• Conflicts of Interest in Securitizations: SEC Proposes Rule under Section 621 of the Dodd-Frank Act to Prohibit Securitization Participants from Engaging in Transactions Involving Material Conflicts of Interest with ABS Investors
  • October 11, 2011
  • Law Firm: Sullivan Cromwell LLP - New York Office
  • On September 19, 2011, the Securities and Exchange Commission proposed for public comment Rule 127B to implement the prohibition in Section 621 of the Dodd-Frank Wall Street Reform and Consumer Protection Act against securitization participants engaging in any transaction that would involve or result in any material conflict of interest with respect to any investor in a securitization transaction. Although the text of the proposed rule repeats the statutory language almost verbatim, the SEC is also proposing an interpretation of the term “material conflict of interest” for purposes of the prohibition. The proposing release also presents four examples to illustrate transactions that would or would not be prohibited under the proposed rule. Rule 127B as proposed would not provide exemptions based on information barriers or disclosure of actual or potential conflicts of interest, but the SEC is soliciting comment on whether either of these approaches should be the basis for exceptions from the rule’s prohibitions. Comments are due on or before December 19, 2011.