploormance cong advisorer employebe obligat

oyee or foned by theractual obl

(5)(4) Isse that ownhe asset-b

(6)(5) Ow

(i) her similar

r, managinstment advditor to exevent);

come, gain

after all othditor to exevent);

fference, ifets of the erests);

covered fe underlyinof the outsn the intere

or has a raets of the

aragraphs (

(ii)y an entity y (or emploding adviso

oyee or forompensatiry, or otheree thereofed under t

ormer empe covered figations w

suing entityns or holdsacked sec

wnership in

Owner interest”

(A) ng membeviser, or co

ercise reme

(B) ns or profit

(C) her interestercise reme

(D) f any, betwcovered fu

(E) fund with rng assets standing pest;

(F) ate of returcovered fu

(G) (d)(65)(i)(A

) Owne(or an em

oyee thereor, or othe

(A) rmer emplion for ther services f), providedthe terms o

(B) loyee therfund for th

with respec

y means ws the pool acurities sup

nterest.

ership intemeans an

Has theer, membeommodity edies upon

Has thets of the co

Has thets have beedies upon

Has theween the aund and th

Providerespect to of the covrincipal ba

Receivern that is dund; or

Any synA) through

ership intemployee or eof) serveser service p

The soloyee there investmeprovided td that the eof such int

All suchreof) prome sole pur

ct to subse

Appendix

with respecassets undpported or

erest meann interest th

e right to pr of the botrading adn the occu

e right undovered fun

e right to reeen redeemn the occu

e right to reaggregate he aggrega

es under ththe interesered fund,

alance, or

es incomedetermined

nthetic righh (F) of this

erest does former em

s as investprovider so

le purposeeof) to shant manageto the coveentity (or eterest to re

h profit, onptly after brpose of esequent loss

x -33-

ct to assetderlying asr serviced

ns any equhat:

participate oard of diredvisor of thurrence of

er the termnd;

eceive themed and/ourrence of

eceive all ointerest pa

ate interes

he terms ost could be, such as areductions

e on a passd by refere

ht to have,s section.

not includmployee thtment mano long as:

e and effecare in the pement, invered fund employee eturn profit

nce allocatbeing earnstablishingses of the

t-backed ssset-backeby the poo

uity, partne

in the seleectors or trhe coveredan event o

ms of the i

underlyinor paid in fan event o

or a portioayments ret paid to th

of the interee reduced allocation os in the am

s-through ence to the

receive, o

de: Restrichereof) in anager, inve

ct of the intprofits of thvestment aby the entor former ts previous

ed, is distrned or, if nog a reservecovered fu

ecurities ted securitiol assets a

ership, or o

ection or rerustees, ind fund (excof default o

nterest to

g assets oull (excludof default o

on of exceseceived frohe holders

est that thebased on of losses,

mount of in

basis frome performa

or be alloc

cted profit ia covered estment ad

terest is tohe covered

advisory, coity (or empemployee sly receive

ributed to tot so distrie amount tund and su

Appendix

he speciales and in

are issued.

other simil

emoval of nvestment cluding theor an

receive a

of the ding the or an

ss spread om the

s of other

e amountslosses write-dowterest due

m the ance of the

cated any o

interest. Afund for dviser,

o allow thed fund as ommodity ployee or thereof)

ed;

the entity (ibuted, is to satisfy uch

x A

l

.

ar

a

e

s

wns e

e

of

An

e

(or

SC1:46

undissubse

amouobtai

or foror affemplintereproviservic

cove371cborroadmi

defin

covedefin

officemana

prom

subp

respenameIncom

undeof thi

of thidecisa trus

71524.5

stributed pequent inv

unts paid bning the re

rmer emplfiliate), to ioyee, or inest by the des investces to the

red transa(b)(7)), tha

owing or lenistrative s

ed in rule

red fund, oed in (b)(1

ers, or direagement o

motional, or

art C, a tru

ect to a coed fiduciarme Securit

er foreign las section;

s section, sions of a cstee of suc

profit of thevestment g

by the entiestricted p

oyee theremmediaten connectientity (or etment manfund.

(7)(6) Priaction, as dat is provid

ending servsupport.

(8)(7) Re902(k) of t

(9)(8) Sp

(i) or to serve1)(ii) of this

(ii)ectors, or aof a covere

(iiir other pur

(10)(9) Tru

(i) ustee does

overed fundry who is nty Act (29

aw that are

(ii)or that pocovered fuch covered

e entity (or gains of the

(C) ty (or emp

profit intere

(D) eof) excep

e family meon with a semployee nagement,

rime brokedefined in ded in convices, trad

esident of tthe SEC's

ponsor me

To see as a coms section;

) In anagents whoed fund; or

) To shrposes, the

ustee.

For ps not inclu

(A) d, includinnot a trusteU.S.C. 11

(B) e substant

) Any essesses a

und for whd fund.

employeee covered

Any amployee or foest, are wit

The intept to an affiembers, orsale of theor former investme

rage transsection 23nection wie executio

the UnitedRegulatio

ans, with r

erve as a gmmodity po

ny manner o constitutr

hare with ae same na

purposes ode:

A trusteg a trustee

ee pursuan03(a)(1));

A trustetially equiv

entity that authority anich such p

Appendix

e or formerfund;

mounts inveormer empthin the lim

erest is noiliate therer through te businessemployeent advisor

saction me3A(b)(7) ofith custodyon, financin

d States mon S (17 C

respect to

general paool operato

to select ote) a major

a covered ame or a va

of paragrap

ee that doee that is sunt to sectioor

ee that is svalent to th

directs a pnd discreti

person serv

x -34-

r employee

ested in thployee the

mits of §__

ot transferaeof (or an ethe intesta that gave

e thereof) ty, commod

eans any trf the Fedey, clearancng, or data

eans a peFR 230.90

a covered

artner, manor with res

or to contrrity of the d

fund, for cariation of

ph (d)(98)

es not exeubject to thon 403(a)(

subject to fhose descr

person desion to manves as trus

e thereof)

he coveredereof) in co_.12 of this

able by theemployee cy, of the

e rise to theto an unaffdity trading

ransactionral Reservce and seta, operatio

erson that i02(k)).

d fund:

naging mepect to a c

rol (or to hadirectors, t

corporate, f the same

of this sec

rcise inveshe directio1) of the E

fiduciary sribed in pa

scribed in nage and cstee, shall

does not s

d fund, inclonnection w subpart; a

e entity (orof the banemployee e restrictedfiliated parg advisory

n that woulve Act (12 ttlement, sonal, and

is a “U.S. p

ember, or tcovered fu

ave emplotrustees, o

marketing name.

ction and §

stment disn of an un

Employee's

tandards iaragraph (d

paragraphcontrol the be consid

Appendix

share in th

uding anywith and

r employeenking entity

or former d profit rty that y, or other

d be a U.S.C. ecurities

person” as

trustee of and as

oyees, or

g,

§__.11 of

scretion witnaffiliated s Retireme

mposed d)(109)(i)(

h (d)(109)(e investmedered to be

x A

he

y

e y

s

a

th

ent

A)

(i) nt e

Page 75: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

SC1:46

§ __.respe

this sin, orand oor cohavintrusteforeg

fiduc

proviservicaffiliaentityorgan

intere

§__.1

guaraany c

purpo

with t

or retbankcommempl

and aofferi

by invbankowne

71524.5

11 Permect to a co

(a) subpart, a r acting as offering a commodity png employeees, or magoing, only

iary, inves

sion of boces and o

ate thereofy or such anizing and

est in the c

14 of this s

antee, asscovered fu

oses:

the bankin

tains an owing entity omodity tradoyee take

actual inveng docum

vestors in ing entity's

ership inte

mitted orgaovered fu

Organizingbanking e sponsor tcovered fupool operaees, office

anagementy if:

(1) Thstment adv

(2) Thna fide trunly to persf), pursuanaffiliate inte offering s

(3) Thcovered fu

(4) Thsubpart;

(5) Thsume, or ond in whic

(6) Th

(i) ng entity (o

(ii)

(7) Nownership ior such affding advisos the owne

(8) Th

(i) estor in the

ments):

[the covers] losses inrests in the

anizing anund.

g and offentity is notto, a coverund, includator of the ers, directot of the co

he bankingvisory, or c

he coveredust, fiduciasons that ant to a writtends to prosuch fund;

he bankingund except

he banking

he bankingtherwise in

ch such co

he covered

Doesor an affilia

) Does

o director onterest in

ffiliate whoory, or othership inte

he banking

Cleare covered

(A) red fund] an [such coe covered

nd offerin

ering a covt prohibitedred fund inding servincovered fu

ors, or agevered fund

g entity (or commodity

d fund is orry, investmare customten plan orovide advi

g entity andt as permit

g entity and

g entity andnsure the o

overed fund

d fund, for

s not shareate thereof

s not use t

or employethe covere

o is directlyher serviceerest; and

g entity:

rly and confund (such

That “aand not byovered fund

fund held

Appendix

g, underw

vered fund d from acq

n connectiog as a genund and inents who cod, includin

an affiliatey trading ad

rganized ament advismers of sucr similar doisory or sim

d its affiliattted under

d its affiliat

d its affiliatobligationsd invests;

corporate,

e the samef); and

he word “b

ee of the bed fund, exy engaged es to the co

nspicuoush as throug

ny losses y [the bankd] will be lby [the ba

x -35-

writing, an

in generaquiring or ron with, dirneral partnn any mannonstitute) ag any nec

e thereof) dvisory se

and offeredsory, or comch servicesocumentatmilar servi

tes do not r §__.12 of

tes comply

tes do nots or perfor

, marketing

e name or

bank” in its

banking enxcept for ain providin

overed fun

sly disclosegh disclos

in [such coking entity]imited to loanking ent

nd market

l. Notwithsretaining arectly or inner, managner selectia majority essary exp

provides bervices;

d only in commodity trs of the bation outlinices to its c

acquire of this subp

y with the

, directly ormance of

g, promoti

a variation

s name;

ntity (or an any directong investm

nd at the tim

es, in writinure in the

overed fun or its affilosses attritity] and an

t making w

standing §an ownershndirectly, oging membng or contof the dire

penses for

bona fide t

onnection rading advanking entiing how thcustomers

r retain anart;

requireme

or indirectlythe covere

onal, or ot

n of the sa

affiliate thor or emploment advisme the dir

ng, to any covered fu

nd] will be iates; theributable tony affiliate

Appendix

with

__.10(a) ohip interes

organizing ber, trustetrolling (or ectors, r the

trust,

with the visory ity (or an

he bankings through

n ownershi

ents of

y, ed fund or

ther

ame name

hereof) takoyee of theory, ector or

prospectivund's

borne solerefore, [theo the

in its

x A

of st

e,

g

ip

r of

e

kes e

ve

ely e

SC1:46

capa[the b

docu

insurway,

empl

bankdesigcove

prohicoveindireaffilia

fund term entity15G

prohiunde

__.4(

sponotherparagand iU.S.Cin coissueguaraor of intereundethe cunde

71524.5

city as invbanking en

ments bef

red by the by any ba

oyees in s

ing agencgned to enred fund a

(b)

bited fromred fund thectly, orgaates compl

that is an is used in

y, or acquiof that Act

(c) bition con

erwriting ac

(a) or § _

sor, investrwise acqugraph (a) os either a C. 78o- 11mpliance w

ed thereunantees, asany cover

ests acquirerwriting analculation

er the limita

vestor in thntity] or an

fore invest

FDIC, andanking enti

sponsoring

(ii)ies, the SEsure that l

and not by

Organizing

(1) Nom acquiringhat is an isnizing andly with all o

(2) Foissuing ensection 15ring or retat (15 U.S.C

Underwrititained in §ctivities or

(1) Th__.4(b) of

(2) Witment advuires and rof this secsecuritizer(a)(3)), or with sectioder each a

ssumes, orred fund inred or retand market of owners

ations of §

he [coveredny affiliate”

(B) ting in the

(C) d are not dity” (unless

(D) g or provid

) ComEC, or the losses in sthe covere

g and offe

otwithstandg or retainissuing entd offering tof the requ

or purposentity of ass5G(a)(3) oaining an oC.78o-11)

ting and m§ __.10(amarket ma

hose activitsubpart B,

ith respectiser or comretains an tion; or acr, as that tis acquirin

on 15G of tas permitter otherwisen which sucained by thmaking re

ship interes __.12(a)

d fund] or ;

That sucovered fu

That thedeposits, os that happ

The roleing any se

plies with CFTC, as

such covered banking

ering an iss

ding §__.1ng an ownity of assethat issuinguirements

s of this paset-backedof the Exchownershipand the im

arket maka) of this suaking-rela

ties are co, respectiv

t to any bammodity trownership

cquires andterm is useng and retthat Act (1ed by parae insures tch fund inv

he bankingelated activsts permitt(2)(ii); § __

Appendix

as benefic

uch investound;

e “ownersobligations pens to be

e of the baervices to t

any additios provided red fund ag entity an

suing entity

0(a) of thinership inteet-backed sg entity, soof paragra

aragraph (d securitieshange Act p interest inmplementin

king in ownubpart doeted activiti

onducted invely; and

anking entirading advp interest ind retains aed in sectioaining an 5 U.S.C.7

agraph (b) the obligatvests, then

g entity andvities for thted to be h_.12(a)(2)(

x -36-

ciary of a r

or should r

hip interesof, or end

e the case)

anking entthe covere

onal rules in sectionre borne s

nd its affilia

ty of asset-

s subpart,erest in, osecurities o long as taph (a)(3)

(b), organis means a(15 U.S.C

n the issuing regulat

nership intees not appies involvin

n accorda

ity (or any visor to a pn such cov

an ownershon 15G(a)ownership

78o-11) anof this sec

tions or pen in each sd its affiliathat particuheld by the(iii), and §

restricted p

read the fu

sts in the corsed or g); and

ity and its ed fund; an

of the app 13(b)(2) o

solely by inates.

-backed se

a bankingr acting asin connectthe bankinthrough (8

zing and octing as th

C. 78o-11(ang entity aions issue

erests of aly to a banng a cover

nce with th

affiliate thparticular cvered fundhip interes(3) of the

p interest ind the implction; or, d

erformancesuch casetes in conn

ular coveree banking e __.12(d)

profit intere

und offerin

covered fuguaranteed

affiliates and

propriate Fof the BHCnvestors in

ecurities.

g entity is ns sponsor tion with, dg entity an

8) of this se

offering a che securitiza)(3)) of thas requireded thereund

a covered nking entityred fund so

he require

hereof) thacovered fund in reliancst in such cExchangen such covementing

directly or ie of the cov any ownenection wit

ed fund areentity and ) of this su

Appendix

est held by

g

nd are notd in any

and

Federal C Act, n the

not to, a directly or nd its ection.

covered zer, as thahe issuing d by sectioder.

fund. The y’s o long as:

ments of §

at: Acts as nd or ce on covered fue Act (15 vered fundregulationindirectly, vered fund

ership th e included its affiliate

ubpart; and

x A

y

t

at

on

§

a

nd

d ns

d

in es d.

