The SEC recently joined the FDIC, the OCC and the Federal Reserve in advancing the Volcker Rule for public comment.  The Volcker Rule is shaping up to be one of Dodd-Frank’s most contentious and confusing new regulations.

Volcker Rule proponents hope that it will, like the late-great Glass-Steagal Act before it, rein in risk-relishing bankers by prohibiting short-term proprietary trading of securities.  Opponents fear it will be overly broad, capturing market-making activities and needlessly raising the cost of capital.  Both want big changes, clouding any predictions on what the final version will look like. 

So, basically, Wall Street has a few months to respond to a 298-page rule proposal jointly issued by four Federal regulators that asks nearly 400 questions which could cost millions of dollars.  Hence the impression some folks get that the only thing certain about the Volcker Rule is the uncertainty surrounding it.  Some analysts seem terrified of this zombie regulation – once dead, now crawling out of the grave with a sickly hunger for brains profits.         

Then again, this resurrected rule might not be so scary.  Stock prices of the major US financial institutions that will fall under its purview remained steady despite the announcement.  The Volcker Rule really is just the watered-down second coming of the law from 1933 until 1999.  The uncertainty of the law is really only found around its margins – trying to determine exactly where market-making ends and proprietary trading begins.  In other words, the devil – that scary boogieman, uncertainty – remains in the details. 

Sure, it seems like everyone is unhappy with the proposal, which took over a year to draft but only minutes to attract detractors.  It has either too many exemptions or too few, depending on who you ask.  But I’ve found that when two groups that never seem to agree on anything suddenly agree on something, you should take that something and do the exact opposite.  A rule that upsets everyone for different reasons tends to be one that is moderate, sensible and likely to have a real and lasting impact.   

In the mean time, we will follow the developments closely.  Histrionics about how awful/amazing the finalized rule will look aside, it will be one of the more arcane of Dodd-Frank’s new regulations.  Anyone falling under its penumbra would do well to tread cautiously and with counsel.