(The following is a reformatted version of a press release
issued by The U.S. Securities and Exchange Commission and
received via electronic mail. The release was confirmed by the
Statement Regarding Adoption of Rule Implementing the Volcker
Commissioner Michael S. Piwowar
U.S. Securities and Exchange Commission 
Dec. 10, 2013 
The Securities and Exchange Commission (“SEC” or “Commission”),
the Commodity Futures Trading Commission, the Board of Governors
of the Federal Reserve System (“Board”), the Federal Deposit
Insurance Corporation, and the Office of the Comptroller of the
Currency (collectively, the “Rulemaking Agencies”) today
approved a coordinated rule to implement Section 619 of the Dodd‑
Frank Wall Street Reform and Consumer Protection Act (“Dodd‑
Frank”), commonly referred to as the “Volcker Rule.”  The final
rule adopted today is substantially different from the rule that
was proposed over two years ago.[1]  In my view, the extent of
these changes necessitates a reproposal of the rule and an
opportunity for public comment.  Therefore, I am not able to
support the adoption of the rule. 
Before discussing the rule, I want to recognize the
extraordinary efforts of the SEC’s staff.  Staff across the
agency put in many long nights and weekends and were able to aid
significantly the other regulators’ understanding of the complex
issues related to proprietary trading and the numerous types of,
and differences among, entities that rely on the exemptions in
Sections 3(c)(1) or 3(c)(7) of the Investment Company Act from
registering with the Commission as an investment company.
Despite the efforts of the Commission staff, however, the
overall rulemaking process has been flawed and, in the rush to
meet an arbitrary deadline set by the Administration, what
should be a primary concern of any independent agency when
adopting a rule - to know precisely what is in the rule and to
understand the potential impacts of the rule - was disregarded. 
The Legal Case for Reproposal 
The Rulemaking Agencies have not complied with legal obligations
that apply to any rulemaking.  In particular, the proposal of
the Volcker Rule that preceded today’s action did not provide
sufficient notice to the public of the contents of the rule
adopted today.  As the United States Court of Appeals for the
District of Columbia Circuit (“D.C. Circuit”) has noted
concerning what constitutes adequate notice, “[i]t is not
consonant with the purpose of a rule‑making proceeding to
promulgate rules on the basis of inadequate data, or on data
that, to a critical degree, is known only to the agency.”[2]
The Volcker Rule adopted today is not based on data sufficient
to meet this standard. 
Furthermore, in determining whether the notice requirement is
met, courts have looked to whether the final rule was a “logical
outgrowth” of the proposal and comments.  “[W]e apply that
standard [logical outgrowth] by asking whether ‘the purposes of
notice and comment have been adequately served,’… that is,
whether a new round of notice and comment would provide the
first opportunity for interested parties to offer comments that
could persuade the agency to modify its rule.”[3]  The Volcker
Rule adopted today exceeds the bounds of this logical growth
Unless a statute for a particular regulatory program specifies a
different standard, the scope of judicial review for rulemaking
is governed by Section 706 of the Administrative Procedure Act
(“APA”).  Section 706 provides that, among other things, the
scope of judicial review includes the authority for a reviewing
court to decide whether an agency action is “arbitrary,
capricious, an abuse of discretion, or otherwise not in
accordance with law” or whether the action is “without
observance of procedure required by law.”[4]  In applying the
APA’s arbitrary and capricious standard, the D.C. Circuit has
found that an agency must consider the costs imposed by the
rule.[5]  The “without observance of procedures required by law”
standard requires, among other things, that an agency comply
with the procedures mandated by the APA and with an agency’s own
procedural regulations governing rulemaking.[6]  The Rulemaking
Agencies did not conduct an economic analysis of the rule and
have not estimated the costs that will be imposed by the rule.
In addition, one of the Rulemaking Agencies did not even follow
its own policy to conduct a regulatory analysis before formally
acting on a rule. 
The Administrative Conference of the United States (“ACUS”) was,
until 1995, an independent agency acting in an advisory capacity
in administrative law and procedure.  In this role, ACUS
conducted a study of judicial decisions, primarily of the D.C.
