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CFTC’s Chilton Says He Would Vote Against Current Volcker Rule

U.S. Commodity Futures Trading Commissioner Bart Chilton
Bart Chilton, a commissioner on the U.S. Commodity Futures Trading Commission, is seen in this 2009 file photo. Photographer: Brendan Hoffman/Bloomberg

The Volcker rule that U.S. regulators are trying to complete this year doesn’t do enough to limit banks’ ability to make speculative bets, said Bart Chilton, a member of the U.S. Commodity Futures Trading Commission.

“There would be no sense even doing a final rule if what is currently being considered on hedging remains the same,” said Chilton, referring to the rule banning proprietary trading, in a telephone interview yesterday. He said he is prepared to vote against the rule as it’s currently drafted.

“If we voted on it today, I’d oppose it,” he said. “It opens the door for proprietary speculative bets under the guise of hedging, exactly what Congress told us to avoid.”

His comments raise questions about whether five U.S. financial regulators, including the Federal Reserve and Securities and Exchange Commission, can meet a White House- imposed year-end deadline for completing the Dodd-Frank Act regulation.

Chilton, one of three Democrats on the CFTC, has said he intends to step down by the end of the year from the commission, which is planning to vote on the rule next month. If Chilton leaves before the commission’s vote, the rule could still be completed this year if it wins the support of two of the remaining three members.

Hedging Activity

The rule named for former Fed Chairman Paul Volcker, who championed it as an adviser to President Barack Obama, seeks to prevent banks with insured deposits from engaging in the kind of speculative trading that could threaten their stability. The rule would apply to trading at banks including Goldman Sachs Group Inc. and JPMorgan Chase & Co.

CFTC Chairman Gary Gensler and Kara Stein, a Democrat on the SEC, have sought to make it more difficult under the rule for banks to classify such trading as legitimate hedging activity, according to three people familiar with the negotiations.

The Volcker rule draft was distributed to CFTC commissioners this week. Gensler told reporters yesterday that “there is still some more work to be done” on the regulation and that staff members at the five agencies and the Treasury Department are having conference calls about it almost daily.

“I look forward to getting feedback from my fellow commissioners,” Gensler said before Chilton spoke.

Gensler will step down at the end of the year when his term expires. Obama nominated Treasury official Timothy Massad to replace him.

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