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John Ramsay

Acting Director
Division of Trading and Markets
New York City Bar Association, New York, NY
Feb. 4, 2014
Introduction
The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private
publication or statement by any of its employees. The views expressed herein are those of the author and
do not necessarily reflect the views of the Commission or of the authors colleagues upon the staff of the
Commission.
Thank you for giving me the chance to talk to you today about the Volcker Rule, which as you know,
represents one of the most far-reaching, highly anticipated and, in some cases, feared regulatory initiatives
affecting the banking and securities businesses in recent times. Before going any further, I should remind
you that my remarks today represent my own views, and do not necessarily reflect those of the
Commission, Commissioners or my colleagues on the staff.
As you know, the Volcker Rule was a cooperative effort among five different agencies, and of course my
remarks also do not necessarily reflect views of officials of other agencies. On a personal note, though, I
would add that this truly was a collaborative interagency effort, notwithstanding suggestions in the press
that the agencies were at times working at cross-purposes. I recall one story suggesting that banking
regulators had to be lured to a meeting at the SEC with a promise of a fried chicken dinner,[1] which
probably says a lot about the culinary standards of federal employees.
Somehow, I missed out on the fried chicken, but I can honestly say that the SEC staff and bank regulators
worked well throughout the process, and I think each of us benefitted from the perspectives of the others.
I wanted to focus today on the market making exemption to the proprietary trading ban under the rule. The
Volcker Rule is much broader, of course, but I have limited time today and this particular aspect of the rule
impacts directly the functioning of equity and fixed income markets, which are of vital concern to the
mandate and mission of the SEC. Likely for the same reason, this part of the rule attracted some of the
heaviest volume of public comment. For the most part, I will not try to address the broad policy objectives
targeted by the Volcker Rule, or how the rule tries to achieve them. Instead, I want to provide some
general thoughts for practitioners who are interested in how the Volcker Rule relates to market making by
bank affiliates.
Market making (along with other exemptions, including underwriting) was identified by the Dodd-Frank Acts
Volcker Rule provisions as needing an exemption from the proprietary trading prohibition.[2] Market
making is of course critical to the function that broker-dealers perform in supplying liquidity and helping to
raise capital. To me, that means, at a minimum, that the agencies were tasked with trying to implement
the exemption in a way that honors the general proprietary trading ban, but preserves the public benefit
that comes from active participation by banking entities in supplying liquidity to the securities and
derivatives markets.
At the same time, separating market making, in particular, from proprietary trading is no easy task.
Consider that the Volcker Rules definition of proprietary trading roughly translates to trading in financial
instruments on a short-term basis or hedging the risks of those activities.[3] Of course, that could describe
what all market makers do, and mostly what securities firms do in general. Depending on how the
exemption was drawn, it could have nullified the prohibition or it could have prohibited a substantial amount
of socially beneficial activity.
The statute does provide some help by saying that market making is intended to service the reasonably
expected near-term demand of clients, customers, or counterparties.[4] In other words, market making
activities under the rule are intended to serve the needs of market participants, not just the needs of a
banking entity. Ill say more about this in a moment, but for me, this is the key point of distinction. The
rule therefore in broad brush seeks to protect outward facing activity that is driven by the needs of the
marketplace.
Description of General Approach
Let me make a few points about the general approach. The exemption was crafted so that it could be
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usefully applied to trading in a broad range of securities and derivatives, without relying too much on the
law and lore that has grown out of the regulation of market makers in equity markets. If a purpose of the
exemption is to encourage banks to supply liquidity to securities markets, it would not make sense to limit
its use to markets where there is already plenty of liquidity.
The exemption was also written to be applied holistically to activities by a trading desk in a group of related
instruments, not judged on a trade by trade basis. Commenters argued that judging compliance on a now
you see it, now you dont basis that looks at each individual trade to see if it fits would not be workable,
and was not necessary in order to create an exemption that has teeth. In this regard, the first sentence of
the market maker section establishes that the exemption from the proprietary trading ban covers market
making-related activities conducted in accordance with the rule.[5]
Another important point is that the requirements of the exemption are mostly applied at the level of the
trading desk, and that is the way that compliance will be reviewed. The Volcker Rule defines the term
trading desk to mean the smallest discrete unit of organization that banking entities use to trade for
their own account.[6] That may sound mysterious, but it is actually pretty simple. How does the firm itself
organize and assign responsibility for its trading functions, at the so-called bottom of the pyramid? Each
discrete trading unit that handles an identified group or groups of instruments, and for which the firm tracks
profits and losses, is a trading desk.