Circuit, of rulemaking proceedings remanded to agencies.[7]
Notably, ACUS recommended that agencies consider providing for
two cycles of notice and comment for rulemakings where, from the
outset, the agency anticipates that the issues will be unusually
complex.[8]  The Volcker Rule could not fit more squarely into
that mold.  Throughout, the proposing release indicated just how
complicated the rule is.[9] 
The Moral Case for Reproposal 
According to the Canons of Ethics that have guided the
Commission for the past 55 years, rulemaking power accorded to
the Commission by Congress imposes the obligation “to adopt
rules necessary to effectuate the stated policies of the statute
in the interest of all of the people.”[10] “[R]ules should never
tend to stifle or discourage legitimate business enterprises or
activities, nor should they be interpreted so as unduly and
unnecessarily to burden those regulated with onerous
In addition, in 2012, the Commission’s Division of Risk,
Strategy, and Financial Innovation - now known as the Division
of Economic and Risk Analysis (“DERA”) - and the Office of the
General Counsel (“OGC”) issued guidance on economic analysis in
Commission rulemakings.  The guidance noted that “as SEC
chairmen have informed Congress since at least the early 1980s -
and as rulemaking releases since that time reflect - the
Commission considers potential costs and benefits as a matter of
good regulatory practice whenever it adopts rules.”[12]  The
guidance provides that each rulemaking include a sound economic
analysis with the following elements:  (1) a statement of the
need for the proposed action; (2) the definition of a baseline
against which to measure the likely economic consequences of the
proposed regulation; (3) the identification of alternative
regulatory approaches; and (4) an evaluation of the benefits and
costs - both quantitative and qualitative - of the proposed
action and the main alternatives identified by the analysis.
DERA and OGC also noted that “[h]igh-quality economic analysis
is an essential part of SEC rulemaking.  It ensures that
decisions to propose and adopt rules are informed by the best
available information about a rule’s likely economic
consequences, and allows the Commission to meaningfully compare
the proposed action with reasonable alternatives, including the
alternative of not adopting a rule.”[13] 
The Board also has a policy for its staff to prepare a
regulatory analysis before presenting any proposals regarding a
regulation to the Board for formal action.  Pursuant to Board
policies, the extent of the regulatory analysis, at a minimum,
“will discuss the need for and purposes of the regulation, set
forth the various options available, discuss, where appropriate,
their possible economic implications, evaluate their compliance,
recordkeeping and reporting burdens, and recommend the best
course of action based on an evaluation of the alternatives.  If
the regulation concerns an area where considerable information
is available, a correspondingly more exhaustive regulatory
analysis will be expected.”[14] 
The Rulemaking Agencies failed both at the proposing and
adopting stages to prepare an economic or other regulatory
analysis of the Volcker Rule.  As a result, we do not know what
the rule’s economic impact will be or whether other alternatives
might have accomplished the goals of the rulemaking at a lower
cost and with less disruption to the capital markets.  This is
simply irresponsible.  I understand that for a rule as complex
as Volcker these analyses would be challenging, yet that is not
a justification for abdicating our moral - and legal -
obligations to do so.  In fact, we should be all the more
careful given that the Volcker Rule undoubtedly will have wide‑
ranging effects on the economy. 
The Common Sense Case for Reproposal 
Common sense, as well as good government, dictates that, at a
minimum, an agency knows what is in the rule and have a basic
understanding of the potential impact the rule will have.
Unfortunately, the Volcker Rule being adopted today fails to
meet both those fundamental principles.  Indeed, if we cannot
satisfy ourselves with how the rule will work, the public is
unlikely to have such confidence either. 
The rule proposal was more than 500 pages long, asked
approximately 1,300 questions, and the Rulemaking Agencies
received over 18,000 comment letters.  The common rule text
spanned approximately 120 pages.  The length of the common rule
text, the volume of questions, and the number of comment letters
attest to the importance and complexity of this rulemaking. 
It was only recently that the Rulemaking Agencies decided to
fast track the rule and adopt it before the end of the year,
with today arbitrarily set as the deadline.  To reinforce just
how arbitrary the deadline is, it has already been 1,238 days
since the passage of Dodd-Frank and 764 days since the rule
proposal was published in the Federal Register.  Yet, despite
this lengthy passage of time, we were directed to complete this
rulemaking by today. 
With five agencies involved, the drafting process was difficult.
