The Dodd-Frank Act - The Volcker Rule
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Learn about one key aspect of the Dodd-Frank Act, that prohibits proprietary trading for certain types of financial institutions.
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Glossary
Dodd-Frank Proprietary TradingTranscript
Let's dive a little deeper into one known aspect of Dodd-Frank. The Volcker rule, the Volcker rule's goal is to stop banks from making certain types of speculative investments that contributed to the 2008 financial crisis. It does this by prohibiting banks from conducting certain trading activities using their own capital and accounts. It also has restrictions in place regarding banks' relationships with hedge funds and private equity funds. Essentially, the Volcker rule prohibits the ability of banks to undertake short term proprietary trading of financial assets. This includes equities, bonds, and derivatives, such as commodity futures and options. Critically, the rule still allows banks to continue activities such as market making, underwriting, and hedging, and can still profit from this as long as there is no conflict of interest, the bank is not exposed to high risk assets or trading strategies, and the trading does not generate instability within the bank or within the overall US financial system.