Mar. 23, 2023
March 23, 2023
The Securities Act of 1933 had Section 27B added to it by the Dodd-Frank Wall Street Reform and Consumer Protection Act. This section prevents certain securitization participants from conducting transactions that involve or result in material conflicts of interest. The SEC is required to establish rules that enforce the prohibition and relevant exceptions.
The proposed rule prohibits securitization participants from engaging in \"conflicted transactions\" after a person has agreed or taken substantial steps to become a securitization participant regarding an ABS, and ending one year after the first closing of the sale of the relevant ABS. A \"conflicted transaction\" includes short selling of the ABS, purchasing a CDS or other credit derivative that allows the securitization participant to receive payments upon the occurrence of specified adverse events related to the ABS, or buying/selling any financial instrument that allows the securitization participant to benefit from the actual, anticipated, or potential adverse performance of the asset pool supporting or referenced by the ABS, loss of principal, default or early amortization event on the ABS, or decline in the market value of the ABS. Materiality is a crucial component in determining whether a transaction is a \"conflicted transaction\" and whether it is important to a reasonabl
e investor's investment decision.
Exceptions to the proposed rule include risk-mitigating hedging activities, bona fide market-making activities, and liquidity commitments. A securitization participant relying on any of these exceptions is required to implement compliance programs reasonably designed to ensure the securitization participant's compliance with the applicable conditions, including written policies and procedures.
This makes me question who the SEC is working for, the American people or Wall Street?