During the recent rush to complete and adopt the rule, I have
received, over the past two weeks, multiple iterations of
partial drafts of the rule text and adopting release along with
the caveat that the interagency staff group was continuing to
review and prepare technical and clarifying changes to these
documents.  With less than one week until the date of the vote,
I still had not received the proposed voting draft of the rule.
The final version was finally provided on December 5, 2013,
spanned 932 pages, and, despite my urgings, lacked an economic
As the adopting release notes, there are significant changes to
the rule from the one proposed.  Given these substantial
changes, the short period of time in which to review the rule,
the complexity of the issues, and the lack of an economic
analysis, it is virtually impossible to understand what
precisely is in the rule we voted on today let alone the
possible impact it will have. 
The reasonable outcome and the one most consistent with the law,
our moral obligations, and common sense would have been to
repropose the Volcker Rule.  This would have allowed the public
the opportunity to review and submit comments on the myriad
changes from the initial proposal.  I understand that a
reproposal would have taken additional time and delayed the
adoption of a final Volcker Rule.  However, as is true in almost
all circumstances, it is better to get it right than to simply
get it done. 
[1]  The Volcker Rule proposal was approved before I joined the
[2]  Portland Cement Association v. Ruckelshaus, 486 F.2d 375,
393 (D.C. Cir. 1973). 
[3]  American Water Works Association v. EPA, 40 F.3d 1266, 1274
(D.C. Cir. 1994) (quoting Fertilizer Institute v. EPA, 935 F.2d
1303, 1311 (D.C. Cir. 1991). 
[4]  5 U.S.C. 706. 
[5]  Chamber of Commerce of the United States v. SEC, 412 F.3d
133, 144-145 (D.C. Cir. 2005).  I note, however, that in that
case, under Section 2(c) of the Investment Company Act of 1940,
the SEC was required to consider whether the rule would promote
efficiency, competition, and capital formation.  The rule
adopted today is not promulgated under the Investment Company
Act, and, therefore, not subject to the requirements of Section
[6]  See, e.g., Way of Life Television Network, Inc. v. FCC, 593
F.2d 1356, 1359 (D.C. Cir. 1979). 
[7]  ACUS Recommendation No. 76-3, Procedures in Addition to
Notice and the Opportunity for Comment in Informal Rulemaking,
41 FR 29654, 29655 (July 19, 1976). 
[8]  Id. 
[9]  See Prohibitions and Restrictions on Proprietary Trading
and Certain Interests in, and Relationships With, Hedge Funds
and Private Equity Funds, SEC Rel. No. 34-65545 (Oct. 12, 2011),
76 FR 68846 (Nov. 7, 2011) at 68849 (“Given these complexities,
the Agencies request comment on the potential impact the
proposed approach may have on banking entities and the
businesses in which they engage.”); at 68869 (“Although the
purpose and function of these two activities are markedly
different--market making-related activities provide
intermediation and liquidity services to customers, while
proprietary trading involves the generation of profit through
speculative risk-taking--clearly distinguishing these activities
may be difficult in practice. …  In order to address these
complexities, the Agencies have proposed a multi-faceted
approach ….”); at 68874 (“Like market making-related activities,
risk-mitigating hedging activities present certain
implementation challenges because of the potential that
prohibited proprietary trading could be conducted in the context
of, or mischaracterized as, a hedging transaction.  This is
because it may often be difficult to identify in retrospect
whether a banking entity engaged in a particular transaction to
manage or eliminate risks arising from related positions, on the
one hand, or to profit from price movements related to the hedge
position itself, on the other.”); at 68884-68885 (“The types of
trading and market making-related activities in which banking
entities engage is often highly complex, and any quantitative
measurement is capable of producing both ‘false negatives’ and
‘false positives’ that suggest that prohibited proprietary
trading is occurring when it is not, or vice versa.”); at 68889
(“In light of the size, scope, complexity, and risk of covered
trading activities, do commenters anticipate the need to hire
new staff with particular expertise in order to calculate the
required quantitative measurements …?) (emphases added). 
[10] 17 CFR § 200.67. 
[11] Id. 
[12] Current Guidance on Economic Analysis in SEC Rulemakings
(Mar. 16, 2012), available at
[13] Id. 
[14] See 44 FR 3957, 3958 (Jan. 19, 1979). 
(bjh) NY 
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