Occupy the SEC Weighs In on the Volcker Ruleby
The Occupy movement is turning up in surprising places. Yesterday was the deadline for comments to regulators about the Volcker Rule, the part of the Dodd-Frank financial reform act that limits the bets financial firms can make with their own money. In the flurry of comments from all corners of the financial industry, one 325-page letter came from an unlikely source: Occupy the SEC. The group’s detailed response won quick praise from some financial bloggers. Felix Salmon calls it “absolutely astonishing” and Naked Capitalism says: “The group seems to have understood and articulated Volcker’s (and the electorate’s) intent pretty effectively.”
Occupy the SEC is a working group from the New York General Assembly, the coalition of people that organized the occupation of Zuccotti Park last fall. Other Occupy groups focus on topics ranging from sustainability and labor to health care and “alternative” banking systems. The Securities and Exchange Commission team has been developing a response to the Volcker Rule since soon after regulators released a draft, says Alexis Goldstein, who says she worked at Wall Street firms that include Deutsche Bank, building IT systems for traders. The team of seven people held a biweekly “book club” to examine the proposed rule. They initially met at a diner, but their sessions lasted so long that the diner grew unhappy, Goldstein recalls. She said they moved their meetings to the atrium of a building in the financial district. The group went through the questions proposed by regulators, ultimately dividing up responsibility for drafting sections of their response.
On Jan. 12, six members of the Occupy group held a conference call with 11 SEC staffers to clarify questions such as: “Do you believe § _. 13(d)(2)) can be interpreted to include credit default swaps, total return swaps and repurchase agreements?” In the end, the group responded to 244 of the 395 questions regulators asked.
Along with Goldstein, five other Occupiers—Eric Taylor, Elizabeth Friedrich, Caitlin Kline, Cathy O’Neil, and Akshat Tewary—participated in the SEC calls. Goldstein says a seventh member wanted to remain anonymous, so didn’t join that conversation. Like Goldstein, several members have experience in finance. Kline says she used to be a derivatives trader. Tewary is a lawyer who worked on securitization cases at the firm Kaye Scholer, according to his bio on the website of his current firm, Kamlesh Tewary. Mother Jones, which reported on the group in December, says O’Neil is a former Wall Street quant.
There are parts of the rule that Occupy the SEC would like to see toughened. For example, Goldstein sees a “big loophole” in the proposed rule that allows banks to make proprietary trades using so-called repurchase agreements, by which one party sells securities to another with the promise to buy back the securities later. The group wants to make sure other parts aren’t eroded. For example, the rule currently spells out how foreign companies that don’t have clients or locations in the U.S. won’t be covered by the regulation. “We feel the foreign funds exemption is well-phrased and thorough and should not be watered down,” Goldstein says. They are also nervous about a question regulators posed, asking if certain investments in illiquid assets should be altogether exempt from the rule because there is limited data on the trades. “That’s the worst of all worlds,” Kline says. She thinks the investments should be banned—or at a minimum, should be allowed only if the banks are making a market in them, as the rule currently states.
The group hopes to have a follow-up meeting with the SEC. It may also comment on the Commodity Futures Trading Commission’s version of the Volcker Rule. Drafts of letters to that regulator are due in April.