The promulgated rule is named after the former Federal Reserve chairman, Paul A. Volcker. A recent New York Times article describes the Volcker Rule as a centerpiece of the Dodd-Frank financial overhaul law, which viewed proprietary trading and hedge fund investments as risky activities that banks relying on taxpayer guarantees should not engage in.
According to the article, among other things, the rule specifies that:
- most proprietary trading is prohibited,
- banks are allowed to facilitate trades (i.e., bringing together buyers and sellers of securities),
- hedging must be against identifiable risks associated with specific investment positions,
- banks must specify in advance the way in which a particular trade serves as a hedge, and
- chief executives must attest that the required processes are in place.