It is important to note that trading desks are not defined by reference to legal entities. Thus, various
transactions may be booked in different legal entities by a single trading desk, provided the transactions are
all directed and managed by that one group. By the same token, a trading desk can have employees
located in more than one geographic location if they are all managed and supervised as a discrete group.
I see at least three reasons why basing the exemption at the trading desk level is good common sense.
First, because it reflects existing organizational structures, it should be easier for banks to apply than an
approach that looks at trading in a top-down fashion. Second, for the same reason, it should be easier for
regulators to review for compliance. And third, requiring that procedures be applied at each trading desk is
consistent with good risk management.
Finally, the exemption requires that the banking entity must apply and enforce, at the trading desk level, a
rigorous system of risk limits and other controls. Ill say more about that in a moment.
What Is a Market Maker under the Securities Laws?
As an initial matter, one has to answer the question, What does it mean to make a market? As I
mentioned, the rule is not strictly tied to the factors that have been considered important for exchange and
liquid equity markets. At the same time, previous Commission pronouncements and administrative
decisions may be instructive in some respects, so Id like to mention a few of those.
One important factor is a dealers demonstrated willingness to buy and sell on both sides of the market. For
example, in one instance, the Commission discussed the exception for market makers from the so-called
locate requirement from Regulation SHO.[7] In that context, the Commission distinguished bona fide
market making from activity that is related to speculative selling strategies or investment purposes of the
broker-dealer.[8] In particular, the Commission noted that where a market maker continually provides
quotes at or near the best offer, but does not provide quotes at or near the best bid, the activities would not
generally qualify for purposes of the market maker exemption from the locate requirement of Regulation
SHO.[9]
There are numerous administrative decisions involving mark-ups, which sometimes consider whether a firm
is entitled to treatment as a market maker, and therefore able to calculate its mark-ups based on
interdealer trades or quotes, rather than its contemporaneous cost.[10] In that context, it is important to
consider whether the firm has shown a willingness to both buy and sell with other dealers.[11] A pattern of
only buying from other dealers for sale to retail customers does not qualify.[12] In one case, for example
(R.B. Webster Investments), the Commission found that the firm failed to make the case it was acting as a
market maker where it deliberately set its ask quotations higher than any other dealer and as a result never
sold stock to other dealers.[13]
How a dealer shows willingness to trade on both sides of the market depends on the characteristics of the
market for the security. Where quotes by multiple dealers are continually published and available, a dealer
would need to be able to show that it participated in this way.[14] But of course for some types of
securities, this is often not the case. In one of the mark-up cases, for example (Raymond James &
Associates), the Commission noted that the firm did not publish quotations on an inter-dealer system
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because none existed but took other affirmative action to make its quotations available: Raymond James
incurred market risk and added liquidity to a largely illiquid market.[15]
A related question, which also concerns the willingness of dealers to trade in and out of positions, is how
and when dealers trade out of block positions. The Exchange Act definition of market maker includes firms
acting as block positioners.[16] That is relevant to Section 11(a), which prohibits a member of an exchange
from trading on the exchange for its own account, but includes an exception for market makers.[17] In
issuing guidance on this question in 1979, the Commission said that a transaction liquidating some or all of
a block position could be presumed to qualify as a block positioners transaction if the liquidation has not
been delayed for tax purposes, investment purposes, or other purposes unrelated to the current state of the
market.[18]
To summarize then, here are some of the principles that arise from previous statements about what it
means to be a market maker under the existing securities laws, which I think have relevance to the way the
term is used in the Volcker Rule. First, market makers show a demonstrated willingness to trade on both
sides of the market, taking into account trading with other dealers and with customers. Second, they do not
need to provide continuous and transparent quotations where those dont exist in the context of the
particular instruments being dealt in, but they do show ongoing affirmative efforts to trade both long and
short. Third, when market makers amass a large position on one side of the market in order to facilitate a
customer trade, they seek to promptly unwind or trade out of the position, consistent with market
conditions.
Elements of the Volcker Definition
Now I would like to turn to the Volcker Rule and how it addresses this question in that context. To answer
this question, the rule uses very deliberate language, and each element is important.
