On January 11, 2012, the Commodities Futures Trading Commission (“CFTC”) issued a notice of proposed rulemaking to implement the “Volcker Rule” requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  Under the proposed rule, banks would be banned from trading on their own accounts, and would be allowed to make only limited investments in private-equity and hedge fund groups.  This means banks and their subsidiaries could be prevented from proprietary trading and hedge fund investments in energy markets. 

The proposed rule would also ban the trading of physical forward contracts, creating the potential for a jurisdictional dispute between the CFTC and the Federal Energy Regulatory Commission (“FERC” or the “Commission”).  If a bank or one of its affiliates is trading in the wholesale electricity market and that trading is deemed to be “proprietary,” it would be banned from undertaking such activities under the proposed rule. This would be the case even though the CFTC has no jurisdiction over such energy markets.  FERC has previously asked the CFTC to ensure no overlap of jurisdiction occurs between the Commission and the CFTC under the Dodd-Frank Act (see February 24, 2011 edition of the WER).   

The House Committee on Financial Service has scheduled a hearing to examine the impact of the Volcker Rule in connection with “markets, businesses, investors and job creation” on January 18, 2011.  Additionally, the CFTC is accepting public comments on the notice of proposed rulemaking for 60 days after publication in the Federal Register. 

 A copy of the CFTC’s notice of proposed rulemaking can be found here.