Page 76: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

SC1:46

intere§__.1ownepermunde

§ __.

bankentity

sufficthe li

cove

fund affilia

redemthe bsectio

the futhis s(a)(2

sectiopursuvalue

covethe toparagand iU.S.Cinves

71524.5

ests of the11 of this sership inte

mitted undeer §__.12(a

12 Perm

(a)

ing entity y or an affi

cient initial mits conta

red fund s

made or hates:

mption, sabanking enon; and

und (or sucsection), co)(ii) of this

on, an inveuant to pare of the ou

red fund thotal fair magraph (b)(3ts affiliatesC. 78o-11)stment by t

(3) Wie banking esubpart, inrest in con

er this paraa)(2)(iii) an

mitted inve

Authority a

(1) Nomay acquiliate there

(i) equity for

ained in pa

(ii)subject to t

(2) Inv

(i) held pursu

ale, dilutiontity in the

ch longer onform its section;

(ii)

estment byragraph (atstanding

hat is an isarket value3) of this ss in compl) and the imthe bankin

ith respectentity and ncluding alnnection wagraph (c),nd §__.12(

estment in

and limitat

otwithstandire and ret

eof organiz

Estabr investmearagraphs

) De mthe limits c

vestment l

Seedant to para

(A) n, or other covered fu

(B) period as ownership

) Per-f

(A) y a bankin

a)(1)(ii) of townership

(B) ssuing ente of the owsection, uniance withmplementng entity an

t to any baits affiliatel covered f

with underw, are includ(d) of this s

n a covere

tions on pe

ding the prtain an owzes and off

blishment.nt to perm(a)(2)(i) an

minimis invcontained i

limits.

ding periodagraph (a)

Must acmethods,

und to the

Must, nmay be prp interest i

fund limits.

Except ng entity anthis sectionp interests

An inveity of asse

wnership innless a greh the requiring reguland its affili

Appendix

anking enties in all covfunds in w

writing andded in the subpart.

ed fund.

ermitted in

rohibition cnership intfers pursu

Establishmit the fundnd (iii) of th

vestment. Min paragra

d. With res)(1)(i) of th

ctively seethe aggreamount pe

o later tharovided byin the cove

.

as providend its affilian may not of the fun

estment byet-backed snterests ofeater percerements otions issueates in the

x -37-

ity, the aggvered fund

which the bd market m

calculatio

nvestments

contained terest in aant to § __

hing the fund to attract his section

Making anaphs (a)(2)

spect to anhis section,

ek unaffiliategate amouermitted in

an 1 year ay the Boardered fund t

ed in paragates in anyexceed 3 d.

y a bankingsecurities f the fund mentage is rf section 1ed thereune covered

gregate vads acquirebanking enmaking rela

n of all ow

s in covere

in § __.10 covered f_.11, for th

nd and prounaffiliate

n; or

d retaining(ii) and (iii

n investme, the bank

ted investount of all on paragrap

after the dad pursuantto the limit

graph (a)(2y covered percent o

g entity anmay not emeasuredretained by15G of the nder, in whfund may

alue of all od and retatity holds a

ated activitwnership in

ed funds.

0(a) of this fund that thhe purpose

oviding theed investor

g an inves) of this se

ent in any cing entity a

ors to reduownership ph (a)(2)(i)

ate of estat to paragrts in parag

2)(ii)(B) offund mad

of the total

d its affiliaexceed 3 p in accordy the bankExchange

hich case tnot excee

Appendix

ownershipained undean ties nterests

subpart, ahe bankinges of:

e fund withrs, subject

tment in thection.

covered and its

uce, througinterests o(B) of this

ablishmentraph (e) of graph

f this e or held number o

ates in a percent of ance with

king entity e Act (15 the

ed the

x A

p er

a g

h t to

he

gh of

t of f

r

SC1:46

amouExch

the bmay parag

estab

similastrate

an issinto t

valueownebank

businof thicompcons

perce

admiunde

a covcove

bankemplin a cbankemplowne

fund.

71524.5

unt, numbeange Act a

banking ennot exceegraph (c) o

blishment o

ar entity toegy for the

suing entithe issuing

(b)

e of a bankership inteing entity.

ness devels section, panies or fidered to b

ent or mor

nistrative, er applicab

vered fundred fund is

king entity. oyee of a covered fuing entity, oyee to ac

ership inte

Except as

er, or valuand the im

(iiitity and itsd 3 percenof this sect

(ivof a cover

o the covere fund;

ty of assetg entity of a

Rules of c

(1) Att

(i) king entity'rest held u

(ii)lopment coa register

foreign pubbe an affili

re of the vo

and otherble regulati

(iiid will not bes held in co

(ivFor purpobanking end sponsodirectly or

cquire the rest in the

(2) Cas provided

e of ownemplementin

) Aggrs affiliates nt of the tietion, and s

v) Date ed fund sh

(A) red fund b

(B) t-backed sasset-back

constructio

tribution of

For p's permitteunder § __

) Treatompanies ed investmblic fund aate of the

(A) oting share

(B) r services ton, order,

) Covee considerompliance

v) Treatoses of parntity who aored by ther indirectlyownershipcovered f

alculation od in paragr

rship interng regulati

regate limitin all coveer 1 capitashall be ca

of establishall be:

In geneegins mak

Issuing securities, ked securi

on.

f ownershi

purposes oed investm_.12 directl

tment of reand foreig

ment compas describe

banking e

Does noes of the c

Provideto the comor other a

ered fundsred to be ae with the r

tment of eragraph (bacquires ae banking y, extends p interest ifund.

of permitteraph (b)(3)

Appendix

rests of theons issued

t. The aggered funds al of the baalculated a

shment. F

eral. The dking invest

entities ofthe date oties.

ip interests

of paragrapment in any

ly by the b

egistered ign public fupany, SECed in § __.entity so lon

ot own, cocompany o

es investmmpany or fuauthority.

s. For purpan affiliate requiremen

mployee ab)(1)(i) of than ownershentity will financing fn the fund

ed ownersh) or (4), for

x -38-

e fund requd thereund

gregate valacquired

anking entis of the la

or purpose

ate on whtments pur

f asset-bacon which th

s to a cove

ph (a)(2) oy single covbanking en

investmenunds. For

C-regulated10(c)(1) ong as the

ontrol, or hor fund; and

ent advisound in com

oses of paof a banknts of this

and directohis sectionhip interesbe attributfor the pur

d and the fi

hip interesr purposes

uired undeder.

lue of all oor retainedity, as provst day of e

es of this s

ich the invrsuant to th

cked secuhe assets a

ered banki

of this sectvered fundtity, includ

nt companipurposes

d businessf this subpbanking e

old with thd

ory, commmpliance w

aragraph (ing entity ssubpart.

or investmn, an invesst in his or ted to the rpose of einancing is

sts in a sins of determ

er section

ownership d under thvided undeeach calen

section, th

vestment ahe written

urities. In thare initially

ing entity.

tion, the amd shall inclding any af

ies, SEC-rof paragra

s developmpart will nontity:

he power to

odity tradiwith the lim

b)(1)(i) of so long as

ments finanstment by her persobanking enabling thes used to a

ngle coveremining whe

Appendix

15G of the

interests ois section er ndar quarte

e date of

adviser or investmen

he case ofy transferre

mount andude any ffiliate of th

regulated aph (b)(1)(ment ot be

o vote 25

ng advisormitations

this sectios the

ced by thea director nal capacintity if the e director acquire su

ed ether an

x A

e

of

er.

nt

f ed

d

he

(i)

ry,

on,

e or ity

or ch

Page 77: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

SC1:46

invesparag

held sectiointere(both

by thcontrinvesday oinvesbasis

sectioits invacco

intereinvesparag

the Eaccoof the

date apply(a)(2valueadditthe s

date applythe faotherconspurpo

sectiointereownethe s

71524.5

stment in agraphs (a)

by the banon by the ests held bh measured

e banking ributions mstments in of each castment). If s of all inve

on, once avestment arding to th

est in an isstment in agraphs (a)

Exchange Arding to the Exchang

of such imy), the calc)(iv)(B) of

ed for purpional secuales of ow

of such imy), the aggair market r assets otistent withoses.

on, the vaests must ership inteame stand

a single co)(2)(i)(B) a

(i) nking entitbanking enby all entitid without r

(ii) entity sha

made to theand capitalendar quafair markeestments i

(iiia valuationand the inve same st

(3) Issssuing entia single co)(2)(i)(B) a

(i) Act (15 U.e valuatio

ge Act (15

(ii)mplementinculations sthis sectio

poses of traurities of thwnership in

(iiimplementingregate val

value of ththerwise h its determ

(ivluation mebe the samrests held dards.

(4) Mu

overed fundnd (a)(2)(i

The ay shall be ntity in a cies in that regard to c

) The aall be the ae covered al contribuarter (all met value can and con

) For pn methodovestmentstandards.

suing entitiity of asse

overed fundnd (a)(2)(i

For sS.C. 78o-1n methodoU.S.C. 78

) For sng regulatishall be maon or such ansfer to t

he issuing nterests to

) For sng regulatilue of the ohe assets eld by the

mination of

v) For pethodologyme for bothby all othe

ulti-tier fun

d compliesi)(A) of thi

aggregatethe total n

covered funcovered fucommitted

aggregateaggregate fund by th

utions madmeasured wannot be detributions

purposes ology is cho

s of all othe

ies of asseet-backed sd compliesi)(B) of thi

securitizati11), the caology appl8o-11) and

securitizations (or asade as of tearlier da

the covereentity of aunaffiliate

securitizations (or asoutstandintransferreissuing en

f the fair m

purposes oy used to ch the owneers in the c

nd investm

Appendix

s with the s section:

number onumber of nd dividedund, as of funds not

value of tfair marke

he bankingde to that cwithout regeterminedmade by t

of the calcuosen, the bers in the c

et-backed securities, s with the s section:

ons subjecalculationsicable pur the imple

on transacs to which the date ofte on whic

ed fund, ansset-backe

ed investor

on transacs to which ng ownershd to the isntity at suc

market valu

of the calcucalculate thership intecovered fu

ments.

x -39-

restrictions

of the outstownership

d by the totthe last da

t yet called

the outstanet value of g entity, divcovered fugard to com, then the the bankin

ulation undbanking encovered fu

securitiesfor purpos

restrictions

ct to the re shall be m

rsuant to thmenting re

ctions comsuch implef establish

ch the trannd thereafted securitirs.

ctions comsuch implehip interessuing entitch time, deue of those

ulation undhe fair marerests heldund in the s

s on owne

tanding owp interests tal numberay of eachd for invest

nding ownall investm

vided by thnd by all emmitted fuvalue shag entity to

der paragrntity must und in the s

. In the cases of detes on owne

equiremenmade as ohe requiremegulations

mpleted priementing r

hment as dsferred aster only upies are pric

mpleted priementing rsts in the cty of the seetermined e assets fo

der paragrrket value

d by a banksame man

ership inter

wnership inheld unde

r of ownerh calendar tment);

ership intements in ahe value ofentities, asunds not yell be the hthe cover

raph (b)(2)calculate tsame man

se of an oermining w

ership inter

nts of sectif the date ments of s issued the

or to the cregulations

defined in pssets havepon the datced for pu

or to the cregulationscovered funecuritizatioin a mann

or financial

raph (b)(3)of the ownking entitynner and a

Appendix

rests unde

nterests er this ship quarter

erests heldnd capital f all of the laset called foistorical co

red fund;

)(ii) of this the value onner and

ownership whether anrests unde

on 15G ofand

section 15Gereunder;

compliances do not paragraph been te on whicrposes of

compliances do not nd shall beon and anyner that is statemen

)(iii) of thisnership

y and the according t

x A

er

d

t or ost

of

n er

f

G or

e

ch

e

e y

nt

s

to

SC1:46

stratesingleparagsuch entityentityof the

offerscovethat totherbankof funamou

of all contrin covconnhisto

sectio

bankshall recen

capita

indireamoudesc

direc

entitycompcoveparag

affiliacomp

71524.5

egy of a coe covered graphs (a)funds sha

y's permittey in the mae master fu

s a coverered funds the bankinr fund shaling entity'snds. The inunt or valu

(c)

ownershipributed by vered fundection withrical cost b

on:

ing entity be equal t

nt calenda

al, the ban

ectly, by a unt of tier 1ribed in pa

tly or indir

y is a subspany, be ered bankingraph (c)(2

ate thereofpany that i

(i) overed funfund (the

)(2)(i)(B) aall be meased investmaster fund,und that is

(ii)ed fund pur(a “fund ofg entity is ll include as pro-rata nvestmentue of any s

Aggregate

(1) Fop intereststhe bankinds (togetheh obtainingbasis.

(2) Ca

(i) is requiredto the amo

ar quarter,

(ii)nking entity

depository1 capital rearagraph (

rectly, by a

sidiary of aequal to theng entity th2)(i) of this

f. If the bans treated a

Mastnd (the “fee“master fund (a)(2)(isured only

ment in the, as well ass held thro

) Fundrsuant to §f funds”) apermitted

any investmshare of at of the bansingle cove

e permitted

or purposes held by ang entity iner with anyg a restrict

alculation o

Entitid to calculaount of tieras reporte

) If a by's tier 1 c

(A) y institutioeported byc)(2)(i) of t

(B) a depositor

a bank holde amount ohat calculas section; a

nking entitas a bank

ter-feeder eder fund”und”), theni) of this se

y by referee master fus the bankugh the fe

d-of-funds § __.11 of and that fun to own, thment by thany ownersnking entitered fund.

d investme

s of paraga banking en connectioy amountsted profit in

of tier 1 ca

ies that areate and rer 1 capital ed to its pr

banking encapital sha

In the cn that calcy such conthis sectio

In the cry institutio

(1) ding compof tier 1 ca

ates and reand

(2) ty is not a holding co

Appendix

fund inves) is to inve

n for purpoection, the

ence to theund shall inking entity'eeder fund

investmenthis subpand of fundhen the bahe bankingship interety may not

ents in all c

graph (a)(2entity shalon with ac

s paid by thnterest un

apital. For

e requiredport tier 1 of the banimary finan

ntity is not ll be deter

case of a bculates andntrolling deon;

case of a bon that cal

Bank holdpany or comapital repoeports tier

Other holdsubsidiaryompany, b

x -40-

stments. If est substanoses of thee banking ee value of tnclude anys pro-rata ; and

nts. If a baart for the s itself inv

anking entig entity in test of the fut represent

covered fu

2)(iii) of thisl be the su

cquiring or he entity (oder § __.1

purposes

d to hold ancapital, th

nking entityncial regul

required tormined to b

banking end reports t

epository in

banking enculates an

ding compampany tharted by the1 capital in

ding compy of a bankbe equal to

f the princintially all o

e investmeentity's pethe mastery investmeshare of a

nking entitpurpose o

vests in anty's permitthat other fund that ist more tha

unds.

s section, um of all amretaining a

or employe0(d)(65)(ii

of paragra

nd report the bankingy as of thelatory age

o calculatebe equal to

ntity that is tier 1 capitnstitution i

ntity that is nd reports

any subsidat is treatede top-tier an the man

panies andk holding co the total a

pal investmof its assetnt limitatiormitted invr fund. Theent by the any owner

ty organizeof investingother covetted investfund, as w

s held throan 3 percen

the aggregmounts paan ownersee thereofi) of this su

aph (a)(2)(

tier 1 capit entity's tie

e last day oncy; and

e and repoo:

controlledtal, be equn the man

not controtier 1 capi

diaries. If td as a banaffiliate of sner descri

d any subscompany oamount of

Appendix

ment ts in anothons in vestment ie banking banking

rship intere

es and g in other ered fund tment in th

well as the ugh the funt of the

gate valueaid or ship interesf) in ubpart), on

iii) of this

tal. If a er 1 capitaof the mos

ort tier 1

d, directly oual to the ner

olled, tal:

he bankinnk holding such bed in

sidiary or or a

x A

er

n

est

hat

nd

e

st

n a

al t

or

g

Page 78: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

SC1:46

sharemoststand

(c)(2)direcStatecapita

bankand isectioof thi

calcudedusectio

connthe e__.10

coveamouinterelosse

undeextenintere

of the

addre

invesparag

underelate

71524.5

eholders' et recent cadards.

