Fed: Volcker rule complicates market liquidity

WASHINGTON (MarketWatch)
A top Federal Reserve official on Wednesday acknowledged that the distinction between prohibited profit-making speculative proprietary trading and permissible market-making, liquidity-injecting trades can be difficult to draw, all of which complicates the implementation of the Volcker Rule
The Volcker Rule - named after an idea suggested by former Federal Reserve Chairman Paul Volcker - would prohibit big insured banks' speculative proprietary derivatives and stock investments.
Federal Reserve Governor Daniel Tarullo suggested in testimony prepared for a House Financial Services Committee hearing that firms and regulators may have a difficult time differentiating between legitimate market-making actions and prohibited, speculative transactions
Observers argue that such complications could limit needed liquidity for the markets
Tarullo adds that the statute seeks to distinguish between these activities by looking to the purpose of the trade and the intent of the trader