Mar. 23, 2023
March 23, 2023
Please remove exemptions II.E, II.F, and II.G.
These exemptions do not benefit all investors, only large institutions.
Why This Matters
The Dodd-Frank Wall Street Reform and Consumer Protection Act added Section 27B to the Securities Act of 1933. Section 27B prohibits certain securitization participants from engaging in transactions that would involve or result in certain material conflicts of interest and requires the SEC to issue rules to implement the prohibition and related exceptions. Prohibited Transactions The proposed rule would prohibit a securitization participant from entering into a conflicted transaction beginning when a person has reached, or has taken substantial steps to reach, an agreement that such person will become a securitization participant with respect to an ABS and ending one year after the date of the first closing of the sale of the relevant ABS. Conflicted transaction is defined to include two main components.
One component is whether the transaction is:
. A short sale of the ABS The purchase of a CDS or other credit derivative pursuant to which the securitization participa V would be entitled to receive payments upon the occurrence of a specified adverse event with respect to the ABS or The purchase or sale of any financial instrument (other than the relevant ABS) or entry into a transaction through which the securitization participant would benefit from the actual, anticipated, or potential: Adverse performance 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. The other component relates to materiality - i.e., whether there is a substantial likelihood that a reasonable investor would consider the relevant transaction important to the investors investment decision, including a decision whether to retain the ABS.
Exemptions: As specified in Section 27B, the proposed rule would provide exceptions for:
Risk-mitigating hedging activities . Bona fide market-making activities and
Liquidity commitments. The proposed rule would require a securitization participant relying on certain exceptions to implement compliance programs reasonably designed to ensure the securitization participants compliance with the conditions applicable to those exceptions, including reasonably designed written policies and procedures.
The proposed definitions in the proposed rule also contain certain exceptions and exclusions, each with conditions designed to protect investors and further the purposes of Section 27B.