LSTA submits letter to regulators to keep CLOs safe from Volcker rule

The LSTA yesterday submitted a letter of comment on proposals for the Volcker rule which have seen CLOs dragged into the spotlight. The aim of the US rule is to curb prop trading and bank sponsorship of hedge funds and private equity funds. This brought CLOs into the equation as these transactions found themselves falling under the definition of a ‘covered fund’.

In its letter, the LSTA has lobbied for CLOs to be recognised as loan securitisations, even though most CLOs typically have a bucket to invest in fixed rate assets. The body has requested that loan securitisations should not be viewed as covered funds. 

Another fear was that the stance on prop trading would impair banks from providing financing through bridge loans. This issue has also been raised by the LSTA in its letter of comment.