On July 24, 2017, the Division of Supervision and Regulation of the Board of Governors of the Federal Reserve System (the “Board”) issued a letter (“SR Letter 17-5” or the “Letter”) providing the procedural and substantive requirements for banking entities to request extensions of the permissible seeding period for covered funds under the Volcker Rule.
TThe default seeding period under the Volcker Rule is one year, unless a banking entity applies for and is granted an extension. The Letter provides a way for a banking entity to apply for an extension, of no more than two years in duration, to reduce its holdings in a covered fund under the permissible limit of three percent. Therefore, if the relevant Federal Reserve Bank or the Board (collectively, the “Federal Reserve”) approves, the maximum potential seeding period under the Letter is three years. With the Letter, banking entities now have a standardized procedure to follow in making requests to extend the seeding period.