First, the desk must show that it routinely stands ready to buy and sell one or more types of financial
instruments.[19] The rule does not require trading on a regular or continuous basis, the phrase that has
long been applied to exchange and equity market makers, in recognition of the fact that trading in many
fixed income and derivative markets and in fact some equity markets is not continuous in the sense that
there are always published quotes that can be accessed.[20] By routinely stands ready, the rule suggests
that the firm must be prepared to trade in the instruments in which it makes a market at all times, even if
trading in the particular instruments is non-continuous.
Second, the desk must be willing and available to quote, buy and sell, or enter into long and short
positions for its own account.[21] There are various ways that dealers advertise their willingness to trade in
particular instruments, the key point being that the banking entity needs to demonstrate that it is willing.
And it needs to make that showing on both sides of the market. A firm that regularly amasses a long
position in a type of bonds, for example, but rarely seeks to trade out of it, regardless of market interest, in
my view would not meet the test.
Third, trading and quoting activity must be in commercially reasonable amounts and throughout market
cycles, considering the characteristics of the particular market.[22] Again, this language suggests there is
no one-size-fits-all test, but the desk must show a willingness and ability to trade long and short under
various market conditions. I would not view firms that are willing to trade and provide quotes only when
they deem market conditions to be favorable as market makers for purposes of the rule.
Reasonably Expected Near Term Demand
The last basic element of the definition is that the instruments and related risks that the desk carries at any
point in time must be designed not to exceed reasonably expected near term demand.[23] The term
market-maker inventory refers to all the trading desks positions in instruments for which it is willing to
make a market.[24] In short, to qualify as reasonably expected near term demand, the amount of
securities or derivatives positions held in inventory needs to be reasonably related to external demand, that
is, what the desk needs to maintain in order to be able to trade with its customers, when and in the
amounts they want to trade.
The rule says this factor is based on the liquidity, depth, and maturity for the market for the particular
instruments in question.[25] In some highly liquid equity markets, for example, market makers often,
though not always, trade close to flat by the end of each day, because there is enough liquidity available in
the market to satisfy customer demand without holding onto positions. In contrast, trading in corporate
bonds is a very different proposition: a dealer likely will need to hold more risk in inventory in order to be
able to trade with customers based on the level and nature of the market interest in the bonds traded.
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Reasonably expected near term demand is obviously important, but how does the desk determine what
demand means for this purpose? The rule says that each trading desk needs to conduct an analysis that is
both backward and forward looking.[26] What are the historical trading patterns, including turnover in
inventory, for the instruments the desk is trading? More broadly, how much trading interest for those
instruments has existed in the market at large? Looking forward, what are the current and expected market
conditions, and how will those impact the amount of expected demand? These are some of the questions
the desk should analyze, and the rule clearly says the analysis must be demonstrable.[27] That, in my
view, means it needs to be backed up by data and facts, not by conjecture.
All of that said, the rule does not require banking entities to make clairvoyant predictions of the future, and
we all know that even well-grounded predictions of market trends sometimes dont pan out. I would put the
test this way: has the firm made a reasonable judgment, based on objective factors and analysis, as to the
positions and risks it needs to carry in order to meet the needs of its customers?
Conceptually, these ideas may be easier to apply to securities that can be readily bought and sold.
Derivatives are different, of course, since they represent contractual obligations between a dealer and its
counterparty. In particular, a dealer that structures a customized derivative for a customer may not be able
to readily find another customer that is willing to take the opposite position in the same instrument and in
the same amount. The Preamble spends a fair amount of time addressing just this question, and I would
recommend that you look at it closely.[28] But at the risk of oversimplifying, I would summarize this way.
A firm that makes markets in derivatives is not precluded from taking a position in a customized instrument
to meet a customers needs, even if it anticipates that it cannot readily enter into another trade that unloads
the risk of that position. In that case, however, while the position is held, the desk needs to manage the
risk within its risk limits, and when it has the ability to reduce its inventory risks by trading with customers,
it should do so.
Clients, Customers and Counterparties
Reasonably expected near term demand, under the text of the statute and rule, relates to trading with
clients, customers, or counterparties.[29] The rule defines this term in a functional way to refer to market
participants that make use of the firms market maker services, for example by looking to the firm to
provide quotations or to provide other services.[30] For shorthand purposes, Ill simply use the term
customer.