)(iii)(B) of ttly or indir

es or of anal of the e

ing entity ts controlleon, the bas section.

(d) ulating comct from theon) the gre

ection withentity (or em0(d)(65)(ii)

red fund aunts paid best under §es) of the f

(e)

er paragrapnsion woulest. An ap

e applicab

esses the

stment in agraph (a)(2

er paragraped to the p

equity of thalendar qua

(iii

this sectiorectly by, ay State, thntity as ca

that is locaed by a fornking entit

Capital trempliance we banking eater of:

(1) Thh acquiringmployee th) of subpar

(2) Thas determinby the enti§ __.10(d)fund invest

Extension

(1) Upph (a)(2)(i)ld be consplication fo

(i) le time pe

(ii)factors in

(iiia covered f2) of this s

(2) Faph (e)(1) opermitted in

he top-tier arter that h

) Treat

(A) n, with res

a banking ehe tier 1 caalculated u

(B) ated or orgreign bankty's tier 1 c

eatment fowith the ap

entity's tie

he sum of ag or retainhereof) in rt C), on a

he fair marned underty (or emp)(65)(ii) of tment in its

n of time to

pon applica) of this sesistent withor extensio

Be suriod;

) Proviparagraph

) Explafund throu

section.

actors goveof this sectnvestment

affiliate whas ended

tment of fo

Foreignspect to a entity that apital of thender appli

U.S. affganized unking entity capital sha

or a permittplicable re

er 1 capita

all amounting an ownconnectionhistorical

rket value or paragrapployee thersubpart Cs financial

o divest an

ation by a ection for uh safety anon must:

ubmitted to

ide the reah (e)(2) of

ain the banugh redem

erning the ion, the Bot in a cove

Appendix

ithin such d, as deter

oreign ban

n banking ebanking eis located e banking icable hom

filiates of fnder the laidentified uall be as ca

ted investmegulatory cl (as deter

ts paid or cnership intn with obtacost basis

of the banh (b)(2)(ii) reof) in co), if the bastatemen

n ownership

banking eup to 2 addnd soundne

o the Boar

asons for athis sectio

nking entitption, sale

Board detoard may cered fund,

x -41-

organizatimined und

nking entiti

entities. Exntity that isor organizentity sha

me country

foreign banaws of the under paraalculated u

ment in a ccapital requrmined und

contributedterest (togaining a res, plus any

king entityor (b)(3) onnection w

anking entits.

ip interest.

entity, the Bditional yeaess and no

rd at least

applicationon; and

ty's plan foe, dilution o

terminationconsider aincluding:

ion as of thder applica

ies.

xcept as ps not itselfzed under

all be the cy standards

nking entitUnited Staagraph (c)under para

covered fuuirementsder paragr

d by the bether with

estricted pry earnings

y's ownersof this sectwith obtainty account

Board mayars if the Bot detrime

90 days p

n, including

or reducingor other m

ns. In revieall the facts

he last dayable accou

provided inf, and is nothe laws oonsolidates.

ties. With rates or of a(2)(iii)(A) o

agraphs (c

und. For pu, a bankingraph (c)(2)

anking ent any amourofit interereceived;

hip interestion (toget

ning a restrts for the p

y extend thBoard findsntal to the

prior to the

g informati

g the permethods as

ewing anys and circu

Appendix

y of the unting

n paragrapot controlleof the United tier 1

respect to any State of this c)(2)(i) or (i

urposes ofg entity sh) of this

tity in unts paid bst under §and

sts in the ther with aricted profprofits (or

he period s that an e public

expiration

ion that

mitted s required i

y applicatioumstances

x A

ph ed ted

a

ii)

f hall

by §

ny fit

n

in

on s

SC1:46

mate

cove

sufficentity

and tthe b

inves

invesand u

sale, relate

extenparagthe saddrethe p

anothagen(e)(1

§ __.

respeis desrisks

entityadvis

on becusto

71524.5

erial expos

red fund;

cient invesy to comply

the risks thbanking en

stment with

stment wouunaffiliated

dilution, oed to the m

nsion periograph (e)(1afety and ess materi

purposes o

her Federacy prior to) of this se

13 Othe

(a)

ect to an osigned to dto the ban

y or an affisory or oth

ehalf of a comer to the

(i) ure by the

(ii)

(iiistments froy with the

(ivhat dispositity and th

(v)hin the app

(viuld involved parties, i

(vior other memarketing o

(vi

(ix

(3) Auod. The Bo1) of this ssoundnesial conflicts

of section 1

(4) Coal banking o acting onection.

r permitte

Permitted

(1) Thownership demonstranking entity

(i) liate thereer service

(ii)customer te profits an

Whete banking e

) The c

) The dom investolimitations

v) The ting of, or me financia

) The cplicable pe

) Whete or result ncluding c

i) The bethods its of interests

ii) Mark

x) Any o

uthority to ioard may isection as s of the bas of interes13 of the B

onsultationagency, t

n an applic

ed covered

d risk-mitiga

he prohibitiinterest in

ably reducy in conne

a comeof that dires to the co

) A posthat is not nd losses

ther the inentity to hi

contractua

date on whors unaffilias in paragr

total exposmaintainingl stability o

cost to theeriod;

ther the inin a mater

clients, cus

banking enownerships in such c

ket conditio

other facto

impose rempose suthe Boardanking entst or other

BHC Act an

n. In the cahe SEC, oation by th

d fund ac

ating hedg

ion contain a coverede or otherw

ection with

mpensatioectly proviovered fun

sition takeitself a baof the cov

Appendix

vestment gh-risk as

al terms go

hich the coated with thraph (a)(2)

sure of theg, the inveof the Unite

e banking e

vestment rial conflictstomers or

ntity's priop interests covered fu

ons; and

or that the

strictions och conditio determinetity or the fr unsound nd this par

ase of a baor the CFThe banking

ctivities an

ging activit

ned in § __d fund acqwise signif:

n arrangedes invest

nd.; or

en by the banking entiered fund.

x -42-

would resusets or hig

overning th

overed funhe banking)(i) of this s

e covered estment in ed States;

entity of di

or the divet of interesr counterpa

r efforts toin the cov

und;

Board bel

on activitieons on anyes are necfinancial stbanking p

rt.

anking entTC, the Boag entity for

nd investm

ties.

_.10(a) of quired or reficantly mi

ment with tment adv

banking enty to facilit.

ult, directlygh-risk trad

he banking

nd is expecg entity to section;

banking ethe covere

vesting or

estiture or st betweenarties to w

o reduce thvered fund

ieves app

es or invesy extensiocessary or tability of t

practices, o

ity that is pard will cor an extens

ments.

this subpaetained by tigate the

an employisory, com

ntity when tate the ex

y or indirecding strate

g entity's in

cted to havenable the

ntity to theed fund m

r disposing

conforman the bankwhich it owe

hrough red, including

ropriate.

stment duron approve

appropriathe United or otherwis

primarily rensult with sion under

art does noy a bankingspecific, id

yee of the mmodity tra

acting as ixposure by

Appendix

ctly, in a egies;

nterest in t

ve attractee banking

e investmeay pose to

g of the

nce of the ing entity es a duty;

demption, g activities

ring any ed under ate to prote

States, se further

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banking ading

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are p

and epart trequi

and a

proce

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signifthis s

mana

to pathe b(a)(1entityunde

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the aby a

contrmore

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71524.5

permitted u

enforces athat is reasrements o

authorizati

edures, an

rwise signior more spmmodate the compesory, comm

ficant newsection; an

agement b

aragraph (abanking en)(i) and suy on such oer such com

(b) es.

acquisition banking e

rolled by a e States;

graph (9) o

to a reside

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(i) an internal sonably deof this sect

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ificantly mpecific, idea specific

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(1) Thor retentiontity only i

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(iiient of the U

equiremenparagraph

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esigned totion, includ

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(C) onal risk th

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ermitted co

he prohibition of any oif:

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nts. The rish (a) only if

banking ence programo ensure thding:

Reason

Internaluding relev

acquisition

Is madeequired un

At the ind demonstsks arisingrequest w

nt with theory, or oth

Does noat is not its

Is subjey.

respect tosation arraas acquirerrangemenwill be offsement.

overed fun

ion containownership

banking enis organize

activity or c) of the B

wnership iates; and

Appendix

sk-mitigatinf:

ntity has em requiredhe banking

nably desig

l controls avant escal

n or retenti

e in accordnder this s

nception orably redug (1) out of

with respece employeeer service

ot give riseself hedge

ect to cont

o risk-mitigangement ed an ownent provideset by corre

nd activitie

ned in § __interest in

ntity is noted under t

investmenHC Act;

interest in

x -43-

ng hedging

establishedd by in accog entity’s co

gned writte

and ongoination proc

ion of the o

dance withection;

of the hedguces or othf a transac

ct to the coe that direcs to the co

e, at the ined contem

inuing revi

gating hedgrelates soership intes that any esponding

s and inve

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t organizedthe laws of

nt by the b

the covere

g activities

d and impleordance wompliance

en policies

ng monitorcedures; an

ownership

h the writte

ge, is desigherwise sigction condovered functly providovered fun

nception ofporaneous

iew, monit

ging activitlely to the

erest pursulosses inc decrease

estments o

this subpaponsorship

d or directlf the Unite

anking ent

ed fund is

s of a bank

ements, mwith subpare with the

s and proc

ring, manand

p interest:

en policies

gned to regnificantly ucted soled or (2) in es investmd;

f the hedgsly in acco

toring and

ty conductcovered f

uant to thiscurred by thes in amou

outside of t

art does nop of, a cov

ly or indireed States o

tity is purs

offered fo

Appendix

king entity

maintains rt D of this

cedures; an

agement,

,

duce or mitigates

ely to connectio

ment

e, to any ordance wi

ted pursuafund in whis paragraphe bankingnts payab

the United

ot apply tovered fund

ectly or of one o

suant to

or sale or

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ant ich ph g le

d

o

or

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State

(9) orif:

requi

organof seapplic

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bankthe b

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71524.5

es.

r (13) of se

rements o

nization, thction 211.cable; or

ing organie or more ollowing re

United Stat

ing entity obanking en

ing entity oe banking

ent of the as been soand has nh the bankffiliate sposer, comming entity o

offer or sal

oses of pa

acquisition rolled direcnized unde

sion to acqed in the U

risk-mitiga

(iv

(2) Anection 4(c)

(i) of this sect

(ii)he banking23(a), (c)

zation, the States an

equiremen

tes exceed

outside of tity in the

outside of entity in th

(3) AnUnited Sta

old pursuanot been so

king entity nsors or sodity pool or affiliate le by the c

(4) Anaragraph (b

(i) or retentio

ctly or indirer the laws

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(iiiating hedg

v) The a

n activity o) of the BH

The ation; and

) (A) Wg entity meor (e) of th

(B) e banking nd the bants:

d total asse

the UnitedUnited Sta

the Unitedhe United S

n ownershiates for punt to an offold pursuaor any affierves, direoperator owill be de

covered fun

n activity ob)(1)(iv) of

The bon of an owrectly by, as of the Un

) The btain the owtes or orga

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activity or

r investmeHC Act for

activity or

With respeceets the quhe Board's

With resentity is noking entity

(1) ets of the

(2) d States eates; or

(3) d States eStates.

ip interest urposes of fering that

ant to an ofiliate of theectly or indor commodemed for pnd of owne

r investmef this sectio

banking enwnership ia banking nited State

banking enwnership inanized und

investmend to an ow

Appendix

investmen

ent by the purposes

investmen

ct to a banualifying fos Regulatio

spect to a ot organizey, on a fully

Total assebanking e

Total revexceed tota

Total net ixceeds tot

in a coverf paragrapht does not ffering thae banking directly, asdity tradingpurposes oership inte

ent occurs on only if:

ntity actingnterest in entity that

es or of an

ntity (inclunterest or ader the law

nt or sponswnership in

x -44-

nt occurs s

banking eof paragra

nt is condu

nking entityoreign banon K (12 C

banking eed under ty-consolida

ets of the bntity held i

enues derival revenue

income detal net inco

red fund ish (b)(1)(iii)target rest targets reentity part

s the invesg advisor tof this para

erests in th

solely out

g as sponsthe coveret is locatedy State;

ding relevact as spows of the U

sorship, incnterest, is n

solely outs

ntity is puraph (b)(1)(

ucted in ac

y that is a king organ

CFR 211.23

entity that ithe laws ofated basis

banking enin the Unit

ved from ts derived

erived fromome derive

s not offere) of this seidents of tesidents oticipates. Itment manto a covereagraph (b)

he covered

tside of the

sor, or enged fund, isd in the Un

ant persononsor to theUnited Stat

cluding annot accoun

ide of the

rsuant to p(ii) of this s

ccordance

foreign banization re3(a), (c) or

is not a forf the Unites, meets at

ntity held oted States

the businefrom the b

m the busined from th

ed for saleection only he United

of the Unitef the banknager, inveed fund, th)(3) to partd fund.

