The Security and Exchange Commission (SEC) has
taken an unusual approach in its rule banning conflicts in
asset-backed security (ABS) transactions. It risks leaving
market participants unsure of what trades could be deemed
prohibited at any time.
rule has not resolved a fundamental tension in the
Dodd-Frank mandating-provision over prohibitions application to
credit derivatives in synthetic ABS structures.
Last week’s proposal does little more
than restate section 621 of Dodd-Frank which prohibits
sponsors, underwriters, initial purchasers and placement agents
from short selling, for one year, transactions they have
packaged and sold.
Despite being a 118-page document, the proposed
rule starts on the second last page, with the rest consisting
of the SEC’s supporting proposing release. This
method sees the regulator propose a very broad rule, but
through examples and comments in the proposing release assert
it will interpret and enforce the rule more narrowly.