Finalized in mid-December, the Volcker Rule prohibits banks from engaging in speculative securities trading, also called proprietary trading. Banks must demonstrate that every derivatives trade they make is designed to hedge a specific risk—except for trades made on behalf of clients. The banks' CEOs must attest to their compliance with the rule.
The purpose is to improve financial market stability, but the Volcker Rule may have a big impact on corporate treasurers who use derivatives to hedge interest rate, foreign exchange, and other financial risks.
Treasury & Risk discussed the effects of the Volcker Rule on both banks and banking customers with Bjorn Pettersen, a managing director at Accenture Finance and Risk Services and a former derivatives trader.
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