SEC targets securitization market conflicts of interest


U.S. Securities and Exchange Commission (SEC) officials have detailed a proposed rule the agency indicated would address securitization market conflicts of interest.

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The proposal, originally introduced in September 2011, would implement Section 27B of the Securities Act of 1933, a provision added by Section 621 of the Dodd-Frank Act.

The proposed guidance would prohibit securitization participants from engaging in certain transactions that could incentivize a securitization participant to structure asset-backed securities (ABS), placing securitization participants’ interests ahead of those of ABS investors.

“I am pleased to support this re-proposed rule as it fulfills Congress’s mandate to address conflicts of interests in the securitization market, which contributed to the 2008 financial crisis,” SEC Chair Gary Gensler said. “This re-proposed rule is designed to help address conflicts of interest arising with market participants taking positions against investors’ interests. Further, as required by Section 621 of the Dodd-Frank Act, the re-proposed rule provides exceptions for risk-mitigating hedging activities, bona fide market making, and certain liquidity commitments. These changes, taken together, would benefit investors and our markets.”

According to the SEC, the public comment period will remain open for 60 days following publication of the proposing release on the SEC’s website or 30 days following the publication of the proposing release in the Federal Register, whichever period is longer.

The new Securities Act Rule 192 would prohibit an underwriter, placement agent, initial purchaser, or sponsor of an ABS from engaging, directly or indirectly, in any transaction involving or resulting in any material conflict of interest between the securitization participant and an investor in such ABS.

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