To further the SEC’s objective to mitigate conflicts of interest, the rule will:

• Define ABSs that are subject to the prohibition. Pursuant to the final rule, an ABS that is subject to the prohibition is defined, according to Section 27B, to include ABSs per Section 3 of the Exchange Act and also includes synthetic ABS and hybrid cash and synthetic ABS.
• Provide exceptions to the prohibition for risk-mitigating hedging activities, liquidity commitments, and bona fide market-making activities.
• Address evasion of the exceptions. Under Rule 192, if a securitization participant engages in a transaction or series of related transactions that, although it may be in technical compliance with the exception for risk-mitigating hedging activities, liquidity commitments, or bona fide market-making activities, or is part of a plan or scheme to evade the prohibition in Rule 192, that transaction or series of related transactions will be considered in violation of the prohibition.
• Provide a safe harbor for certain foreign transactions. Pursuant to Rule 192, the prohibition will not apply to an ABS if it is not issued by an individual in the United States, as defined in 17 CFR 902 (Rule 902 of Regulation S), and the offer and sale of the ABS is in compliance with 17 CFR 203.901 through 905.

For further details, see the SEC’s Prohibition Against Conflicts of Interest in Certain Securitizations final rule on sec.gov.

The final rule goes into effect 60 after the date of its publication in the Federal Register. Compliance will be required concerning any ABS the first closing of the sale of which occurs 18 months after publication in the Federal Register. 

Source:

SEC Adopts Rule to Prohibit Conflicts of Interest in Certain Securitizations