SEC Re-Proposes Conflict of Interest Prohibitions for ABS Market  

January 25, 2023

Today, the SEC re-proposed a Dodd-Frank mandated rule prohibiting Securitization Participants (defined below) from engaging in any transaction that would involve or result in certain material conflicts of interest. The SEC first proposed this rule in September 2011, but it was never finalized.

Comments are due 30 days after publication in the Federal Register or March 27, 2023, whichever period is longer.

Why it matters: The proposed rule seeks to prohibit Securitization Participants from engaging in certain transactions that would put their interests ahead of those of ABS investors.

Who does it cover: The proposed rule covers any ABS, including CMBS, within the meaning set forth in 15 U.S.C. 78c(a)(79). Securitization Participants are defined as:

  • Underwriter;
  • Placement agent;
  • Initial purchaser; or
  • Sponsor of an ABS.

What does it prohibit: The proposed rule would prohibit a Securitization Participant from entering into a “conflicted transaction” until one year after the first closing date.

A transaction would be “conflicted” if it is:

  • A short sale of the ABS;
  • The purchase of a credit derivative or any financial instrument where the Securitization Participant benefits from as specific adverse event related to the relevant ABS; or
  • Whether there is a substantial likelihood that a reasonable investor would consider the relevant transaction important to the investor’s investment decision, including a decision whether to retain the ABS.

Exceptions: The proposal does makes room for a few exceptions, including transactions related to risk management, liquidity commitments, and market making.

Next steps: CREFC will submit a response to this reproposal. If you would like to join the working group, please contact Sairah Burki


Sairah Burki
Managing Director, Regulatory Affairs
The information provided herein is general in nature and for educational purposes only. CRE Finance Council makes no representations as to the accuracy, completeness, timeliness, validity, usefulness, or suitability of the information provided. The information should not be relied upon or interpreted as legal, financial, tax, accounting, investment, commercial or other advice, and CRE Finance Council disclaims all liability for any such reliance. © 2023 CRE Finance Council. All rights reserved.

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