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Re-preposing Gets Proposed


It's not every day that you see a shot in the seeming dark come to be, in a matter of weeks.

But that has come to pass, in the case of the Volcker Rule, that Dodd-Frank Wall Street Reform Act product that has stirred endless debate on its definition and implementation.

Last month at the Investment Company Institute's Mutual Funds and Investment Management Conference in Phoenix, firms that run registered investment funds said the ban on banks trading with their own capital should get 're-proposed' before it goes into effect in July. They cited its unintended consequences on fund firm operations and other parts of capital markets.

"We would all be hopeful for a re-proposal,'' said David Oestreicher, Chief Legal Counsel for T. Rowe Price Associates, a publicly owned Investment firm based in Baltimore. "A re-proposal would be the healthiest and best step.''

Last week, the wish got heard by Securities and Exchange Commission member Troy Paredes.

"At this point, the most prudent path forward would be a re-proposal," Paredes, one of two Republicans on the five- member commission, said of the Volcker rule, last Monday. "We run the risk that when we solve one problem we create many other problems and other unintended consequences."

Implementation of the rule now includes exemptions that would allow banks to conduct proprietary trading that is tied to market-making activities or hedging risk. That's complex to oversee.

T. Rowe Price, for its part, owns and operates a small savings bank that sells certificates of deposit with the promise to potential customers of "the benefits of FDIC insurance and predictable interest payments, plus world-class service from a name you trust." Because of that savings bank, the Volcker Rule will apply to all T. Rowe Price businesses once its strictures take effect this year, Oestreicher said.

That will put a crimp on its much more important and sizable mutual fund business, for instance.

Launching funds also gets difficult.

After one year, the company will have to reduce its stake in a new fund that it has created to 3% or less of overall capital. That would hamper T. Rowe Price's efforts to build up the fund and find more investors in it

Time to take the next step. Re-propose.