One important question is whether trading activity with another dealer counts as a trade with a customer.
The answer is it depends. In many cases, one dealer may look to another dealer acting as a market
maker to provide quotations or to serve as a source of liquidity. In other words, one dealer can relate to
another as a customer for particular types of instruments. The rule does, however, create a presumption
that another dealer that is part of a very large firm with trading assets and liabilities of $50 billion or more
is not acting as a customer.[31] That presumption can be rebutted, but a firm would need to be able to
make the case that, in trading with one of the largest trading firms, the second firm is functioning as a
customer of the first.[32] On the other hand, any trade on an exchange or other anonymous trading
platform can be treated as a customer trade.[33]
Although the rule requires a demonstrable assessment of the reasonably expected near term customer
demand, as the Preamble recognizes, market makers can and often need to trade with each other in order
to obtain inventory, reduce the risk of existing positions, and for other purposes.[34] In fact, as mentioned
earlier, a willingness to trade with other dealers on both sides of the market is one of the factors that the
Commission has looked to in deciding whether a dealer is acting as a market maker.
Compliance Program and Timing
As just discussed, the market maker exemption provides a fair amount of room for firms to make markets in
a variety of instruments, subject to compliance with the reasonably expected near term demand
requirement. The trade-off is reflected in the next part of the rule, the compliance program
requirements.[35]
These requirements are connected to, but should be thought of as distinct from, the compliance
requirements contained in Appendix B to the rule, particularly the enhanced requirements that apply to
larger banking entities.[36] First, Appendix B establishes requirements that apply to Volcker Rule
compliance across the firm, not just trading functions. Second, with regard to trading functions, Appendix B
prescribes much more granular and specific requirements, which apply to trading under the market making
exemption as well as all of the other specific exemptions provided by the rule. So in considering the
compliance program for market making desks, it is important to look both at the market maker exemption
and the other compliance program requirements.
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The nature of the compliance obligations and the timing for implementing them is tiered based on the size
of the consolidated firm. In brief, this is how the schedule works:
All banking entities with more than $10 billion in consolidated assets need to have basic compliance
procedures in place by July 2015.
The largest firms, those with more than $50 billion in consolidated assets, are also required to have
the enhanced and more granular procedures in place by July 2015.
Firms with trading assets and liabilities between $25-50 billion have until April 2016 to put the
enhanced procedures in place.
Banking entities with between $10-25 billion in trading assets and liabilities are given until December
2016.
The trading assets and liabilities tests exclude trading in Treasuries and agency debt. Also, for these
purposes, foreign banks count only the assets and liabilities of their U.S.-based operations.[37]
Elements of the Policies and Procedures
In general, the rule adopts a policies and procedures approach to compliance, which is to say each banking
entity relying on the exemption is required to establish policies and procedures for each trading desk
reasonably designed to address each of five elements.
What is the desk making a market in? First, the procedures need to identify which financial instruments the
trading desk is making a market in.[38]
Hedging and Risk Mitigation. Second, they need to detail how the desk is going to manage and reduce the
risks of its financial exposure.[39] That includes information on techniques and strategies used to limit risk,
the products and instruments that will be used as hedges, and the means and people who will be employed
to ensure that risk management efforts are effective.
It is important to note that the rule does not require hedging by a market maker desk to separately comply
with the hedging exemption, which contains additional, and in some ways more prescriptive requirements
than contained in the exemption. In general, compliance with the distinct hedging exemption is not
required if the trading desk is hedging the risks of its own trading activity, is not hedging positions that are
put on by any other unit, and if it is hedging in accordance with its own desk-specific procedures.
Risk Limits. The third element is the establishment of specific risk limits that are unique to the instruments
traded and exposures taken on by the desk.[40] That means that limits must be set with respect to the
positions held in the market maker inventory, and also with respect to the instruments and exposures the
desk uses for risk management. Most important in my view, limits must be set on the firms overall net
financial exposure, taking into account both market maker inventory and hedging activity, and the limits
need to apply to specific risk factors that are relevant to trading on that particular desk. The rule does not
attempt to name all of those factors, but all desks will need to set one or more limits on market risk,
whether expressed in a value at risk or another method. In addition, depending on the type of trading,
limits on credit, currency, commodity price, and basis risk, may all be appropriate. Finally, the risk limits
need to cover how long a particular type of instrument may be held.
