Key takeaways:

• More than two years after they were originally proposed, on December 10, 2013, the federal banking agencies, the Securities and Exchange Commission and the Commodity Futures Trading Commission adopted final regulations to implement Section 13 of the Bank Holding Company Act (commonly known as the "Volcker Rule"). While many of the core constraints remain, in response to industry comment the agencies in certain areas moved from “transaction-based” prohibitions to more risk-based prohibitions.
• U.S. banks will be able to engage in underwriting, market making and risk-mitigating hedging (including hedging of aggregated, rather than individual positions), and foreign subsidiaries of U.S. banks will have increased ability under the final rule to compete with foreign banks in the trading of sovereign obligations in the home jurisdictions of such subsidiaries. Foreign banks and insurance companies will have more flexibility to engage in proprietary trading under the final rule, while nonbank SIFIs were not addressed in the final rule.
• For the benefit of clients and friends seeking a way to understand the new regulatory framework and the principal features of the proprietary trading restrictions, this Client Update presents in question-and-answer format a discussion of the most prominent components relating to the proprietary trading aspects of the final rule. Our Client Update on the covered funds aspects of the final rule will follow shortly.