Regulatory Alerts2023-01-25
Prohibition Against Conflicts of Interest in Certain Securitizations
The Securities and Exchange Commission proposes new Rule 192 to implement Section 27B of the Dodd-Frank Act by prohibiting underwriters, placement agents, initial purchasers, and sponsors from engaging in transactions that create material conflicts of interest with asset-backed security investors. The prohibition applies for one year following the first closing of an asset-backed security sale and targets proprietary bets against those securities, while explicitly exempting risk-mitigating hedging, bona fide market-making, and liquidity commitment activities. By establishing clear functional definitions for securitization participants and conflicted transactions, the rule aims to prevent structuring practices that prioritize sponsor interests over investor returns without unduly disrupting routine market activities.