Tuesday, December 27, 2011

SEC Extends to Feb. 13, 2012 the Comment Period on Proposed Regulations Implementing Dodd-Frank Securitization Conflict of Interest Provisions

The SEC has extended until February 13, 2012 the comment period on proposed regulations implementing Section 621 of the Dodd-Frank Act, which deals with material conflicts of interest in connection with the securitization of asset-backed securities. Release No. 34-66058. The original comment period for the ABS Conflicts Proposal was scheduled to end on December 19, 2011. On December 13, 2011, the comment period was extended until January 13, 2012. The Commission is again extending the time period in which to provide comments on the ABS Conflicts Proposal until February 13, 2012 to allow interested persons additional time to analyze the issues and prepare their comments. A main reason for the extension is to provide the public with a better opportunity to consider the potential interplay between the ABS Conflicts Proposal and the and proposed regulations implementing the Volcker Rule provisions of Dodd-Frank, whose comment period lasts until February 13, 2012.

Proposed Securities Act Rule 127B would prohibit persons who create and distribute an asset-backed security, including a synthetic asset-backed security, from engaging in transactions, within one year after the date of the first closing of the sale of the asset-backed security, that would involve or result in a material conflict of interest with respect to any investor in the asset-backed security. The proposed rule also would provide exceptions from this prohibition for certain risk-mitigating hedging activities, liquidity commitments, and bona fide market-making.

In an earlier letter to the SEC and other federal financial regulators, Senators Jeff Merkley (D-ORE) and Carl Levin (D-MICH), the co-authors of Section 621, noted that, like the Volcker Rule, the statute also addresses conflicts of interest, but only in the context of asset-backed securities. Section 621 prohibits firms from packaging and selling asset-backed securities to their clients and then engaging in transactions that create conflicts of interest between them and their clients.