On Monday evening, around one hundred people gathered in Liberty Square in downtown Manhattan, preparing to march to the Federal Reserve and Securities and Exchange Commission buildings nearby. Protesters carried signs reading, “We don’t make demands so this is a suggestion: Enforce the Volcker Rule.”
Occupy the SEC, a working group of Occupy Wall Street that includes former financial industry professionals, lawyers and concerned citizens, had been up until 5am the night before, editing and formatting a letter they had prepared as a public comment to the SEC. For months, OSEC met twice weekly to review the 298-page proposed Volcker Rule, conducting a diligent, line-by-line analysis of the document. Proposed as part of the Dodd-Frank Act, the Volcker Rule essentially aims to ban proprietary trading and ownership of hedge funds by banks. Between now and July, the regulating bodies involved—the SEC, the FDIC, the OCC, the CFTC and the Fed—are required to read public comment letters and issue final details on the Volcker Rule.
When members of OSEC viewed their letter on Monday on the SEC’s website, they were elated to see that at 325 pages, it was the longest letter by far. In comparison, the longest letter by the Securities Industry and Financial Markets Association (SIFMA), a group that represents the interests of securities groups, banks and asset managers, was 173 pages—although SIFMA submitted five letters in total.
“When the banks read the Rule, they say, it’s too harsh, too much regulation,” Alexis Goldstein explained at an Occupy Wall Street teach-in she gave last fall, when OSEC was first forming. OSEC’s goal was to present the SEC with a strong alternative to the banks’ comments.
OSEC’s letter outlines a number of “loopholes” written into the Volcker Rule and urges the regulating bodies to eliminate them.
“During the legislative process, the Volcker Rule was woefully enfeebled by the addition of numerous loopholes and exceptions. The banking lobby exerted inordinate influence on Congress and succeeded in diluting the statute, despite the catastrophic failures that bank policies have produced and continue to produce,” reads the introduction to OSEC’s letter. The document goes on to detail how various portions of the proposed Volcker Rule essentially negate the Rule’s purpose by permitting the very behavior it was designed to prevent.
The main loophole that OSEC’s letter points toward is an exemption for repurchase (“repo”) agreements, which allow for illiquid assets, such as bonds or securities, to be converted into short-term liquidity. The letter argues that the Congressional Record shows no support for the blanket exemption for repo trading currently written into the draft and stresses that “repos could be used in a variety of ways to evade the rules and serve as a conduit for proprietary trades.”