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« So... How's That Foreign Policy Working? | Main | Prosecutorial Abuse »

May 21, 2010


Bob Smith

Does the revised bill still contain the private equity provisions? Those provisions will absolutely destroy private equity in the US should they become law.

Tom Bowler

Does this answer your question?

Derivatives are not the only battleground for bankers’ last-ditch attempt to curtail the wave of new rules about to crash on Wall Street. The so-called “Volcker rule” – the ban on proprietary trading and investments in in-house hedge funds and private equity funds proposed by the former Federal Reserve chairman Paul Volcker – is still a bugbear for banks.

Most financial groups say proprietary trading – bets with their own capital – accounts for a small portion of profits, but many would find it painful to give up returns from investments in real estate, hedge funds and private equity.

The proposed imposition of a “fiduciary duty” – a legal requirement for banks to do the best for clients – is also bitterly opposed. Banks such as Goldman say it is impossible for marketmakers to have a fiduciary duty to both sides of a deal.

Bob Smith

That's undesirable, but not it. The provisions I'm thinking of are the ones raising the minimum income for accredited investors from $200k to ~$500k, or minimum assets from $1 mil to $2.7 mil, and would further raise these numbers for inflation. Estimates I've seen say that would wipe out ~75% of the accredited investor base. Further provisions would remove Reg D 506's exemption from state securities law and require minimum 120 day hold periods for new companies. As you can imagine, this would utterly eviscerate the private securities markets. I presume pushing this money into the clutches of Wall Street as a new source of profit for them is the entire point of the exercise.

Tom Bowler

Based on what I've read about Rule 506 of Regulation D, private equities are stocks that are not registered with the SEC and because of they are unregistered they may not be traded on the secondary market. Since these securities aren't traded on an exchange, what kind of market are we talking about?

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