e United S

gaging as ps not itself, nited State

nnel) that me covered tes or of a

y transactnted for as

Appendix

United

paragraph section on

with the

anking equirementr (e)), as

reign ed States ot least two

outside of ;

ss of the business o

ness of thee busines

or sold toif it is soldStates no

ed States iking entity oestment hen the ticipate in

States for

principal inand is not

es or

makes thefund is no

any State;

tion arisings principal

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ts

or o of

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e s

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proviorgan

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71524.5

tly or indired States o

ded, direcnized unde

gn bank, ohich that bes solely b

(c) pany. The isition or rest in, or th

est solely funts estab

pliance witen guidanc

ncial Stabiforeign juria particulasufficient toe United S

14 Limit

(a)

y that servmodity tradpursuant trdance wit

saction withred fund, t

erve Act (1ber bank a

rdance wit

hich a coveeof) has tak

rectly on a or organize

(ivctly or indirer the laws

(5) Foor any subsranch, agey virtue of

Permitted prohibition

retention bhe sponso

(1) Thfor the genblished by

(2) Thth, and subce of the S

(3) Thlity Oversiisdictions,

ar law, reguo protect th

States.

tations on

Relationsh

(1) Exes, directlyding advisoto § __.11 th § __.11h the covethat would2 U.S.C. 3and the co

(2) No

(i) th the requ

(ii)ered fund mken an ow

consolidaed under t

v) No finanrectly, by as of the Un

or purposesidiary theency, or suf operation

d covered fn containey an insur

orship of, a

he insurancneral accothe insura

he acquisitbject to, th

State or jur

he appropright Councas approp

ulation, or he safety a

n relations

hips with a

xcept as pry or indirecor, or sponof this sub(b) of this

ered fund, be a cove371c(b)(7)overed fun

otwithstand

Acquuirements

) Entermanaged,

wnership in

ated basis the laws of

cing for thany branchnited State

s of this seereof, is locubsidiary is of the U.S

fund intereed in § __.1rance coma covered f

ce companunt of the

ance comp

ion and rehe insurancrisdiction in

riate Federcil and the priate, havwritten guand sound

ships with

a covered

rovided forctly, as thensor to a cbpart, or thsubpart, aor with anered transa)), as if sucd were an

ding parag

uire and reof § __.11

r into any sponsore

nterest, if:

Appendix

by any braf the Unite

e bankingh or affiliatees or of an

ection, a Ucated in ths a part is S. branch,

ests and ac10(a) of thpany, or afund only i

ny or its afinsurance

pany;

etention of ce compann which su

ral bankingrelevant i

ve not jointuidance dedness of th

h a covere

fund.

r in paragre investmecovered funhat continuand no affily other coaction as dch banking affiliate th

graph (a)(1

tain any o, § __.12,

prime broked, or advis

x -45-

anch or affed States o

entity's owe that is loy State.

U.S. brance United Snot considagency, o

ctivities byis subpart

an affiliate if:

ffiliate acqe company

the ownerny investmuch insuran

g agenciesnsurance tly determiescribed inhe banking

ed fund.

raph (a)(2)ent managnd, that orues to holdliate of suc

overed funddefined in g entity andhereof.

1) of this se

wnership ior § __.13

kerage trased by suc

filiate that or of any S

wnership oocated in th

h, agency,States; howdered to beor subsidia

y a regulatet does not thereof, of

uires and y or for one

rship interement laws, nce compa

s, after concommissioned, after paragraph

g entity, or

) of this seger, investmrganizes ad an ownech entity, md that is cosection 23d the affilia

ection, a b

interest in 3 of this su

nsaction wch banking

is located State.; and

or sponsorhe United

, or subsidwever, a foe located

ary.

ed insuranapply to thf any owne

retains thee or more s

est is condregulationany is dom

nsultation oners of thnotice andh (c)(2) of the financ

ction, no bment advisnd offers a

ership intermay enter ontrolled b3A of the Fate thereo

banking en

a coveredubpart; and

with any cog entity (or

Appendix

in the

rship is States or

diary of a oreign banin the Unit

nce he ership

e ownershseparate

ducted in ns, and miciled; and

with the he States d commenthis sectio

cial stability

banking ser, a covered rest in into a

by such Federal of were a

ntity may:

d fund in d

overed funr an affiliate

x A

nk ted

hip

d

nt, on y

nd e

SC1:46

limitaoffere

bankupdaentityperfoand

incon

direcadvis__.11__.11371cthere

permRese

§ __.

undewould

entity

to a h

finan

mateexistswouldof its activithis s

or en

71524.5

ations set fed by such

ing entity cate the certy does notormance of

nsistent wi

(b) tly or indir

sor, or spo1 of this su1(b) of this-1), as if s

eof.

(c) mitted undeerve Act (1

15 Othe

(a) er §§ __.11d:

y and its cl

high-risk a

cial stabili

(b) erial conflics if the band involve oclient, cus

ity, and thesection.

ngaging in

forth in § _h banking

certifies intification if , directly of the cover

th the safe

Restrictionrectly, as thonsor to a cubpart, or ts subpart, such banki

Restrictioner paragrap2 U.S.C. 3

r limitatio

No transa1 through _

(1) Invlients, cus

(2) Reasset or a h

(3) Poty of the U

Definition ct of interenking entitor result instomer, or e banking

(2) Prthe specif

(i)

(A) __.11 of thentity (or a

(B) n writing anf the informor indirectlyred fund o

(C) e and soun

ns on transhe investmcovered futhat continshall be sung entity w

ns on primph (a)(2)(ii371c-1) as

ons on per

ction, clas__.13 of th

volve or retomers, or

esult, direchigh-risk tr

ose a threaUnited Stat

of materiast betweenty engages

n the bankicounterpaentity has

ior to effecfic activity,

Time

The banis subpart an affiliate

The chinnually no mation in thy, guarant

or of any co

The Bond operatio

sactions wment manaund, or thanues to houbject to swere a me

me brokerai) of this ses if the cou

rmitted co

ss of transahis subpart

esult in a mr counterpa

ctly or indirrading stra

at to the sates.

al conflict on a bankins in any traing entity'sarty with res not taken

cting the s the banki

ely and effe

Appendix

nking entitwith respe

e thereof);

ief executilater than

he certificaee, assumovered fun

ard has noon and con

with covereager, invesat organizeld an owne

section 23Bmber bank

age transacection shaunterparty

overed fun

actions, ort if the tran

material coarties;

rectly, in aategy; or

afety and s

of interest.ng entity anansaction,s interests espect to sn at least o

pecific tranng entity:

ective disc

x -46-

ty is in comect to a co

ve officer March 31

ation mateme, or othend in which

ot determinndition of t

ed funds. Astment adves and offeership inteB of the Fek and such

ctions. A pll be subjewere an a

nd activiti

r activity mnsaction, c

nflict of int

material e

soundness

(1) For pund its clien class of trbeing mat

such transone of the a

nsaction o

closure.

mpliance wovered fun

(or equiva to the [Agrially chan

erwise insuh such cov

ned that sthe bankin

A banking viser, commers a covererest in accederal Resh covered

prime brokect to sectiaffiliate of t

ies.

may be deeclass of tra

terest betw

exposure b

s of the ba

urposes ofnts, customransactionterially advaction, claactions in

or class or

with each od organize

alent officegency] (witnges) that ure the oblvered fund

uch transang entity.

entity thatmodity tradred fund pcordance wserve Act (fund were

erage tranon 23B of he bankin

emed permansactions

ween the b

by the ban

anking enti

f this sectimers, or cons, or activverse to thass of transparagraph

type of tra

Appendix

of the ed and

r) of the th a duty tothe bankinigations o invests;

action is

t serves, ding ursuant towith § (12 U.S.C.e an affiliat

nsaction f the Federg entity.

missible , or activity

banking

nking entity

ty or to the

on, a ounterpartivity that he interestssactions, oh (b)(2) of

ansactions

x A

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ies

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s,

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conflmannunde

clientmateintere

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sectio

held a sub

in by subst

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2010

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71524.5

ict of interener sufficieerstand the

t, customeerially adveest; or

mation barration of p

gned, takinict of intere

ounterpartyific transaconably knoonflict of in

ounterparty

(c) on:

by a bankbstantial fin

a bankingtantial fina

16 Owneobligatio

(a) ing entity o

0;

ved by the

3 (or acquiry that acqu

(b) erred secuution holdiediately pr

est, togethent to perme conflict o

er, or counerse effect

(ii)rriers that personnel, ng into conest from iny. A bankinction, clasow that, nonterest may.

Definition

(1) Higing entity, nancial los

(2) Higg entity, sigancial loss

ership of ons backe

The prohibof an inter

(1) Th

(2) The issuer we

(3) Thred such inuired the in

For purpority or suboing compareceding th

(A) her with otmit a reasof interest;

(B) terparty thon the clie

) Informare memoor function

nsiderationnvolving orng entity ms or type ootwithstanday involve

of high-ris

gh-risk asssignifican

ss or would

gh-risk tragnificantly or would p

interests d by trust

bition contrest in, or s

he issuer w

he bankingere investe

he bankingnterest in cnterest on

ses of thisordinated

any that, ashe issuanc

Has maher neces

onable clieand

Such dihe opportuent, custom

mation barorialized in ns, or limitn the naturr resulting

may not relof transactding the baor result in

sk asset an

set meanstly increasd pose a t

ding strateincrease t

pose a thr

in and spt-preferred

tained in §sponsorsh

was establi

g entity reaed primaril

g entity acqconnectionor before

s § __.16, debt instrus of the ence of such

Appendix

ade clear, sary inform

ent, custom

isclosure inity to negmer, or co

rriers. Haswritten po

tations on re of the bain a matery on such tions or acanking entn a materia

nd high-ris

s an asset se the likelhreat to th

egy meansthe likelihoreat to the

ponsorshid securiti

§ __.10(a)(ip of, any

ished, and

asonably bly in Qualif

quired sucn with a mDecembe

Qualifyingument issund of any rtrust prefe

x -47-

timely, andmation, in mer, or cou

s made in gate, or suounterparty

s establisholicies andtypes of aanking entrially adveinformatio

ctivity, the btity's estabally advers

sk trading s

or group oihood that

he financia

s a tradingood that thfinancial s

p of issuees.

(1) does noissuer if:

d the intere

believes thafying TruP

ch interest erger withr 10, 2013

g TruPS Coued prior toreporting perred secu

d effectivereasonabl

unterparty

a mannerubstantiallyy created b

ed, mainta procedure

activity, thatity's busin

erse effect on barriersbanking enblishment ose effect o

strategy. F

of related at the bankil stability o

g strategy the bankingstability of

ers of cert

ot apply to

est was iss

at the offePS Collater

on or befo or acquis

3).

ollateral sho May 19,

period withrity or sub

e disclosure detail anto meanin

r that provy mitigate, by the conf

ained, andes, such a

at are reasness, to preon a clien

s if, in the cntity knowof informat

on a client,

For purpos

assets thang entity wof the Unit

that would entity wouthe United

tain collat

o the owne

sued, befo

ring proceral; and

ore Decemition of a b

hall mean 2010 by ain 12 mon

bordinated

Appendix

re of the nd in a ngfully

ides the any flict of

d enforced as physicasonably event the t, customecase of ans or shouldtion barrie customer

ses of this

at would, if would incued States.

d, if engageuld incur ad States.

teralized

ership by a

ore May 19

eeds

mber 10, banking

any trust a depositonths

debt

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er, ny d

ers, r,

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ed a

a

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ry

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instru19, 2

markin acc

FDICparagOCC

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limiteof a cprohiset focompand b

bankExceparag

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with sinves

accoapproincenatten

71524.5

ument, had2010 by a m

(c) ket maker wcordance

(d) C and the Ograph (a).

C.

FR 5227, 5

_.17-.19

PART D––

20 Prog

(a) ed trading compliancebitions an

orth in secpliance probusiness s

(b) ing entity w

ept as provgraph (a) o

ribe, monier §§ __.3 tut in §§ __

ect to subpucted by ting entity te BHC Act

section 13stments tha

untability fopriate mantive comption;

d total conmutual hol

Notwithstawith respewith the ap

Without limOCC will mA banking

5228, Jan.

[Reserved

–Complia

ram for co

Program rassets ande programd restrictiotion 13 of ogram shastructure o

Banking ewith signif

vided in paof this sec

(1) Wrtor and limto __.6 of _.4 and __part C (inclhe bankinthat are sut and this p

(2) A s3 of the BHat are proh

(3) A mfor compliaanagemenpensation a

nsolidated lding comp

anding parect to the inpplicable p

miting the make publig entity ma

31, 2014]

d]

ance Prog

ompliance

requiremend liabilities

m reasonabons on prothe BHC A

all be approof the bank

entities withficant tradiaragraph (ftion, at a m

ritten policmit trading subpart B

_.5, and acluding thosg entity to ubject to separt;

system of HC Act andhibited by

managemance with st review ofand other

assets of pany.

ragraph (anterests ofprovisions

applicabilic a non-ex

ay rely on t

ram Requ

e; reportin

nt. Each bs) shall devbly designeoprietary traAct and thiopriate for king entity.

h significang assets f) of this seminimum,

cies and practivities s), including

ctivities anse permitteensure thection 13 o

internal cod this part section 13

ent framewsection 13f trading limmatters id

Appendix

less than $

a)(3) of thisf an issuerof §§ __.4

ity of paragxclusive listhe list pub

uirement;

ng.

banking envelop and ed to ensuading and is part. Ththe types

nt trading and liabili

ection, theshall inclu

rocedures subject to g setting, md investmeed under §at all activof the BHC

ontrols reaand to pre3 of the BH

work that c3 of the BHmits, strateentified in

x -48-

$15,000,00

s section, ar described4 and __.1

graph (a) ost of issuerblished by

Violations

ntity (other provide fo

ure and mocovered f

he terms, s, size, sco

assets antiesConten

e compliancde:

reasonabsubpart B monitoringents with r§§ __.11 thvities and iC Act and

asonably devent the oHC Act and

clearly delHC Act andegies, hedthis part o

00,000 or

a banking d in paragr1.

of this secrs that methe Board

s

than a baor the contonitor comfund activitscope, andope, and co

d liabilitiesnts of comce program

ly designe(including

g and manrespect to hrough __nvestmenthis part c

designed tooccurrenced this part;

ineates red this part dging activor by mana

issued pri

entity mayraph (a) of

ction, the Bet the requ

d, the FDIC

nking entitinued admpliance wities and ind detail of omplexity

s. With resmpliance prm required

ed to documg those peraging requa covered

_.14 of subts conduct

comply with

o monitor ce of activiti;

sponsibilitand includ

vities, invesagement a

Appendix

or to May

y act as a f this sectio

Board, the uirements C and the

ty with ministrationith the

nvestmentsthe of activitie

spect to a rogram. d by

ment, rmitted uired limitsd fund bpart C) ted by the h section 1

compliances or

ty and des stments, as requiring

x A

on

of

n

s

es

s

13

ce

g

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SC1:46

progroutsid

perso

Act aretain

paragrequi

revieMarccompof a fforeigbanktradinparag

calenassetaffiliathe U

subp

in paassetguarawhichmeasthres

71524.5

ram condude party;

onnel, to e

and this pan for a per

(c) graph (b) orements a

w by the Cch 31, that pliance witforeign bangn bankinging entity wng permittegraph (d) o

ndar year ets as of the

ates, brancUnited Stat

(d)

art B shall

ragraph (dts and liabanteed by h (on a wosured as oshold estab

(4) Inducted perio

(5) Traeffectively i

(6) Reart, which ariod of no l

CEO attesof this secand other s

(1) ThCEO of thethe bankin

th section nking entitg entity by who is loced under sof this sec

(2) the baend of $50e previousches and ates); or

(2) Th

(i)

