The Board of Governors of the Federal Reserve System and the other federal agencies tasked with implementing the Volcker Rule recently released two additional frequently asked questions (FAQs). Both FAQs address compliance obligations with respect to particular exceptions to the Volcker Rule’s proprietary trading prohibition—market-making activity and prime brokerage transactions.
FAQ 17 addresses an aspect of the required compliance program for a trading desk that is engaged in market making–related activity. The FAQ states that a banking entity’s trading desk may rely on objective factors, a shared utility. or a third-party service provider to determine whether an issuer of a security is a covered fund, but such reliance must be incorporated into the banking entity’s written compliance program and be subject to independent testing and audit to ensure efficacy.
FAQ 18 addresses the timing of the annual CEO certification required in connection with permissible prime brokerage transactions. Generally, the first CEO certification (if applicable) should be submitted by March 31, 2016. For covered funds that were sponsored or owned by a banking entity prior to December 31, 2013 (“legacy covered funds”), the first CEO certification (if applicable) should be submitted by March 31 following the end of the relevant conformance period.