Why I’m voting no to Volcker: SEC Commissioner


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The Volcker Rule banning proprietary trading has plenty of well-known opponents, but not many as high up as one of the commissioners who has to vote on it on Tuesday.

Michael Piwowar, who was appointed to the Securities and Exchange Commission in August, told CNBC at the ICI Global Trading and Market Structure Conference in London that he would vote against the proposed rule in its current form.

“The devil’s in the detail,” he said of the proposed regulation. “The question for me has always been: How do you define the terms?”

Piwowar also announced at the conference his proposals for a comprehensive review of the rules governing U.S. trading, following the “flash crash” of 2010, which was blamed on high-frequency trading.

“We (the SEC) are definitely going to be doing something,” he said. “I want to go big.”

(Read moreWall Street frets as Volcker Rule nears vote)

He called for a two-year review, along the lines of the U.K.’s Foresight Study of computerized trading, with market participants and academics taking part. Two other SEC Commissioners have recently argued in favor of similar actions.

Before then, the agency has to decide on how to implement the Volcker Rule. The rule, named after former Fed Chairman Paul Volcker, who proposed it in the wake of the banking crisis, aims to reduce risk at banks by banning trading for banks’ own profits rather than on behalf of clients.

It is seen as a key part of the Dodd-Frank banking reforms, but critics argue that it will be difficult to tell which trades are made on behalf of the banks. It is expected to be challenged legally by at least one bank if implemented.

As the Republican chief economist for the Senate Banking Committee, Piwowar had a front-row seat to the negotiations that produced the Volcker Rule. He has previously announced his intentions to vote against the regulation as it stands, and reiterated Monday that he plans to vote against it unless there is a new proposal.

Five regulatory agencies, including the SEC, will vote Tuesday on the 800-page rule. Volcker himself has said he wishes the rule was simpler.

Much will hang on how the rule is interpreted, according to banking analysts. A less strict interpretation of the rules should be more favorable to U.S. capital markets banks and the U.S. bond market; a strict interpretation could mean that European banks are able to gain more share in capital markets, according to Bernstein Research.

(Read moreVolcker Rule spotlights CEO responsibility)

The rule was reportedly strengthened in the light of the JP Morgan London Whale trading debaclel, where traders engaged in highly risky proprietary trades.

Asset managers at the ICI conference called for more co-operation between international authorities to make regulations simpler. Piwowar stressed the importance of cooperation between the SEC and other international agencies. “Sometimes the pushback is that we (the SEC) are trying to slow down rule making, but we have an obligation to do a cost-benefit analysis,” he argued.

“The international dimensions to regulation are going to be some of the most important considerations for us.”

—By CNBC’s Catherine Boyle. Follow her on Twitter @cboylecnbc.

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