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VideoThe next accessory desired by top Wall Street traders may not be swanky cufflinks or a Swiss watch.
It could be products with names like the Volcker Assistant or the Volcker Portal.
A year from now, Wall Street firms have to comply with the Volcker Rule, a batch of regulations that aim to restrict the type of trading that banks can do. Named after Paul Volcker, the former chairman of the Federal Reserve, the rule is meant to stop banks from making bets for their own profit, an activity known as proprietary trading. The rule, however, allows broker-dealers to trade on behalf of clients and hedge their positions in certain ways.
Wall Street, it goes without saying, has no love for the rule. It interferes with how banks generate some of their biggest revenues, and it may turn into a legal minefield if they fail to follow its demands.
Now, though, a couple of white-shoe law firms are bringing out products to help their clients comply with the rule. Shearman & Sterling has its Volcker Assistant, while Davis Polk’s is called the Volcker Portal.
“We’ve spent thousands of hours putting this together,” Donald N. Lamson, who headed up Shearman & Sterling’s effort, said. Its selling point is that banks don’t have to build their own Volcker compliance system from scratch. “You could do this yourself, but we’ve got 14 months on you,” Mr. Lamson said. (Davis Polk didn’t make someone available to talk about its Volcker tool.)
Congress’s response to the financial crisis was the Dodd-Frank Act of 2010. The legislation led to hundreds of new rules. A cottage industry sprung up among law firms to advise their bank clients about the new regulation, earning the firms a major new source of revenue. As the rules take effect, the law firms can now eke out extra income with a separate product for the Volcker Rule.
Two global banks have already signed up for Shearman & Sterling’s Volcker Assistant, Mr. Lamson said, declining to name them. Clients won’t get the tool as part of existing financial arrangements, but will have to pay for it, he said.
Drafters of the rule were concerned that banks might disguise proprietary bets as permitted trading. As a result, much effort is spent distinguishing between the two.
Users of the Volcker Assistant answer a series of yes-no questions to determine if the Volcker Rule permits the activity they want to carry out. Colorful thermometers tell the users the degree to which their assessments are complete.
To help prevent evasion, the Volcker Rule requires that bank chief executives must regularly attest that their institutions have a reasonable compliance program in place for the rule. Banks might, therefore, use products like the Volcker Assistant to provide evidence that their compliance is in order. “If I’m a C.E.O., I’ve given myself some assurance,” Mr. Lamson, a former regulator, said.
The banks’ law firms have helped push back against many of the Dodd-Frank regulations. Though Mr. Lamson helped write an early version of the Volcker Rule when he was working for the Treasury Department, he has been a prominent critic of the rule, saying it can weigh on important banking businesses. With the Volcker Assistant, he is now helping his clients adopt a regulation he sees as burdensome. “When life gives you lemons, you make lemonade,” he said.