On June 25, 2020, five federal regulatory agencies (the
"Agencies")1 released a final rule (the
"Modified Rule") modifying and clarifying the Volcker
Rule's prohibition on banking entities investing in or
sponsoring covered funds. The Modified Rule could restore much of
the flexibility that advisers to CLOs used to have in managing
their portfolios prior to 2013 (the "CLO 1.0 Era"), when
the initial regulations implementing the Volcker Rule were adopted.
Although the significance of these changes will only become
apparent with time as the market digests them, this article
summarizes a few preliminary take-aways for CLO industry
participants
BACKGROUND
The Volcker Rule was adopted as part of the DoddFrank Wall
Street Reform and Consumer Protection Act of 2010, the initial
regulations implementing which were issued in December 2013 (the
"2013 Rules"). The rule prohibits banking entities from
having an "ownership interest" in and certain
relationships with any