It is also very important to understand that the limits need to take account of the reasonably expected near
term demand analysis conducted by the firm with regard to those instruments. In other words, the trading
desk needs to be able to show that the limits set are related to and appropriate for the nature and level of
its customer-facing activity. This point is critical to the integrity of the exemption, or else trading desks
could establish limits that are arbitrary or disproportionate to the purpose of the exemption to allow
banking entities through market making to meet customer demand. In this regard, one requirement of the
Appendix B requirements that I mentioned earlier is a demonstration of why the limits set are appropriate to
specific trading activity.
Internal Controls. The fourth element is the specification of internal controls and ongoing monitoring and
analysis of compliance with the risk limits.[41] To make perhaps an obvious point, it is not enough to set
the limits, there also needs to be a system to enforce them.
The rule does not contemplate that limits may never be breached, or that doing so would eliminate the
ability to rely on the exemption. Unusual market volatility, unanticipated demand, or other factors could
lead to a breach of one or more limits. When this occurs, the rule requires that the trading desk takes
action to bring its exposure back into compliance as promptly as possible, without prescribing the means
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to do so.[42]
Authorization and Escalation. Another possibility is that individual limits could be increased, and that brings
me to the fifth and final compliance element: authorization and escalation procedures need to be identified
so that, if a trading desk wishes to seek an increase, it must first analyze and document the basis for the
increase.[43] For example, an increase may be appropriate if the firm has made a strategic decision to
increase the amount of capital and personnel devoted to trading certain instruments. In each case, though,
any increase to risk limits needs to be independently reviewed and approved by persons independent of the
desk itself.
My broader point is that the rule does not contemplate that risk limits will be static. In fact, changes in the
firms evaluation of the reasonably expected near term demand and other relevant factors may call for
certain limits to be adjusted downward, rather than increased. Hopefully, this is generally the way that
firms already manage their market making risks, though for many the rule will undoubtedly require more
rigorous procedures and more documentation than exists today.
Compensation
To claim the exemption, the rule also says that compensation arrangements of persons who are engaged in
market making must be designed not to reward or incentivize prohibited proprietary trading.[44] This
language tracks the statute; the rule does not attempt to prescribe specifically how traders may be
compensated.
Over time, this requirement may be given greater definition through interagency guidance, but in the
meantime, I would suggest that banking entities review their existing compensation programs for trading
personnel with a view to evaluating how well, or not, compensation incentives help to make compliance with
the rule more likely. For example, a program that grants large bonuses based on individual trades that
perform well, regardless of how they are hedged and whether they exceed risk limits, would not seem
calculated to encourage compliance with the exemption or to discourage proprietary trading.
Metrics
It is worth spending a few minutes on the metrics that will be required to be reported, beginning in the
summer of this year, for the largest firms. The seven metrics identified in Appendix A[45] are required to
be reported for all of a banking entitys trading activities, but they will be particularly relevant to market
making. In particular, risk and position limits for each desk will need to be reported, along with market risk
and risk sensitivity measurements. Other metrics related to inventory turnover, inventory aging, and the
customer-facing trade ratio, also will be relevant to understanding how a desks activity aligns with the
conditions to the market making exemption that I just described.
One more metric deserves special note: comprehensive profit and loss attribution.[46] As the rule was first
proposed, the exemption would have required that market making activities be designed to generate
revenue mainly from fees, commissions, and spreads, rather than from price appreciation. The agencies
received a lot of comments to the effect that, for many instruments, commissions do not exist, and it is
difficult or would be arbitrary to allocate revenue to spreads.[47]
The final rule does not include the proposed source of revenue requirement. Instead of prescribing any
particular formulation for revenue, the appendix includes a profit and loss attribution metric, which tracks
for each day the gains or losses on positions that were acquired on that day, as compared to gains and
losses on positions held longer than one day. This should be an easier item to compute than the source of
revenue calculation and a better measure of how much a desk is depending on longer-term price
appreciation.
Appendix A itself says that the metrics are intended in part to help the agencies and banking entities to
understand whether particular trading activity is consistent with the market maker exemption.[48] At the
same time, it is important to stress that there are no pre-defined good metrics or minimum or maximum
thresholds that determine compliance with the exemption, and one could assume that the metrics would
vary a lot depending on the products traded.