(ii)

Reporting

(1) A bl comply w

(i)

(i) d)(1)(ii) of tbilities (excthe United

orldwide coof the last dblished in p

dependentodically by

aining for timplement

ecords suffa banking ess than 5

station. Adtion, the costandards

he CEO of e banking eng entity h13 of the Bty, the attethe senioated in thesubpart B ation;

nking entit0 billion or s calendar agencies o

he requirem

The bliabili

)(3) The [satisfappe

g requirem

banking enwith the rep

The b

The bthis sectiocluding tradd States oonsolidatedday of eacparagraph

t testing any qualified p

trading pet and enfo

ficient to dentity mus

5 years or

dditional Stompliancecontained

a bankingentity, atte

has in placBHC Act aestation mar manageme United Sand is req

ty has repomore or, Iyear end

of the forei

ments of p

banking enities; or

[Agency] nfy the requ

endix B to t

ments unde

ntity engagporting req

banking en

banking enon) has, togding assetr any agend basis) ov

ch of the foh (d)(2) of t

Appendix

nd audit ofpersonnel

rsonnel anrce the co

demonstratst promptlysuch long

tandards. e program in Append

g entity desest in writine process

and this paay be provment officetates. Theuired to co

orted totaln the caseof $50 billgn bankin

aragraph

ntity does

notifies theuirements this part.pa

er appendix

ged in proquirements

ntity has si

ntity (othergether withts and liabncy of the ver the pre

our prior cathis sectio

x -49-

f the effectof the ban

nd manageompliance

te compliay provide ter period a

In additionof a bankidix B, if:

scribed in ng to the [Aes reason

art. In the cvided for ther of the Ue banking eomply with

consolidae of a foreiion or morg entity op

(c)(1) app

not have l

e banking eand other aragraph (

x Athe App

prietary tras described

ignificant t

r than a foh its affiliat

bilities invoUnited Staevious conalendar qun;

tiveness onking entit

ers, as weprogram; a

ance with sto the Boaras required

n to the reqing entity m

paragraphAgency], eably desig

case of a Uhe entire U

U.S. operatentity enga

h the repor

ated assetsign bankinre (includinperating, lo

ly to a ban

imited trad

entity in wstandards

(c)(1).

pendix to t

ading activd in appen

rading ass

oreign banktes and su

olving obligates) the ansecutive fuarters, eq

of the compy or by a q

ell as otherand

section 13 rd upon red by the B

quirementmust satisf

h (2) must,each year gned to achU.S. brancU.S. operattions of theages in prorting requir

s as of theng entity, hng all subsocated or o

nking entity

ding asset

riting that s contained

this part.

vity permittndix Athe A

sets and lia

king entityubsidiariesgations of oaverage grfour quarteuals or ex

Appendix

pliance qualified

r appropria

of the BHequest andBoard.

s in fy the

, based onno later thhieve

ch or agenctions of thee foreign oprietary rements of

e previous has total Usidiaries, organized

y if:

ts and

it must d in

ted under Appendix,

abilities; o

y as provids, trading or ross sum oers, as ceeds the

x A

ate

C d

n a han

cy e

f

.S.

in

if:

r

ed

of

SC1:46

the tr(incluoperainvolvover prior sectio

satisf

in wrtradindescsectioeachinformof theshall 30 dawritin

than of the

and 3bankcove

and adefin__.10fund

that wcompwill bcompbankinvesspec

bankStatein § _owne

71524.5

rading assuding all suating, locaving obligathe previocalendar qon; or

fy the repo

iting that itng assets ribed in thonpart of t calendar mation for e end of eareport the

ays of the ng that it m

(e) $10 billione previous

3(c)(7) of ting entity red fund;

affiliates) fition of cov0(c)(10) ofis not a co

will becompany, a wrbecome a rpany; the ping entity's

stment comified in § _

ing entity te, if the agg__.10(c)(1ed by any a

(ii)sets and liaubsidiaries

ated or orgations of oous consecquarters, e

(iiiorting requ

(3)(2) t must repand liabilite definitionthis part) smonth witthe month

ach calende informatioend of tha

must report

Additionan in total cos two calen

(1) Docthe Investm(including

(2) Forfor which thvered fundf subpart Covered fun

(3) Forme a registeritten plan registered period of tis plan to mmpany or S__.12(a)(2)

(4) Forthat is, locgregate am) of subpaaffiliate tha

) In theabilities of s, affiliatesanized in tr guarante

cutive fourequals or e

)(ii) Theuirements c

Frequencyort on a dities (as can of “signif

shall reporthin 30 dayh of Januadar monthon requireat calendart on a diffe

l documenonsolidatendar years

cumentatioment Comall subsid

r each fundhe bankingd providedC, documend pursuan

r each seeered invesdocumentinvestmen

ime duringmarket the SEC-regul)(i)(B) of s

r any bankcated in or mount of ort C ownedat is contro

e case of athe combi

s, branchesthe Unitedeed by the r quarters, exceeds th

e [Agency]contained

y of reportifferent baslculated inficant tradt the informys of the ery 2015, s. Any othed by apper quarter uerent basis

ntation for edwith signand liabilit

on of the epany Act oiaries and

d sponsoreg entity rel by §§ __.

entation sunt to one o

eding vehicstment comting the bant compang which the

vehicle toated businubpart C;

king entity torganized

ownership d by such olled direc

Appendix

a foreign bned U.S. os and age

d States anUnited Stas measu

he thresho

] notifies thin append

ting: Unlessis, a bank

n accordaning assetsmation reqnd of the r

such informer banking endix Athe unless the s.

covered funificant tradties shall m

exclusions of 1940 reaffiliates)

ed by the blies on one.10(c)(1),_pporting thr more of t

cle describmpany or Sanking entiny or SEC-e vehicle wo third-partness devel

that is, or d under theinterests ibanking e

ctly or indir

x -50-

banking enoperationsncies of thnd excludintates or anured as of told establis

he bankingdix Athe Ap

ss the [Ageking entitynce with pas and liabilquired by arelevant camation sha

entity subAppendix [Agency] n

unds. AnyAding assetmaintain re

or exemplied on by in determ

banking ene or more

__.10(c)(5)he bankingthose excl

bed in § __SEC-regulaty's determ-regulated will operatety investorslopment co

is controllee laws of tn foreign p

entity (inclurectly by a

ntity, the avs of the forhe foreign ng trading ny agency the last da

shed in pa

g entity in ppendix.

ency] notify with $50 aragraph (ities” conta

appendix Aalendar moall be reporbject to app

for each cnotifies the

A bankingts as reporecords tha

ptions otheeach fundining that s

ntity (incluof the exc

), __.10(c)g entity's dusions;

_.10(c)(12)ated busin

mination thbusiness

e as a sees and convompany w

ed directlyhe United public funduding ownebanking e

verage groreign bankbanking eassets anof the Uni

ay of each ragraph (d

writing tha

fies the babillion or m(d)(1)the mained in §

Athe Appenonth; beginrted withinpendix Athcalendar qe banking

entity tharted on Det include:

er than secd sponsoresuch fund

ding all suclusions fro(8), __.10(determinat

)(i) or (iii) oness develhat the seedevelopm

eding vehicvert it into

within the ti

y or indirecStates or

ds that areership inte

entity that i

Appendix

oss sum ofking entity ntity

nd liabilitiested Statesof the fou

d)(2) of this

at it must

nking entitmore in methodolog

__.2 of thndix for nning with 1020 day

he Appendquarter withentity in

t has moreecember 3

ctions 3(c)(ed by the is not a

ubsidiariesom the (c)(9), or tion that th

of subpart lopment eding vehic

ment cle; and tha registerme period

ctly by a of any

e describederests is located

x A

f

s s) r s

ty

gy is

h ys dix hin

e 1

(1)

s

he

C

cle

e red d

d

in

Page 83: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

SC1:46

or orgof twoquartsuch fund contifunds

substhat othe Usubs

engaactivisectioactivi__.6(

liabiliDecepursusubpincludrequithe a

asse

a bansubpon an

bankprohitreate

of andesc

71524.5

ganized uno or more ter, documaffiliates) is organiznue until ths is below

idiary of a operates oUnited Statidiary.

(f)

age in activities permion by estaities or ma(a) of subp

ities. A banember 31 ouant to subart B)modding in its rements o

activities, s

(g) Rts and liab

nking entitart B and n ongoing

ing entity bited undeed under t

y determinribed in th

nder the laconsecuti

mentation oin each foed, calculahe banking$50 millio

(5) Forforeign ba

or controls tes solely b

Simplified

(1) Banvities or invitted pursuablishing thaking suchpart B).

(2) Bannking entitof the prevbpart B or erate tradexisting co

of section 1size, scope

Rebuttablebilities.

(1) Rey with limitsubpart C basis.

(2) Re

(i) has engager subpart his part as

(ii)

nation pursis paragra

aws of the ve calenda

of the valueoreign pubated as of g entity's an for two c

r purposesanking entthat brancby virtue o

programs

nking entitvestmentsuant to § __he required investme

nking entitiety with totavious two csubpart Cing assetsompliance13 of the Be, and com

e presumpt

ebuttable pted tradingand shall

ebuttal of p

If upoged in propB or subp

s if it did no

) Notic

(A) suant to pa

aph (g) and

(B)

United Staar quarterse of the owlic fund anthe end o

aggregate consecutiv

s of paragrtity is locatch, agencyof operatin

s for less a

ties with nos pursuant __.6(a) of sd compliannts (other

es with moal consolidcalendar y

C (other thas and liabile policies aBHC Act anmplexity of

tion of com

presumptiog assets ahave no o

presumptio

on examinprietary trapart C, the ot have lim

ce and Res

Notice. aragraph (d will provi

Respon

Appendix

ates or of s, beginninwnership innd each jurf each caleamount o

ve calenda

raph (e)(4)ted in the Uy, or subsig or contro

active bank

o covered to subpar

subpart B) nce prograthan tradin

odest activated asseears that ean trading ities may s

and procednd this parthe bankin

mpliance fo

on. Exceptnd liabilitie

obligation t

on.

ation or auading or co

[Agency] mited tradin

sponse Pr

The [Agen(g)(2)(i) of de an exp

nse.

x -51-

any State)ng with thenterests owrisdiction iendar quaf ownersh

ar quarters

) of this seUnited Stadiary is noolling the U

king entitie

activities. t B or subpmay satis

am prior tong activitie

vities.modeets of $10 bengages inactivities p

satisfy thedures apprrt and adjung entity.

or banking

t as otherwes shall beto demons

udit, the [Aovered funmay requing assets

rocedures.

ncy] will nof this sectioplanation o

) exceeds e next sucwned by thn which an

arter, whichip interests; and

ction, a U.ates; howeot considerU.S. branc

es.

A bankingpart C (oth

sfy the requo becominges permitte

erate tradibillion or len activitiespermitted requiremeropriate reustments a

g entities w

wise provide presumestrate com

Agency] ded activitiesre the banand liabilit

otify the baon to rebutof the deter

$50 millioceeding cahe bankingny such foh documens in foreig

.S. branchever, the fored to be loch, agency

g entity thaher than trauirements g engageded pursuan

ing assets ess as repos or investmunder § .6ents of thisferences tas appropr

with limited

ded in this d to be copliance wi

etermines s that are nking entityties.

anking entt the presurmination.

Appendix

n at the enalendar g entity (an

oreign publntation mun public

h, agency, oreign banocated in y, or

at does noading of this

d in such nt to §

and orted on ments 6(a) of s section bto the riate given

d trading

paragraphompliant with this par

that the otherwise y to be

tity in writinumption

x A

nd

nd lic ust

or k

t

by

h, ith rt

ng

SC1:46

in theany mbanksubp[AgenThe [condof themay

time the [A

[Agenconceentitysubpan ex

[Ageliabihad or cosubpthis appl

§ __.

of serequiactivirequithe a

engapart, requiby lawthe bany i

71524.5

e notice dematters thaing entity art B or suncy] officia[Agency] mition of thee new timeextend the

period as Agency]’s

ncy] will deerning they has engaart C. Thexplanation

(h) ency] retailities to apsignificanomplexity part B or ssection orlicable.

21 Term

(a) ction 13 orements oity or invesrements o

activity and

(b) aged in an

or engagerements ow to enfor

banking ennvestment

escribed inat the bankhas engagubpart C. Tal within 30may shortee banking e period, oe time peri

may be spdetermina

ecide, base banking eaged in proe banking e of the dec

Reservations its auth

pply any ret or moderof the ban

subpart C, r treatment

mination of

Any bankif the BHC

of section 1stment perof section 1d, as releva

Wheneveractivity or

ed in any aof section 1rce compliatity to restt.

n paragrapking entityged in propThe respon0 days afteen the timeentity so re

or with the iod for goo

pecified byation.

(C) sed on a reentity, wheoprietary trentity will bcision.

on of authhority to reequirementrate tradinnking entity

does not wt as a ban

f activities

ing entity tAct or this

13 of the Brmitted und13 of the Bant, dispos

r the Boardmade an

activity or m13 of the Bance with trict, limit, o

(I) ph (g)(2)(ii)y would haprietary transe must ber the datee period wequires, pconsent o

od cause.

