The S.E.C.  has become the latest agency to support an initial version of the so-called Volcker rule, a new regulation aimed at curtailing risky trading on Wall Street. The agency voted unanimously to advance the proposal and  also introduced a plan  to deepen its scrutiny of major players in the derivatives industry.  The rule, a crucial component of the Dodd-Frank financial regulatory overhaul, would both limit banks from investing in hedge funds and ban proprietary trading, a major profit center where banks trade using their own money rather than client funds.   S.E.C. chairman,  Mary L. Schapiro, called the proposal a “key component” of the government’s response to the financial crisis. She also noted that lawmakers crafted the measure “in order to protect taxpayers and consumers.” The agency’s lone Republican commissioner, Troy Paredes, agreed to support the proposal for now, but warned that he has “significant reservations” about its scope. While four different regulators this week proposed nearly identical Volcker rule proposals, each agency has its own responsibility under the rule, depending on the type of firm it regulates. The Office of the Comptroller of the Currency, for instance, will enforce the proprietary trading ban for nationally registered banks, while the S.E.C. will cover publicly traded firms and investment advisers. With so many regulators involved, each vying to include their own pet issues, the Volcker rule has become one of the most difficult and time-consuming policies stemming from Dodd-Frank. A recent PWC Report, noting the complications that come when multiple regulators collaborate, called the Volcker Rule “one of the most challenging financial regulatory provisions ever written, dealing with highly technical complex legal matters crossing banking, capital markets and investment management rules.” Ms. Schapiro acknowledged that the rule-making has been “an extensive undertaking.” Even as regulators unveiled the draft, much remained uncertain about the rule. In the 298-page document, regulators posed nearly 400 questions for the industry and the public to consider, leaving room for significant change. The rule’s critics and supporters alike are already pushing ideas for tweaks, though for drastically different reasons. Consumer groups, concerned that some exemptions to the proprietary trading ban are overly broad, want to toughen the rule. Wall Street wants even wider exemptions, warning that a strict crackdown will eat into profits at a difficult time for the industry. Already, regulators have proposed several exemptions, including for trading in government bonds and foreign currencies. The rule also excuses trades fashioned as hedges against risk. Market-making and underwriting are exempt, too, though the line is often fuzzy between these pure client activities and proprietary bets. Banks, as part of routine market making, can buy securities from one customer with the intent of selling them to another client. The proposal attempts to draw the line between such legitimate market-making and proprietary trades using six metrics, including the sort of revenue generated from a trade. For now, the proposal’s definition of market making largely tracks the description laid out in earlier regulations by the S.E.C. On Tuesday, The Federal Deposit Insurance Corporation agreed to support the early-stage Volcker rule proposal, while two other regulators likewise advanced the rule to a public comment period. In other actions,  the S.E.C. also proposed new rules outlining the process for banks and other financial firms that trade derivatives to register with the agency. Dodd-Frank requires the S.E.C. to monitor so-called swap dealers, those firms that arrange derivatives trades, and other companies that have huge positions in swaps, the derivative contracts tied to the value of commodities, interest rates or mortgage securities. The agency’s proposal, advanced in a 3-1 vote, spells out new requirements for such firms, mandating they file a new electronic registration document, branded the Form SBSE. Under the rule, the companies must also have a senior officer certify “the firm’s financial, operational and compliance capabilities.”  [dealbook 10/12/11]