The SEC issued a rule proposal designed to implement Section 621 of the Dodd-Frank Act, which in broad terms prohibits an underwriter, placement agent, initial purchaser, or sponsor, or any affiliate or subsidiary of any such entity (collectively “securitization participants”), of an asset-backed security (“ABS”), whether or not registered and including a synthetic ABS, from engaging in a transaction that would involve or result in certain material conflicts of interest. This prohibition applies for one year from the date of the first closing of the sale of the ABS and is subject to exceptions for certain risk-mitigating hedging activities, liquidity commitments and bona fide market-making. Section 621 becomes effective only upon the effectiveness of implementing rulemaking by the SEC. In addition to the proposed implementing rule, which consists primarily of the statutory text, the proposing release sets forth proposed interpretive guidance regarding the proposed rule and its application. Comments are due no later than December 19, 2011.
Alert September 27, 2011