(II) y the [Agen

After theview of thether to marading or cbe notified

ority. Notwquire a bats of this pg assets ay’s tradingwarrant a king entity

s or inves

that engags part, or aBHC Act order subpa

BHC Act orse of the in

d finds reainvestmenmade any BHC Act orsection 13or termina

Appendix

The banki)(A) of thisve the [Ag

ading or cobe in writine on whichhen, in therovided th

of the bank

Failure to ncy] shall c

e close of he bankingaintain thecovered fu of the dec

withstandinanking entipart that woand liabiliti or investmpresumpti

y with mod

stments; p

ges in an aacts in a mr this part,

arts B or Cr this part,nvestment

asonable cnt in violatiinvestmenr this part,3 of the BHate any or a

x -52-

ing entity ms section. Tgency] conovered funng and delh the bankie opinion oat the ban

king entity.

respond wconstitute

banking eg entity’s re [Agency]’

und activitiecision in w

ng any othty without ould otheres if the [Ament activion of comerate trad

penalties

activity or mmanner tha

including , or otherw shall, upot.

cause to beion of sectnt that func the Board

HC Act andall activitie

may respoThe responsider in ded activitieslivered to ting entity rof the [Agenking entity In its disc

within 30 da waiver o

entity’s resesponse as determines prohibit

writing. The

her provisiosignifican

rwise applyAgency] deities, or the

mpliance uning assets

for violati

makes an at functions

through awise violateon discove

elieve anytion 13 of tctions as ad may taked this part,es under th

ond to any nse shouldeciding whs prohibitethe designreceived thency], the ay is informcretion, the

days or sucof any obje

sponse pernd other innation thatted under e notice w

on of this pt trading ay if the banetermines e risk of evnder parags and liabil

ions.

investmens as an ev

an abuse oes the restery, promp

y banking ethe BHC Aan evasione any actio, including his part an

Appendix

or all itemd include hether the ed under nated he notice. activities oed prompte [Agency

ch other ections to

riod, the nformationt banking subpart B

will include

part, the assets andnking entitthat the sivasion of graph (g) oities, as

nt in violatiasion of th

of any trictions antly termina

entity has Act or this n of the on permitte

directing d dispose

x A

ms

or tly

y]

n

or

ty ize

of

on he

nd ate

ed

of

Page 84: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

SC1:46

AppeTrad

I.

banksubpapplietradin[Agenwhichmainof thiunde

bank

exam

engarequi

engaand mgoveor ind

entityfrequ

cove

this aor im

metrithe dreviseSepte

entityeffecand t

71524.5

endix A toing Activi

Purposa.

ing entitiesart B (“proes to a bang assets ncy] regarh vary deptain records appendi

er § __.20

b.

ing entity’s

mination by

aged in marements g

aged in permarket marnment obdirectly, in

y, and the uency and

red trading

c. appendix apermissib

In ordercs, bankinates estabe this colleember 30,

d. y may neetively monthis part an

o Part __ —ities

se This appes must sat

oprietary trnking entitand liabilit

rding a varpending onds documex must be and Appe

The purpo

(i) Bes covered

(ii) Mo

(iii) Idey the bank

(iv) Evarket makingoverning p

(v) Evrmitted traaking-relatebligations)

a materia

(vi) Ideindividual scope of e

(vii) Asg activities

The quantareis not inle activitie

r to allow bng entities blished in §ection requ 2015.

In additiond to devel

nitor its covnd to have

—Reporti

endix sets ftisfy in conrading restty that, togties. Theseriety of quan the scopeenting the incorpora

endix B.

ose of this

etter undertrading ac

onitoring th

entifying coing entity t

valuating wng-related permitted

valuating wding activied relatedare consisl exposure

entifying thtrading de

examinatio

ssessing as.

titative mentended tos.

banking enmust colle§.20 of theuirement a

n to the quop and imvered trade an effecti

ng and Re

forth repornnection wtrictions”). gether withe entities aantitative me and sizepreparatio

ated into th

appendix

rstanding activities;

he banking

overed trato verify co

whether theactivities market ma

whether thety subject activity, ristent with te to high-ri

he profile oesks of theon by the [

nd addres

easuremen serve as

ntities and ect and repe final ruleas appropr

uantitative plement oing activitiive compli

Appendix

ecordkee

rting and rwith the res

Pursuant h its affiliatare requiremeasureme of covereon and conhe banking

is to assis

and evalua

g entity’s c

ading activompliance

e covered subject to aking-relat

e covered to §§ __.4

isk-mitigatthe requireisk assets

of particulae banking e[Agency] o

ssing the ri

ntsInformaa dispositi

the Agencport these . The Ageriate based

measuremother quantes for comance prog

x -53-

ping Requ

recordkeepstrictions oto § __.20tes and sued to (i) furents of the

ed trading antent of theg entity’s in

st banking

ating the s

covered tra

ities that we with the p

trading ac§ __.4(b)

ted activitie

trading ac4, __.5, or ting hedginement thator high-ris

ar coveredentity, to h

of such act

isks assoc

tion that mive tool for

cies to evametrics foncies will rd on a revi

ments requtitative me

mpliance wgram, as re

uirements

ping requiron proprieta0(d), this apbsidiaries,rnish perioeir coveredactivities, ese reportnternal com

entities an

scope, type

ading activ

warrant furproprietary

ctivities of are consises;

ctivities of __.6(a)-(b

ng, or tradit such actisk trading

d trading achelp establtivities; and

ciated with

must be furr the identi

aluate the or all tradinreview theew of the

uired in thieasuremenwith sectionequired by

s for Cove

rements thary tradingppendix ge, has signi

odic reportsd trading aand (ii) cres. The req

mpliance p

nd the [Ag

e, and prof

vities;

rther reviewy trading re

trading destent with t

trading deb) (i.e., unding in certavity not restrategies

ctivities of ish the apd

the banki

rnished puification of

effectivenng desks be data colledata colle

s appendixnts in orden 13 of the§.20 and

Appendix

ered

hat certain g set forth enerally ficant s to the activities, eate and quirementsprogram

ency] in:

file of the

w or estrictions;

esks the

esks that aderwriting ain

esult, direct;

f the bankippropriate

ng entity’s

ursuant to f permissib

ess of thebeginning oected and cted prior

x, a bankinr to

e BHC Act Appendix

x A

in

s

;

are

tly

ng

s

ble

se on

to

ng

B

SC1:46

to thion thparticand hmakethey activientitypart.

evaluutilizemeasincludresulescaremeshoucove

II.

__.3.

and rcond

meas

sourcdecreand e

__.6(cond

must

purchaffilia

71524.5

s part. _ .2e profile o

cular tradinhistory ander or a newhave robuities, to eny, and to m

e. uate all fure in order surement rding with rt in a matelated withi

ediation, wld be helpred trading

DefinitiThe term

In additio

Applicareport a paucted by t

Calculasurement m

Compreces of tradease in theexpense.

Covere(a), or __.6ucted und

Measurt be calcula

Tradinghases or sate thereof

III. Trad

20. The effof the bankng desk, ind experienw entrant tust measurnsure that tmonitor and

On an ongrnished quto maintairesults tharespect to erial exposn the bankhere approful to bankg activities

ions ms used in

on, for purp

ability identarticular quhe trading

ation periodmust be ca

ehensive pding revenue market v

d trading a6(b). A baer §§ _.3(

rement freated and r

g desk measells financf.

ding day m

ffectivenesking entity’ncluding tynce (e.g., wo a comperes in placthe activitid examine

going basiantitative mn complian

at indicate otherwise

sure to higking entityopriate. Thking entities.

n this appeposes of th

tifies the truantitative g desk.

d means thalculated.

profit and lue over a svalue of a t

activity meanking entid), e), __.6

quency merecorded.

ans the smcial instrum

means a ca

ss of partics business

ypes of inswhether theetitive mare to identifes are with

e for comp

s, bankingmeasuremnce with sa heighten-permittedh-risk ass

y for reviewhe quantitaes in identi

endix havehis append

rading desmeasurem

he period

loss meanspecific petrading des

eans tradinty may inc6(c), __.6(

eans the f

mallest discments for th

alendar da

Appendix

cular quantses in gen

struments te trading dket). In all fy and mohin risk tolliance with

g entities mments, as wection 13 ned risk ofd activities ets or high

w, further aative measfying and

e the samedix, the foll

sks for whiment base

of time for

s the net period of timsk’s holdin

ng conductclude in its(d), or __.6

frequency

crete unit he trading

ay on whic

x -54-

titative meneral and, mtraded, tradesk is an cases, ba

onitor the rilerances eh the propr

must carefwell as anyof the BHCf impermisunder §§

h-risk tradianalysis, esurementsmanaging

e meaninglowing def

ch a banked on the ty

r which a p

profit or losme, includings, divide

ted by a tr covered t6(e).

with which

of organizaccount o

ch a trading

easuremenmore spec

ading activestablishe

anking entiisks taken

establishedrietary trad

ully monitoy others thC Act and ssible prop__.4 throung strategxplanation

s discussedg the risks

gs as set fofinitions ap

ing entity iype of cov

particular q

ss of a tradng, for exa

end income

rading destrading act

h a particu

zation of a of the bank

g desk is o

nts may difcifically, of ities and sed, succesities must in their tra

d by the bading restric

or, review,hat they chthis part. A

prietary tradugh __6(a)gies, must n to the [Agd in this aprelated to

orth in §§ _pply:

is requiredvered tradi

quantitative

ding desk’ample, anye, and inte

k under §§tivity tradin

lar quantit

banking eking entity

open for tr

Appendix

ffer based f the strategies, ssful markeensure thaading anking ctions in th

and hoose to All ding, )-(b), or thabe gency], anppendix their

__.2 and

d to calculang activity

e

s material y increaseerest incom

§ __.4, __.ng

tative metr

entity that or an

ading.

x A

et at

his

at

nd

ate y

or

me

.5,

ric

Page 85: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

SC1:46

III.

this papplicactivi

___.2regar

subjeas fu

must

§ __.this abanktime.

enga

71524.5

Reporta.

1. partappendcable, for ities and c

2. 20 must prrding each

3. ect to this arther desc

4. t provide a

5. 20 must p

appendix, ing entity

b.

Each baaged in cov

ing and RA. Scope General sdix by § __each tradi

calculate th

• Risk

• Risk

• Valu

• Com

• Posit

Transa

Secur

• Custom

Trading derovide certh trading d

Quantitatiappendix b

cribed in th

Narrative a separate

File identiprovide fileincluding tby the Boa

Trading Danking entvered tradi

Name identif

Identifis eng

Brief d

A list osold binstrumtradingspecif

Recordkeeof Requir

scope.Qua_.20 must ng desk o

hese quan

k and Posit

k Factor Se

ue-at-Risk

mprehensiv

tions;

action Volu

ities Inven

mer-Facing

esk informtain descriesk engag

ive measurby § _.20 m

his append

statementnarrative s

ifying inform identifyingthe name oard, and id

Desk Infortity must ping activitie

of the tradfication lab

fication of eaged;

description

of the typey the tradiments or pg desks enication of w

eping of Qred Reporntitative mfurnish thef the banktitative me

tion Limits

ensitivities

and Stres

ve Profit a

umes; and

tory Aging

Trade Ra

mation. Eaciptive inforged in cove

rements idmust provi

dix, regardi

t. Each banstatement

rmation. Eag informatof the bandentificatio

rmation provide deses, includi

ding desk bel for the t

each type

n of the ge

es of financng desk; a

products pungaged in whether ea

Appendix

Quantitativrting

measuremee following

king entity, easuremen

s and Usag

s;

ss VaRStre

nd Loss A

d

g; and.

tio

ch bankingrmation, asered tradin

dentifying iide certaining its qua

nking entit, as furthe

ach bankinion in eachking entity

on of the re

scriptive inng:

used intertrading de

of covere

neral strat

cial instruman indicatiourchased amarket maach type o

x -55-

ve Measu

ents. Eachg quantitat

calculatednts in acco

ge;

essed Valu

Attribution;

g entity mas further deng activitie

informationn identifyinantitative m

ty made suer describe

ng entity mh submissy, the RSSeporting pe

nformation

rnally by thesk;

d trading a

tegy of the

ments and on of whicand sold baking-relat

of financial

rements

h banking ive measud engagedordance wi

ue-at-Risk

ade subjecescribed in

es.

n. Each bag and des

measureme

ubject to thed in this a

made subjesion to the SD ID assigeriod and c

regarding

he banking

activity in w

e trading de

other prodch of theseby the tradted activiti instrumen

entity madurements, d in covereith this app

;

ct to this apn this appe

anking entscriptive infents.

his appendappendix.

ect to this a[Agency] p

gned to thecreation da

g each trad

g entity and

which the

esk;

ducts purce are the ming desk; aes under §nt is includ

Appendix

de subjectas

ed trading pendix:

ppendix byendix,

tity made formation,

dix by § _.

appendix bpursuant te top-tier ate and

ding desk

d a unique

trading de

chased andmain financand, for § __.4(b), ded in

x A

t to

y §

,

20

by to

e

esk

d cial

SC1:46

meas

71524.5

c.

Each basurements

markeadditiomeasuunder

Identifentity findicatfor cov

For eaactivitilegal e

o NaFe

o Stasa

o U.de

o Swfuttrade

o Sta

o Ba

o Fo

o Un

o Otdeab

Indicafor the

Curren

Quantitatanking ents:

A RiskdescriPositiothe limwhethlimit, wlimit;

et-maker poon, indicateurements p§ __.3(d)(

fication by for coveretion of whivered trad

ach legal eies, specifentity:

ational banederal savi

ate nonmevings asso

S.-registerealer, U.S.-

wap dealertures commading advisealer;

ate memb

ank holding

oreign bank

ninsured S

ther entity escribed abbove;

tion of whee trading de

ncy reporte

tive Measutity must p

k and Posiptive inforon Limits a

mit, a uniquer the limit

whether th

ositions ore whether products e(2) and, if s

complete ed trading aich of the iing activiti

entity that sication of a

nk, Federangs assoc

ember banociation;

red broker- registere

r, major swmission msor, introdu

er bank;

g company

king organ

State-licens

type not lisbove wher

ether eachesk; and

ed and da

urementsprovide the

tion Limitsmation forand Usageue identifict is intradae limit mea

Appendix

r not includthe tradin

excluded frso, identify

name of eactivities cdentified les of the t

serves as any of the

al branch ociation, Fe

nk, foreign

r-dealer, Ud major se

wap particierchant, cucing brok

y, savings

nization as

sed branch

sted abovere the subs

h calendar

ily currenc

s Identifyine following

s Informatir each limite quantitatcation labeay or end-oasures risk

x -56-

ded in marg desk is irom the dey such pro

each legal conducted egal entitietrading des

a bookingfollowing

or Federal deral savin

bank havi

U.S.-registeecurity-bas

ipant, derivcommodity ker, floor tr

and loan

s defined in

h or agenc

e, includinsidiary itse

r date is a

cy convers

ng Informinformatio

on Schedut reported ive measu

el for the limof-day, thek on a net

rket- makeincluding iefinition of oducts;

entity thatby the tra

es are thesk;

entity for applicable

agency ofngs bank;

ing an insu

ered secursed swap

vatives clepool oper

rader, reta

holding co

n 12 CFR

cy of a fore

ng a subsidelf is not an

trading da

sion rate.’

mation on regardin

ule that propursuant t

urement, inmit, a desce unit of meor gross b

er positionsn its quan“financial

t serves asding desk main boo

covered tre entity typ

f a foreign

ured branc

rity-based participant

earing orgarator, commil foreign e

ompany;

211.21(o)

eign bank;

diary of a ln entity typ

ay or not a

ng the qua

ovides ideto the Riskncluding thcription of easuremebasis, and

Appendix

s. In titative instrumen

s a bookin; and

oking entitie

rading pes for that

bank,

ch, State

swap t;

anization, modity exchange

;

or

egal entitype listed

trading da

antitative

entifying ank and he name ofthe limit,

ent for the the type o

x A

nt”

ng

es

t

y

ay

nd

f

of

Page 86: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

SC1:46

electcalcutradinNarraasses

bankto rep

tradinthe QmeasunlesperioIdentacco

pursuprepathe [Athe c

71524.5

b.d.

