U.S. Financial Overhaul Bill Includes Volcker Rule, Registration Requirement

May 21 2010 | 12:23pm ET

The U.S. Senate yesterday approved the most far-reaching financial regulation overhaul since the Great Depression, including several key provisions that affect the alternative investments industry.

The Senate bill is aimed primarily at overhauling the nation’s banking industry. But it will also require hedge funds to register with the Securities and Exchange Commission and could bar banks from the hedge fund and private equity industries. Other provisions restricting banks and regulating, for the first time, over-the-counter derivatives will also undoubtedly impact the way hedge funds do business.

The Senate voted 59-39 in favor of the bill, with four Republicans—Sens. Susan Collins and Olympia Snowe of Maine, Scott Brown of Massachusetts and Charles Grassley of Iowa, the top Republican on the Senate Finance Committee—voting in favor. Two Democrats, Sens. Maria Cantwell of Washington and Russ Feingold of Wisconsin, voted against the bill, arguing that it did not go far enough. Two other Democrats, Sens. Robert Byrd of West Virginia and Arlen Specter of Pennsylvania, who on Tuesday lost his primary bid for a sixth term, did not vote.

The bill now goes to a conference committee, where the difference between the Senate bill and House of Representatives bill will be worked out. The House bill was passed last year, before President Barack Obama unveiled his plans for the overhaul, which were included in the Senate bill.

An agreement is expected by the summer.

The House bill, for instance, does not include the Volcker rule, which would bar banks from proprietary trading and the alternative investments industry. Both bills, however, include the registration requirement.

Several amendments that would have toughened the hedge fund measures failed to make it into the final bill. One would have eliminated the $100 million floor for registration set by the Senate bill. Another would have toughened the language of the Volcker rule, which, as it is included in the Senate bill, leaves regulators wide latitude.

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