What is in a draft of the 'Volcker Rule' on proprietary trading?

A draft of the 'Volcker Rule' on proprietary trading has hit the Internet, rocking both Wall Street and Washington and sending financial organizations across the country into a frenzy.
"Billions of dollars are at stake for big banks, which have been working for months to shape the rule aimed at curbing risky trading activities that played a part in the financial crisis," the Wall Street Journal wrote.
The leaked document was labeled as a draft and was authored by FDIC, the Federal Reserve, the Comptroller of the Currency and the Securities and Exchange Commission. It was posted on the American Banker's website .
The Volcker Rule proposal defines proprietary trading, offer limited circumstances under which a bank could invest in a hedge or private-equity fund, and require banks to install internal controls to ensure compliance with the rule. The Federal Deposit Insurance Corp. is set to release proposal on Oct. 11.
From WSJ:

"Officials inside the government agencies that drafted the document fumed about the leak. They worried that it could lead to pressure to change the language ahead of the FDIC's meeting next week. Alternatively, the regulators could feel pressure to refrain from changes that could make it appear that they had given in to industry pressure.[...]
The leak left regulators fuming and opened a new front in Wall Street's battle to soften the blow of the proposed rule. The draft gave banking industry lobbyists several days to discuss it before Tuesday, when the Federal Deposit Insurance Corp. is scheduled to consider issuing a version for public comment."

Many of those who have seen the draft are reportedly concerned that it demands extremely granular policing of traders, as part of the strict compliance program described in the leaked 205-page draft.
From the WSJ:

"Among the many prescriptions for these compliance regimes: Banks with trading assets of $1 billion or more in trading assets and liabilities would have to measure their trading with a variety of quantitative formulas, and periodically report these metrics to regulators. The specific reporting requirements would vary by the scale and scope of a banks' trading activity, according to the document." [...]Critics say that by allowing banks to hedge risks on a portfolio-wide basis, the rule could open the door to more aggressive trading tactics. A bank could claim that its portfolio is at risk from an economic turn, such as a recession, and take positions that protect it from such an event, they say."

Still, like countless other pieces of legislation pushed through under the Dodd-Frank Act, it will likely take many more months if not years before Wall Street firms and regulators know how the rule will actually be applied in practice.

(Source: WSJ, October 7, 2011)