The Federal Reserve and other U.S. regulatory agencies proposed Wednesday to revise the Volcker Rule to apply to financial firms based on their trading activity.

"This proposed rule will tailor the Volcker rule's requirements by focusing the most comprehensive compliance regime on the firms that do the most trading," Fed Chair Jerome Powell said in a statement. "Firms that do more modest amounts of trading will face fewer requirements."

The Volcker Rule was proposed during the financial crisis in an effort to prevent banks from speculating in markets. The rule went into effect four years ago and generally prevents banks from trading for their own profit or having stakes in a hedge fund or private equity fund.

Wednesday's proposal allows banks to have stakes in those funds in order to hedge risks for customers that aren't banks. The financial firms would also be able to trade for themselves on a limited basis, under the proposal.

To determine the level of necessary compliance, the proposal divides banks into three categories. Those with trading assets and liabilities of at least $10 billion would need to comply with the strictest rules. Banking entities with trading assets and liabilities of between $1 billion and $10 billion would be subject to "reduced compliance requirements and a more tailored approach."

Firms with less than $1 billion in worldwide trading assets and liabilities would be presumed compliant with parts of the rule and not have to demonstrate compliance.

The proposal also said trading desks reporting an absolute daily net gain and loss for the past 90 days not exceeding $25 million would be presumed compliant with the prohibition on proprietary trading. "The banking entity would have no obligation to demonstrate that such trading desk's activity complies with the rule on an ongoing basis."

"All of that is to say, I view this proposal as an important milestone in comprehensive Volcker rule reform, but not the completion of our work," the Fed's vice chairman for supervision, Randal K. Quarles, said in a statement.