In fact, the agencies acknowledged that they will need to get experience from receiving this data before
forming any views, and the appendix itself provides that the metrics will be revised, as appropriate, after
September of next year based on review of the information collected by that time.[49]
Conclusion
I hope that I have been able to help clarify the major elements of this one specific, but very important, part
of the Volcker Rule. As with all the other provisions of the rule, I know that many questions will
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arisesome anticipated and some perhaps not.
The agencies are committed to addressing interpretive questions in a collaborative way and in fact have
already set up an interagency group to help in doing so. This will be an iterative process and should benefit
from healthy two-way dialogue between the agencies and the industry. Im pleased to have been able to
advance that dialogue just a bit further today.
[1] See Scott Patterson and Deborah Solomon, Volcker Rule to Curb Bank Trading Proves Hard to Write:
Regulations Remain Unfinished Three Years After Approval, Wall St. J., Sept. 10, 2013, available at
http://online.wsj.com/news/articles/SB10001424127887323838204579000623890621830.
[2] 12 U.S.C. 1851(d)(1)(B).
[3] Final rule ___.3(a) (d). For the text of the final rule and its appendices, see Prohibitions and
Restrictions on Proprietary Trading and Certain Interests In, and Relationships With, Hedge Funds and
Private Equity Funds, BHCA-1, at 950-1067 (Dec. 10, 2013), available at http://www.sec.gov/rules/final
/2013/bhca-1.pdf.
[4] 12 U.S.C. 1851(d)(1)(B).
[5] Final rule ___.4(b).
[6] Final rule ___.3(e)(13).
[7] Amendments to Regulation SHO, Exchange Act Release No. 58,775, 73 Fed. Reg. 61,690, 61,699 (Oct.
17, 2008) (citing Short Sales, Exchange Act Release No. 50,103, 69 Fed. Reg. 48,008, 48,015 (Aug. 6,
2004)).
[8] Id.
[9] Id.
[10] See, e.g., Shamrock Partners, Ltd., 53 S.E.C. 1008, 1011-12 (1998); Raymond James & Assocs., Inc.,
53 S.E.C. 43, 48 (1997); R.B. Webster Invs., Inc., Exchange Act Release No. 35,754 (May 23, 1995), 59
SEC Docket 880, 881-82 (June 7, 1995); Adams Sec, Inc., 51 S.E.C. 311, 313-14 (1993); Century Capital
Corp. of S. Carolina, 50 S.E.C. 1280, 1281 (1992); LSCO Sec., Inc., 50 S.E.C. 518, 519 (1991); Strathmore
Sec., Inc., 42 S.E.C. 993, 997 (1966); Sky Scientific, Inc., Securities Act Release No. 7724, Exchange Act
Release No. 41,744 (Aug. 16, 1999), 70 SEC Docket 797 (Sept. 27, 1999).
[11] Shamrock Partners, Ltd., 53 S.E.C. at 1011-12 (to be treated as a market maker, a dealer must,
among other things, advertise its willingness to buy and sell securities for its own account and stand ready
to buy and sell to other dealers at its quoted prices); R.B. Webster Invs., Inc., 59 SEC Docket at 881 ([i]n
order to be treated as a market maker, a dealer must be willing to both buy and sell the security at issue in
the inter-dealer market on a regular or continuous basis); Adams Sec., Inc., 51 S.E.C. at 314 (applicant
was not a market maker where applicant did not demonstrate a willingness to buy and sell [the] stock with
other dealers during the review period at issue).
[12] See, e.g., Sky Scientific, Inc., 70 SEC Docket at 797 (respondent was not a market maker for
purposes of calculating markups because it did not make a two sided market in which it regularly both
bought and sold Sky stock in the inter-dealer market).
[13] R.B. Webster Invs., Inc., 59 SEC Docket at 881 (applicant was not a market maker where applicants
ask quotations were deliberately higher than any other dealers, and as a result, never sold any of the
stock to other dealers).
[14] Shamrock Partners, Ltd., 53 S.E.C. at 1011 (applicant was not a market maker because applicant,
among other things, was not listed in the National Quotation Bureau Pink sheets as a market maker for
[the stock], and it did not enter quotations in the Bulletin Board); R.B. Webster Invs., Inc., 59 SEC Docket
at 881 (applicant was not a market maker where it did not publish quotations for the stock,
notwithstanding that it was listed as a market maker in the pink sheets); Adams Sec., Inc., 51 S.E.C. at 314
(applicant was not a market maker where applicant, among other things, did not publish quotations);
LSCO Sec., Inc., 50 S.E.C. at 519 (applicant was not a market maker were applicant did not even enter its
name in the pink sheets).
