Mar. 15, 2023
March 15, 2023 RE. S7-01-23 My understanding is that the re-proposed rule is intended to prevent the sale of ABS that are tainted by material conflicts of interest. To achieve these objectives, the re-proposed rule would: Prohibit, for a specified period, a securitization participant from engaging in any transaction that would result in a material conflict of interest between the securitization participant and an investor in the relevant ABS. A securitization participant could not, for a period ending on the date that is one year after the date of the first closing of the sale of an ABS, directly or indirectly engage in any transaction that would involve or result in any material conflict of interest between the securitization participant and an investor in such ABS. Under the re-proposed rule, such transactions would be conflicted transactions and would include, for example, a short sale of the relevant ABS or the purchase of a credit default swap or other credit derivative that entitles the securitization participant to receive payments upon the occurrence of specified credit events in respect of the ABS Define the persons that would be subject to the re-proposed rule. The terms underwriter, placement agent, initial purchaser, and sponsor (collectively, together with their affiliates and subsidiaries, securitization participants) would capture the persons subject to the re-proposed rule and would be functional definitions based on a persons activities in connection with a securitization, which would generally be based on existing definitions of such terms under the Federal securities laws and the rules thereunder to ease compliance with the re-proposed rule Define asset-backed securities that would be subject to the prohibition Prohibited transactions would be those with respect to an asset-backed security. An asset-backed security, for purposes of the re-proposed rule, would be defined based on the Section 3 definition of asset-backed security in the Securities Exchange Act of 1934 (Exchange Act)18 and also would specifically include synthetic ABS, as well as hybrid cash and synthetic ABS19, which is consistent with Section 27B Provide certain exceptions to the prohibition. The re-proposed rule would implement certain exceptions for risk-mitigating hedging activities, bona fide market-making activities, and liquidity commitments as specified in Section 27B. The proposed exceptions would focus on distinguishing the characteristics of such activities from speculative trading. The proposed exceptions would also seek to avoid disrupting current liquidity commitment, market-making, and balance sheet management activities that we do not believe would give rise to the risks that Section 27B was intended to address. Thank you for your consideration. ZK.