Each baronic docu

ulation metng desk stative Statessing the i

If a baning entity port in a N

c.e.

A banking day. A

Quantitativesurement ess otherwisod requiredtifying Infordance wit

f. A banki

uant to thisaration andAgency] toalendar ye

A RiskdescriRisk Fsensitsensit

A RiskdescriCompincludilabel ffactor,

A LimiuniqueInformRisk F

A Riskreferethe Risattribu

Narrativeanking entument a Nathods usedructure or

ement musinformation

nking entitymust subm

Narrative S

B. Frequeing entity mbanking ene Measureelectronicase requestd by §.20rermation, ath the XML

C. Recording entity ms appendixd content

o verify theear for whi

k Factor Septive infor

Factor Senivity, a uniivity, and t

k Factor Atptive inforrehensive ing the nafor the risk, and the r

it/Sensitivie identifica

mation SchFactor Sen

k Factor Sences, by usk Factor

utions iden

e Statementity made sarrative Std, a descritrading de

st include an reported

y does notmit an electatement.

ency and must calcuntity must ements Ideally to the ted by the eport the Tand each aL Schema

rdkeeping must, for ax and § __of these re

e accuracyich the me

ensitivitiesmation forsitivities qque identithe sensitiv

ttribution Imation forProfit andme of the

k factor or oisk factor o

ty Cross-Ration label,edule to asitivities In

ensitivity/Aunique idenSensitivitietified in the

nt subject to tatement toiption of anesk strategany informd, such as

t have any ctronic doc

Method oulate any areport the

entifying In[Agency] o[Agency].

Trading Deapplicable

specified

any quantit_.20(d), creeports, as y of such reeasuremen

Appendix

s Informatir each risk uantitativefication labvity’s risk f

nformationr each risk d Loss Attrrisk factorother factoor other fa

Reference , limits idenssociated nformation

Attribution ntification es Informae Risk Fac

this appeno the [Agend reasongies, and w

mation the bfurther de

informatiocument sta

of Requireapplicable e Narrativenformationon the rep A banking

esk Informquantitativand publis

tative meaeate and mwell as sueports, for nt was take

x -57-

on Schedufactor sen

e measurebel for the factor cha

n Schedulefactor attr

ribution qur or other for, a descractor’s cha

Schedulentified in thrisk factor

n Schedule

Cross-Reflabel, risk

ation Schector Attribu

ndix by § _ency] descs for chanwhen any sbanking enscription o

on to reporating that it

ed Calculaquantitativ Statemen

n, and eachorting scheg entity muation, the ve measurshed on th

asurement maintain reuch informa

a period oen. A bank

ule that pronsitivity repement, incl

sensitivitynge unit;

e that provribution repantitative

factor, a unription of thnge unit;

that crosshe Risk anr sensitivitie; and

ference Scfactor sendule to asution Inform

__.20 muscribing any ges in thesuch channtity viewsof calculati

rt in a Narrt does not

ation and ve measurnt, the Tradh applicabedule estaust be repoQuantitativ

rement to the [Agency

furnished ecords docation as isof 5five yeking entity

ovides ideported puruding the y, a descri

vides identported purmeasuremnique idenhe risk fac

s-referencend Positionies identifi

chedule thnsitivities idsociated rmation Sc

t submit inchanges banking e

nge occurres as relevaon method

rative Stathave any

Reportingrement for ding Desk

ble quantitaablished inorted withive Measurthe [Agency]’s websit

to the Boacumenting s necessarars from thmust reta

Appendix

entifying anrsuant to thname of thption of th

tifying andrsuant to thment, tification tor or othe

es, by n Limits ed in the

hat cross-dentified inrisk factor hedule.

n a separain entity’s ed. The

ant for ds used.

tement, theinformatio

g

each Informatio

ative n § __.20 in the timerements cy] in e.

ard[Agencthe

ry to permihe end of in the

x A

nd he he e

d he

er

n

te

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cy]

it

SC1:46

NarraIdentinform

IV.

the ctime, portiocurretools in § Sensposittradinand hand §__.5(a minexceRisk”desk

formaRisk FactoopenRisk varia

pursuthe Ruppe

chanevendeskmonirisk faexpe

71524.5

ative Statetifying Infomation wa

Quantita.

onstraints as defineonvalue ofent activity

used to co .4 and §

sitivities” aion limits ang desk’s ohedging ac§ __.5(b(b)(1)(i)(A)nimum, thept to the e” metrics abased on

at used byand Positior Sensitiv positionsand Positibles used

uant to thisRisk and Per and a low

ges in a trt of a chan’s profitabtored and actor senscted price

ement, the rmation fos reported

tative MeaA. Risk-M1. Risi. De that defind by the bf the tradinof the desontrol and__.5. A nnd “Value-and are usoverall actctivity undeb)(1)(i)(A) m) and also e “Risk Faextent any are demons the types

General Cy the bankiion Limits

vities, but m. When criion Limits,to assess

A. A banks quantitatosition Limwer limit),

ii. Ca

iii. Me

iv. Ap

2. Risi. De

rading desnge in oneility and rismanaged

sitivities m variation

Trading Dor a period d to the [Ag

asuremenManagemesk and Po

escription: e the amoanking en

ng desk's lisk. Risk an monitor riumber of t-at-Risk anseful in evativities, paer § __.5must meetmust incluctor Sensiof the “Risstrably ineof position

Calculationing entity fare often emay also biteria other both the v

s whether t

king entity mtive measumits Informand the va

alculation P

easuremen

pplicability:

sk Factorescription: k’s Compr

e or more usk. A bankas part ofust be suffin the trad

Desk Informof five yea

gency].

nts ent Measuosition LimFor purpo

ount of risktity for a simitsdesk’snd positionisk taking the metricsnd Stress Valuating anrticularly fo5. Accordt the applicude approptivities” an

sk Factor Seffective fons traded

n Guidancefor the purexpressedbe expressr than VaRvalue of ththese limit

must provurement: th

mation Schalue of usa

Period: On

nt Frequen

: All trading

r SensitiviFor purpo

rehensive underlying king entity f the tradinficiently gring desk’s

Appendix

mation, anars from th

urements mits and Uoses of thisk that a trapecific trads risk or po

n limits andand includs that are Value-at-Rnd setting or the maringly, the lcable requpriate metrnd “Value-aSensitivitieor measurinby, and ris

e: Risk andrposes of rd in terms osed in termR or Risk Fhe Risk ands have be

ide the folhe unique edule, theage of the

ne trading

ncy: Daily.

g desks en

ties oses of thisProfit andvariables must repo

ng desk’s oranular to as holdings.

x -58-

nd the Quahe end of t

Usage s appendixding desk ding desk.ositions thd their usade, but aredescribed

Risk,” relatthese limitrket makinlimits requuirements rics for theat-Risk anes” or “Valung and mosk exposur

d Position risk managof risk mea

ms of otherFactor Send Position en reache

lowing infoidentificat limit size limit.

day.

ngaged in

s appendix Loss thatthat are s

ort the risk overall riskaccount fo. A banking

antitative Mthe calend

x, Risk andis permitte

. Usage rehat are accage are keye not limite below, incte to a tradts in the brg activitiesired underunder § _

e trading dd Stress Vue-at-Riskonitoring thres of, tha

Limits mugement of asures, sur observabnsitivities a

Limits anded must be

ormation fotion label f(distinguis

covered t

x, Risk Fact are expecignificant sfactor sen

k managemor a prepong entity mu

Measuremedar year fo

d Position ed to take

epresents tcounted foy risk mand, to, the lcluding “Rding desk’sroader cons under § r § __.4

__.4(b)(2)(esk limits

Value-at-Rk and Streshe risks of t desk.

ust be repoeach tradi

uch as VaRble criteria,are used tod the value

e reported.

or each limfor the limishing betw

rading act

ctor Sensitcted to occsources ofnsitivities thment policynderance oust provide

Appendix

ents r which the

Limits areat a point

the r by the

nagement imits set o

Risk Factors risk and ntext of the __.4(b) (b)(2)(iii) iii) and § including,

Risk” metricss Value-af a trading

orted in theing desk. R and Risk, such as no define the of the

mit reportet reported

ween an

tivities.

tivities arecur in the f the tradinhat are y. Reporteof the e the

x A

e

e in

out r

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at cs at-

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Page 87: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

SC1:46

followmeasFactofactochan

sensmanaFactomanamoniexplicmustthe tr

Facto

commsensmatu

granuposit

spreasensmatu

volatsignif

betweand i

currecorrelinea

with rsens(paraposit

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71524.5

wing informsurement: or Sensitivr sensitivitge in risk f

itivities thaagement por Sensitivagement mtored and cit risks ast be sufficierading des

or Sensitiv

modities seitivities (exrity profile

ular to accions, and

ads, shifts itivities (exrity profile

ility, and/oficant non-

een impornternation

ency pairs elation senrities), as w

respect to itivities (ex

allel and noions.

r shared bistently acto anothe

mation for the unique

vities Informty, and thefactor.

General Cat are monpolicy. Thevities will dmodels emmanaged

ssumed byently granusk's holding

Trading devities, inclu

• Commoet out in 17xpressed i

e of the pos

• Credit pcount for sprisk factors

• Credit-re(parallel a

xpressed ie of the pos

• Equity dor correlatio-linearities

• Equity prtant equitynal equities

• Foreign and matursitivities (ewell as the

• Interest major inte

xpressed ion-parallel

The methoby multiplecross its traer.

each sense identificamation Sche aggregat

Calculationnitored ande underlyinepend on

mployed. Thby a tradi

y the tradinular to accgs.

esks mustuding, for e

odity deriva7 CFR 20.n a mannesitions;

positions: rpecific cres with resp

elated derand non-pan a mannesitions;

derivative pon sensitiv

s), and the

positions: ry market ss;

exchangerities, expoexpressede maturity

rate positerest rate cn a mannel) in the int

ods used b trading deading desk

sitivity that ation label hedule, thete change

n Guidanced managedg data andthe specifhe numbeng desk, ang desk. Incount for a

t take into example, th

ative positi.2, the mater that dem

risk factorsedit sectorspect to inte

rivative posarallel) in cer that dem

positions: vities (exprmaturity p

risk factorssectors and

e derivativeosure to in in a mannprofile of t

ions, inclucategorieser that demterest rate

by a bankiesks, suchks so that t

Appendix

is reportefor the ris

e change in value a

e: A bankind as part od methodsfic functionr and typeand furnishn general, a preponde

account ahe followin

ions: risk fturity of thmonstrates

s with resps and markerest rates

sitions: riscredit spremonstrates

risk factor ressed in aprofile of th

s for equityd segment

e positionsnterest ratener that dethe positio

ding interes and matumonstratese curve, as

ing entity th as an eqthe sensiti

x -59-

ed pursuansk factor sein risk factcross all p

ng entity mof the tradis used to cn of the trae of Risk Fahed to the however,

erance of t

ny relevanng with res

factors withe positionss any signi

pect to credket segmes of all rele

k factor seeads—volas any signi

sensitivitiea manner he position

y prices ants, such as

s: risk factoes at relevaemonstratens; and

est rate deurities and s any signi well as th

to calculateuity price fivities can

nt to this quensitivity litor used topositions o

must reporng desk's compute a ading desk actor SensBoard, wiReported

the expect

nt factors ispect to pa

h respect ts, volatilityificant non

dit spreadsents, the mevant matu

ensitivitiesatility, and/ificant non

es such asthat demo

ns;

nd risk facts a small c

ors with reant maturies any sign

erivative povolatility aificant non

he maturity

e sensitivifactor, mube compa

uantitativested in the

o determinf the desk

t the risk foverall ristrading deand the in

sitivities thll depend orisk factored price v

n calculatiarticular as

to the relay and/or con-linearities

s that are maturity prourities;

, for exam/or correlan-linearities

s equity poonstrates a

tors that dcapitalizati

espect to mties, volatinificant no

ositions: riand/or corrn-linearitiesy profile of

ties to a cost be appl

ared from o

Appendix

e e Risk e the risk given the

factor k esk's Risk nternal riskhat are on the r sensitivitiariation in

ing Risk sset classe

ated orrelation s), and the

sufficientlyofile of the

ple credit tion s), and the

ositions, any

ifferentiateon equities

major ility, and/o

on-

sk factors relation s), and shithe

ommon ied one trading

x A

k

ies

es:

e

y

e

e s

or

ifts

g

SC1:46

commgivena speappeof thepositbase

and Sshouthe tirequiand rwherlargeor Stconsof po

activitradinexclu

Loss positinto twere (ii) pr(“newpositcompmusttradin60- abankloss a

71524.5

monly usedn set oftradecifiedone-endix, Strese risk of fuions at thed on mark

Stress VaRld reflect ame over arements imreported inre a tradinger aggregaress VaR istent with

ositions.

ities. For Sng desks wuded from

b.

Attributionions to varhree categ also positrofit and low positionsions or newprehensivet calculate ng desk's oand 90-daying entity dat each po

ii. Ca

iii. Me

iv. Ap

3. Vai. Ded percentiding desk’s-day periossStresseture financ

e ninety-ninket conditio

General CR by emploa loss in a a one-day pmposed byn a manneg desk doetion of poscalculation the VaR o

ii. Ca

iii. Me

iv. ApStressed Vwhose covthe definit

Source-o1. Coi. Den is an anarious sourcgories: (i) ptions held

oss attributs”); and (iiiw position

e profit andvolatility oone-day py lag periodeems ne

oint in time

alculation P

easuremen

pplicability:

alue-at-Risescription: le measurs aggregad of time, d Value-atcial loss inne percenons during

Calculationoying genetrading deperiod. Foy a Federar that is coes not havsitions for wn that incluor Stress V

alculation P

easuremen

pplicability:VaR, all travered tradition of “fina

of-Revenueomprehenescription: alysis that ces. First, profit and by the tradtable to ne) residual

ns. The sumd loss at eof comprehrofit and lod, from thecessary to

e.