[15] Raymond James & Assocs., Inc., 53 S.E.C. at 48.
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[16] 15 U.S.C. 78c(a)(38).
[17] 15 U.S.C. 78k(a)(1)(A).
[18] Securities Transactions by Members of National Securities Exchanges, Exchange Act Release No.
15,533, 44 Fed. Reg. 6084, 6089 (Jan. 31, 1979).
[19] Final rule ___.4(b)(2)(i).
[20] See Prohibitions and Restrictions on Proprietary Trading and Certain Interests In, and Relationships
With, Hedge Funds and Private Equity Funds, BHCA-1, at 186-88, 201, 223-24.
[21] Final rule ___.4(b)(2)(i).
[22] Id.
[23] Final rule ___.4(b)(2)(ii).
[24] Final rule ___.4(b)(5).
[25] Final rule ___.4(b)(2)(ii)(A).
[26] Final rule ___.4(b)(2)(ii).
[27] Final rule ___.4(b)(2)(ii)(B).
[28] See, e.g., Prohibitions and Restrictions on Proprietary Trading and Certain Interests In, and
Relationships With, Hedge Funds and Private Equity Funds, BHCA-1, at 223-26, 260-62, 278-79.
[29] Final rule ___.4(b)(2)(ii); 18 U.S.C. 1851(d)(1)(B).
[30] Final rule ___.4(b)(3).
[31] Final rule ___.4(b)(3)(i).
[32] Final rule ___.4(b)(3)(i)(A).
[33] Final rule ___.4(b)(3)(i)(B).
[34] See, e.g., Prohibitions and Restrictions on Proprietary Trading and Certain Interests In, and
Relationships With, Hedge Funds and Private Equity Funds, BHCA-1, at 258-61.
[35] Final rule ___.4(b)(2)(iii).
[36] See Final rule, Appendix B; see Prohibitions and Restrictions on Proprietary Trading and Certain
Interests In, and Relationships With, Hedge Funds and Private Equity Funds, BHCA-1, at 1048-67.
[37] Final rule __.20; see Prohibitions and Restrictions on Proprietary Trading and Certain Interests In,
and Relationships With, Hedge Funds and Private Equity Funds, BHCA-1, at 9-10, 26, 846-47, 888, 933-34,
1026-32.; Order Approving Extension of Conformance Period, Board of Governors of the Federal Reserve
System (Dec. 31, 2013), available at http://www.federalreserve.gov/newsevents/press/bcreg
/bcreg20131210b1.pdf.
[38] Final rule ___.4(b)(2)(iii)(A).
[39] Final rule ___.4(b)(2)(iii)(B).
[40] Final rule ___.4(b)(2)(iii)(C).
[41] Final rule ___.4(b)(2)(iii)(D).
[42] Final rule ___.4(b)(2)(iv).
[43] Final rule ___.4(b)(2)(iii)(E).
[44] Final rule ___.4(b)(2)(v).
[45] Final rule, Appendix A, Section III(a); see Prohibitions and Restrictions on Proprietary Trading and
Certain Interests In, and Relationships With, Hedge Funds and Private Equity Funds, BHCA-1, at 1037-38.
[46] Final rule, Appendix A, Section IV(b)(1); see Prohibitions and Restrictions on Proprietary Trading and
Certain Interests In, and Relationships With, Hedge Funds and Private Equity Funds, BHCA-1, at 1043-45.
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[47] See, e.g., Prohibitions and Restrictions on Proprietary Trading and Certain Interests In, and
Relationships With, Hedge Funds and Private Equity Funds, BHCA-1, at 318-19, 327-30.
[48] Final rule, Appendix A, Section I(b)(4); see Prohibitions and Restrictions on Proprietary Trading and
Certain Interests In, and Relationships With, Hedge Funds and Private Equity Funds, BHCA-1, at 1034.
[49] Final rule, Appendix A, Section I(d); see Prohibitions and Restrictions on Proprietary Trading and
Certain Interests In, and Relationships With, Hedge Funds and Private Equity Funds, BHCA-1, at 1035.
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