The Securities Industry and Financial Markets Association has responded to a call by House Financial Services Committee Chairman Spencer Bachus (R-AL) for alternatives to the Volcker Rule, the long-delayed cornerstone of the Dodd-Frank Act that would ban proprietary trading by commercial banks and their affiliates and restrict their investments in hedge funds and private equity.

Last month, Bachus initiated a month-long comment period to solicit “ideas and suggestions on how to formulate a less burdensome legislative alternative to the Volcker Rule.” The recommendations will be the subject of a hearing planned for the fall.

In comments submitted on the Sept. 7 deadline, SIFMA wrote that it supports a “a wholesale alternative to Volcker that relies on already proposed capital rules and regulations that are under consideration and being implemented as a result of Basel III and other initiatives, rather than activities restrictions.”

In the absence of a sweeping overhaul, the letter, co-signed by the Financial Services Roundtable, pitches a series of modifications to the existing statute, including:

The Volcker Rule should apply only to insured depository institutions and their holding companies.

Reconsidering the rule's approach to proprietary trading and reverse the presumption that all short-term principal trading with the intent to profit from price movements, wherever located within a banking organization, is impermissible. As an alternative, the statute should define proprietary trading to "capture only the types of trading activities that Congress intended to restrict.”

Revisit exemptions for permitted activities to ensure that they adequately preserve a banking entity's ability “to engage in socially and economically useful client-oriented activities, such as market making.”

There should be a clearer safe harbor for hedging activity. The hedging exemption should be revised to omit the requirement that activity be designed to reduce “specific risks” to the banking entity and instead allow more generalized mitigation.

“Hedge fund” and “private equity fund” should be defined more narrowly. The funds portion of the Volcker Rule should be limited to hedge funds that engage in the same type of proprietary trading that is deemed to be too risky for banking entities and definitions should exclude “ordinary corporate structures that have never been considered hedge funds or private equity funds.”

Provide the same offshore exemption for U.S. banking entities that is provided for non-U.S. banking entities and clarify that proprietary trading is permitted where the risk is held by an entity outside the U.S., regardless of the location of related activities.

Provide the Board of Governors of the Federal Reserve System with exclusive authority to interpret the Volcker Rule and the final rules, rather than all five regulators jointly.

Provide regulators with exemptive authority to ensure they can effectively address” any unintended consequences or absurd results” that Congress did not intend.

SIFMA and the Financial Services Roundtable are also seeking an extension of the two-year conformance period so that it begins after final rules implementing the Volcker Rule are issued, rather than July 21, 2012, in order to offer a full two-year conformance period “provide banking entities with appropriate time to conform to such an extensive new set of regulatory requirements on their businesses. “