Period: On

nt Frequen

: All trading

sk and StrFor purpo

rement of tted positiobased on t-Risk (“St

n the valuet confiden a period o

n Guidanceerally acceesk that is or those baal banking onsistent wve a standawhich a Vaudes only tVaR mode

Period: On

nt Frequen

: For VaR,ading deskng activityancial instr

e Measurensive Prof

For purpoattributes the daily ploss attribuding desk

ew positionprofit and m of (i), (ii)ach point

hensive pross, in dolle end of tho meet the

Appendix

ne trading

ncy: Daily.

g desks en

ressStresoses of thisthe risk of ons at the current mressStress

e of a givence level ovof significa

e: Bankingepted stanexpected

anking entiagency, V

with such ralone VaRaR or Strethe trading

el and meth

ne trading

ncy: Daily.

all tradingks engagedy is conducrument” un

rements fit and Lososes of this

the daily fprofit and lutable to aas of the e

ns resultingloss that c), and (iii) in time. In

rofit and lolar terms) he reportin

requireme

x -60-

day.

ngaged in

ssed Values appendixfuture finaninety-ninearket condsed VaR”)n set oftradver a specant financia

g entities mndards andto be exceities that aVaR and Sregulatory

R or Stressess VaR cag desk's hohodology u

day.

g desks end in coverected exclusnder § .3

ss Attribus appendixfluctuationloss of thea trading dend of the g from thecannot be must equaaddition,

ss (i.e., thefor the rep

ng period, aents of the

covered t

e-at-Risk x, Value-atancial loss e percent ditions. Fo is the perding desk’

cifiedone-dal stress.

must compd methods eeded lessare subjectStress VaR

capital reqs VaR calcalculation oldings muused for th

ngaged in ed trading sively to he3(d)(2).

ution x, Compre in the val

e aggregatesk’s exisprior day current daspecificall

al the tradiprofit and e standardporting perand any ote rulecomp

rading act

t-Risk (“Vain the valuconfidencr purposes

rcentile mes aggrega

day period

ute and reof calcula

s than onet to regulat

R must be cquirementsulation buis performust be perfhe larger a

covered tractivities, edge prod

hensive Pue of a traed position

sting positio(“existing ay’s tradinly attributeing desk’s loss meas

d deviationriod for at ther periodprehensive

Appendix

tivities.

aR”) is the ue of a e level oves of this easuremenated

of time,

eport VaR ation. VaR e percent otory capitacomputed s. In casest is part ofed, a VaRformed

aggregatio

rading except

ducts

Profit and ading deskns is divideons that positions”

ng activity ed to existi

surementsn of the least a 30-d that the e profit and

x A

er

nt

of al

s f a

R

n

k’s ed

);

ng

-,

d

Page 88: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

SC1:46

chan

The capplicmanaany ocorre

specthe fachanAttribchan

commtransfinanpositaggre

to knof thefor fu

desk type attribinstrumarkeachassocdiffercomp

Meas

secuquan

71524.5

A. ges in the

comprehecable, to caged as paother appliection, can

B. ific risk facactors thatges: the u

bution Infoge.

C. missions asactions excial instrumions. The egate and

D. own source comprehurther inves

in the attrand amou

bution musuments weket at the c purchaseciated withrence. Theparisons.

c. surements

rities and dtitative me

The comp value of t

nsive profichanges inart of the tcable elemcellation, o

For the attctors and ot explain thnique idenrmation Sc

The compand fee incxecuted onments andcomprehedoes not

The portioces must bhensive prostigation a

ii. Geribution anunt of tradinst be compere boughtclose of bue or sale. Ah transactiese factors

ii. Ca iii. Me iv. Ap

Positionss 1. Poi. Dederivativeseasuremen

prehensivehese posit

it and lossn (i) the sperading desments, sucor exercise

tribution oother factohe prepondntification lchedule, a

prehensivecome or exn the applicd other assensive profneed to be

on of compbe allocateofit and los

and analys

eneral Calcalysis andng activitie

puted by cat and/or sousiness on Any fees, cons execu

s must be m

alculation P

easuremen

pplicability:

s, Transac

ositions escription: s positionsnt, do not i

e profit andtions on th

s from exisecific risk sk’s overach as cashe of a trad

f comprehors, a bankderance olabel for th

and the pro

e profit andxpense andcable day.sets/liabilitfit and losse further a

prehensiveed to a resss. Signific

sis.

culation Gd amount oes undertaalculating told and the

that day mcommissiouted on thameasured

Period: On

nt Frequen

: All tradin

ction Volu

For purpos managedinclude in

Appendix

d loss assohe applicab

ting positiofactors anll risk man

h flows, care.

hensive proking entity f the profit

he risk factofit or loss

d loss attribd market g. New posies and ne

s from newttributed to

e profit andidual categcant unexp

Guidance: Tof detail foraken by thethe differee prices at multiplied bns, or otheat day musconsisten

ne trading

ncy: Daily.

ng desks e

umes, and

oses of thisd by the trathe Positio

x -61-

ociated witble day.

ons must bd other fac

nagement prry, chang

ofit and losmust prov

t or loss chtor or othedue to the

buted to negains or loitions incluegotiated aw positionso specific s

d loss that gory identiplained pro

The specifr the analye trading d

ence betwewhich tho

by the notier paymenst be addently over tim

day.

engaged in

d Securitie

s appendixading deskons calcula

th existing

be further ctors that apolicies anes in rese

ss from exvide the folhanges duer factor lise risk facto

ew positiosses assoude purchaamendmens may be resources.

cannot beified as anofit and los

fic categorysis shoulddesk. The een the priose instrumional or prnts receiveed (subtracme to facil

n covered

es Invento

x, Positionk. For purpation for “s

positions

attributedare monitond procedurves, and

xisting posillowing infe to risk fa

sted in the or or other

ns must reociated withases and snts to exiseported in

e specifican unexplainss must be

ries used bd be tailorenew positices at whi

ments are mrincipal amed (paid) thcted) from itate histor

trading ac

ory Aging

s is the vaposes of thsecurities”

Appendix

must refle

, as ored and ures; and (the

itions to formation factor Risk Factofactor

eflect h sales of ting the

ally attributned portione escalated

by a tradined to the on ich marked to

mount of hat are such rical

ctivities.

g

alue of he Positionthose

x A

ect

(ii)

for

or

ted n d

g

ns

SC1:46

secuthosesepashortpaya

[FN 2“secubase

cond

measbankcondcustowherorgansecuFor pin the“derivare aquanundedesk ident

[FN 2

cond

C. Cu

that mabsovalue

deriv

71524.5

rities that ae securitiesrately repot securitiesbles, notio

283: See §urity” and ad swaps a

uct underw

sures four ing entity ucted by t

omers, excre the transnizational rities, valu

purposes oe Transactvatives,” aalso derivatitative me

erwriting acthat reliesified in § _

284: See §

uct underw

ustomer-F

measures lute value

e of the tra

atives, oth

are also “ds that are ort the trads positionsonal value

§§ __.2(i),a “derivativare reporte

ii. Ca

iii. Me

iv. Apwriting act

2. Trai. Deexclusive is requiredhe trading

cluding intesaction is units wher

ue means gof calculatition Volum

as those teatives as “deasuremenctivity is a s on § __.4__.4(b)(3)

§§ __.2(i),

ii. Ca

iii. Me

iv. Apwriting act

Facing Ac1. Invi. Dethe turnovof all tran

ading desk

ii. Geher than op

derivativesalso derivading desk’ss, market v

of derivati

, (bb). For ve.” For pu

ed as deriv

alculation P

easuremen

pplicability:ivity or ma

ansactionescription: categories

d to report g desk withernal transbooked in re the trangross marng the Tra

mes calcularms are de

derivativesnt, a customarket pa4(b) to con.

, (bb).]

alculation P

easuremen

pplicability:ivity or ma

ctivity Meaventory Tescription: ver of a trasactions o

k's inventor

eneral Calcptions and

s,” as thoseatives as “s market vvalue of deives receiv

example, urposes ofvatives rath

Period: On

nt Frequen

: All tradingarket-makin

n VolumesFor purpos of coverethe value

h: (i) custosactions; (ithe same saction is ket value. ansaction Vation for “sefined und

s.”[FN 284]omer of a tarticipant idnduct mark

Period: On

nt Frequen

: All tradingarket-makin

asuremenurnover For purpo

ading deskover the rery at the b

culation G interest ra

Appendix

e terms ar“derivativevalue of lonerivatives rvables, an

under thisf the Positiher than se

ne trading

ncy: Daily.

g desks thng-related

s oses of thised tradingand numbmers, excliii) trading banking ebooked inFor derivaVolumes qsecurities” der subpar] Further, frading desdentified inket making

ne trading

ncy: Daily.

g desks thng-related

nts

oses of thisk's inventorporting peeginning o

Guidance: Fate derivat

x -62-

re defined es.”[FN 283ng securitireceivablesd notional

s part, a seions quantecurities.]

day.

hat rely on d activity, re

s appendix activity co

ber of seculuding intedesks and

entity; and nto an affiliatives, valuquantitativethose sec

rt A; insteafor purpossk that relien § __.4(a)g-related a

day.

hat rely on d activity, re

s appendixry. The nu

eriod. The dof the repo

For purpostives, valu

under sub3] A bankiies positios, market vvalue of d

ecurity-bastitative me

§ __..4(a)espectivel

x, Transaconducted burity and dernal transad other org(iv) tradinated bankue means e measure

curities thaad, report tses of the Tes on § .4)(7), and a

activity is a

§ __..4(a)espectivel

x, Inventormerator ofdenomina

orting perio

ses of this e means g

bpart A; insng entity mns, markevalue of d

derivatives

sed swap ieasuremen

) or § __..4y.

ction Volumby a tradinerivative tactions; (iiganizationg desks a

king entity.gross not

ement, do t are also those secuTransactio(a) to cond

a customera market pa

) or § __..4y.

ry Turnovef the ratio tor of the r

od.

appendix,gross notio

Appendix

stead, repomust t value of erivatives

s payables

is both a nt, security

4(b) to

mes ng desk. A ransactioni) non-al units nd other For ional valuenot includ

urities thaton Volumeduct r of a tradiarticipant

4(b) to

er is a ratiois the ratio is the

, for onal value

x A

ort

.

y-

ns

e. e

t s

ng

o

e

,

Page 89: Volcker Rule - Sullivan & Cromwell...from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets

SC1:46

for opmean

purpoof theof timAgingpositdaysSecusecumeasunde

[FN 2

usingaggreschedliabiliderivvalue

Ratiotradindeskinvolvinvolvcompthe trthe tr

Facincounrelateconti

71524.5

ptions, valns 10-year

oses of thie trading d

me that thog shouldmions for th; 91-180 c

urities Inverity liabilitysurement, er subpart A

285: See §

g a tradingegate assedule and aties held oatives, val

e and, for i

o is a ratio ng desk to. A trade cving a couving a couputed that rading desrading des

ng Trade Rterparty ised servicenuing rela

ue meansr bond equ

iii. Ca

iv. Me

2. In3. Sei. Des appendi

desk's aggose assets

must measue following

calendar daentory Aginy-aging schdo not incA. [FN 285

§§ __.2(i),

General C desk's traets and liaa liability-aover all holue meansnterest rat

ii. Ca

iii. Me

iv. ApunderwritiCustomei. Decomparing

o (ii) the tracount baseunterparty tunterparty trecords th

sk and the sk.

ii. GeRatio, a cos a market s by obtaintionship w

delta adjuuivalent va

alculation P

easuremen

nventory Aecurities Iescription: x, Inventoregate assand liabili

ure the ageg periods: ays; 181-3ng includeshedule. Foclude secu5]

, (bb).]

Calculationading activbilities. Inv

aging schelding perio

s gross notte derivativ

alculation P

easuremen

pplicability:ng activityr-Facing T

escription: g (i) the traansactionsed ratio muthat is a cuthat is not

he value ofvalue of tr

eneral Calcounterparty

participanning such

with respec

usted notioalue.

Period: 30

nt Frequen

Aging nventory For purpory Aging gsets and liatiessecurite profile of0-30 calen

360 calends two scheor purposerities that

n Guidancevity data anventory Agdule. Each

ods. For detional valuves, value

Period: On

nt Frequen

: All tradingy or markeTrade RatFor purpo

ansactionss involving ust be comustomer oa custome

f transactioransaction

culation Gy is considnt that makservices,

ct to such s

Appendix

onal value

days, 60

ncy: Daily.

Aging oses of thisgenerally dabilitiesdeties positiof the tradinndar daysdar days; aedules, a ses of the Sare also “d

e: In genernd must idging must h scheduleerivatives, e, for optio means 10

ne trading

ncy: Daily.

g desks tht-making rtio—Tradeoses of thiss involvinga counter

mputed thaf the tradiner of the trons involv

ns involving

Guidance: Fered to be

kes use of respondinservices. H

x -63-

, and for in

days, and

s appendixdescribes aesk’s securons have bng desk's a; 31- 60 caand greatesecurity asecurities Iderivatives

ral, Inventoentify the include twe must recother than

ons, value0-year bon

day.

hat rely on related acte Count Bs appendixg a counterparty that

at records tng desk anrading desing a coung a counte

For purpose a customthe banking to quota

However, a

nterest rate

90 days.

x, Securitiea schedulerities positbeen held.assets andalendar daer than 360sset- agingnventory As,” as thos

ory Aging value of a

wo schedulcord the van options,

e means dend equivale

§ .4(a) or tivity, respe

Based andx, the Custrparty that is not a cuthe numbend the numsk. A valuenterparty therparty tha

ses of calcmer of the tng entity's

ations, or ea trading d

e derivativ

es i. Descre of the maions and t Securitiesd liabilities

ays; 61-90 0 calendar g scheduleAging quanse terms ar

must be c trading dees, an ass

alue of assand intereelta adjustent value.

§ .4(b) to ectively. 3

d Value Batomer-Facis a custo

ustomer ofer of transamber of trae based rahat is a cu

at is not a c

culating thetrading desmarket m

entering intdesk or oth

Appendix

ves, value

ription: Forarket valuehe amouns Inventorys. securitiecalendar

r days. e, and a ntitative re defined

computed esk's set- aging sets or est rate ted notiona

conduct . ased cing Trade omer of thef the tradinactions

ansactions tio must bstomer of customer o

e Customesk if the

making-to a her

x A

r e t y

es

al

e ng

e

of

er-

SC1:46

organthe trmeasparticcustoexchaparticderivfor opmean

Appe

[N.B.

71524.5

nizational rading dessured in accular tradinomer, or coange or sicipants woatives, othptions, valns 10-year

endix B to

: Append

unit of anosk if the othccordanceng desk orounterpartmilar tradi

ould be conher than opue meansr bond equ

iii. Ca

iv. Me

o Part—En

dix B to the

other bankher entity he with §20(r other orgty of the trang facility nsidered trptions, and delta adju

uivalent va

alculation P

easuremen

nhanced M

e 2013 Rul

king entity has trading(d)(1) unleganizationaading deskthat permransactiond interest rusted notioalue.

Period: 30

nt Frequen

Minimum

le is omitte

Appendix

would not g assets ass the tradal unit of thk. Transacits trading

ns with cusrate derivaonal value

days, 60

ncy: Daily

Standard

ed in its en

x -64-

be a clienand liabilitieding desk dhe entity shctions cond

on behalfstomers ofatives, valu, and for in

days, and

y.

ds for Com

ntirety from

nt, customees of $50 bdocumenthould be tducted anof of a broadf the tradinue means nterest rate

90 days.

mpliance P

m the Propo

er, or counbillion or ms how andreated as onymouslyd range of

ng desk. Fogross notie derivativ

Programs

osed Rule

Appendix

nterparty omore as d why a a client,

y on an f market or onal value

ves, value

s

e.]

x A

of

e,