Subject: File No. DF Title VI - Prohibitions
From: Ralph S. Saul

August 30, 2010

To: Securities and Exchange Commission on Title VI:

These comments relate to proprietary trading and certain relationships with hedge funds and private equity funds under the Dodd-Frank Act. They are submitted prior to any proposed rule making by the Financial Stability Oversight Council. Since these proposed regulations will apply primarily to banking entities and non-banking financial companies supervised by the Federal Reserve Board, the Commission's role in rule making will be limited. Despite this limited role, these comments seek to assist the Commission in the development of these regulations under the Dodd-Frank Act.

The Act lays out a path for implementing regulations and in a way which mitigates their impact upon banking entities. It also provides for additional capital requirements on proprietary trading and quantitative limits on investments in hedge funds and private equity funds by non-bank financial companies in an area involving entities where the Commission may be a primary regulatory agency.

While proprietary trading by banking entities is generally prohibited under the Act, trading is permissible in connection with a broad array of activities. These activities could provide a major opening for proprietary trading by banking entities. For example, trading activities "designed not to exceed the reasonably expected near term demands of clients, customers or counter-parties" could open the door for proprietary trading activities. The Commission will have a complex task in drafting regulations to implement this exception.

In the 1960's, the Commission issued its Special Study of Securities Markets -- the last time that it made an attempt to make an integrated study of the over-the-counter and exchange markets. Enormous changes have occurred since that time. But the fundamentals of marketing making remain the same. It may be advisable for those involved in drafting those regulations to re-read this portion of the Special Study to determine how its findings relate to the Commission's current task.

Ralph S. Saul