SEC commissioner urges ‘public’ dialogue on Rule 192 implementation
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SEC commissioner urges ‘public’ dialogue on Rule 192 implementation


Hester Peirce says SFVegas delegates should collect questions and feedback early as possible during 18 month compliance period

Three months into the 18 month compliance period for the SEC’s securitization conflicts of interest rule, commissioner Hester Peirce has urged securitization market participants to act quickly to understand how implementation of the rule will work and could affect them.

During a fireside chat with Structured Finance Association CEO Michael Bright at the SFVegas conference on Monday morning, Peirce said that the industry could not wait until the end of the period to express its concerns.

“We have to keep the dialogue going through the implementation process,” said Peirce. “I’d like those dialogues to be as public as possible.

“Come to us with implementation questions. We want to work with you.”

The SEC adopted Securities Act Rule 192 on November 27 — after making several adjustmentsbased on emphatic feedback from the structured finance industry market participants and trade bodies.

This appeared to solve the majority of concerns, including the most pressing one: that the rule would prevent market participants from being able to hedge exposures. But there remains plenty of confusion around how the rule will work and affect securitization.

Indeed, Bright said that the SFA was “re-upping” the efforts of its conflicts of interest rule task force. Typically, the organization disbands such initiatives once rules are published, he said.

Although the SFA acknowledged back in November that the final version of Rule 192 incorporated “many important changes”, Bright said at the time that it was continuing to analyse some aspects. This included the exact meaning of certain terms, and trying to understand how to comply with some technical questions.

And Peirce said there were “still issues [she] would like to hear from commenters” about.

“There are some things you can only understand by talking to people outside the building,” said Peirce. “Encouraging the SEC to be rational and deliberative is a good thing.

“What often happens [with several different SEC rules] is that people end up focussing on the unworkable parts [of a rule] and don’t give us the technical feedback we need. Or just throw their hands up and say the process is unworkable.”

The Securities Act Rule 192 was initially proposed in 2011 in the wake of the financial crisis and is intended to prevent the sale of ABS that might be tainted by material conflicts of interest.

But it was only in January 2023 that the regulator began the implementation process, and initial version of therule elicited shock and furyfrom the structured finance industry, as market participants and trade bodies argued that the approach was blunt and restricted “vital” market activities.

In particular, the SEC’s intention to prevent the short-selling of ABS bonds by the originators of the transactions appeared to in fact stop them from being able to hedge currency and interest rate exposure.

The SEC received over 900 comments to its initial proposal and, although it was not persuaded to carry out a full re-proposal as some had wanted, the final November version appeared to address most of the major concerns.

Stay alert

Peirce said that unintended consequences, such as happened with the conflicts of interest rule, occurred when making other rules. She therefore encouraged the structured finance industry to stay vigilant — even to regulatory developments that may not be aimed at its activities.

“Rule makings will take up a lot of the SEC’s time, but [you should] always pay attention,” she told SFVegas delegates. “From leftfield, you might have rules come out that will have an effect on securitized products.

“Watch what’s coming out the door of the SEC, take a look, and make sure we don’t inadvertently pull you in. If you do see a problem, come in early and come in often.”

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