June 5, 2024 - The SEC’s Prohibition on Conflicts of Interest in Securitizations (Rule 192) (“Final Rule”) which went effective on February 5th is less onerous than the proposed rulemaking but will still require affected market participants to augment and modify compliance programs, particularly where an entity does not already have a Volcker compliance regime. The Final Rule prohibits a “securitization participant” from engaging, directly or indirectly, in any transaction that would involve or result in any material conflict of interest between the securitization participant and an investor in an asset-backed security (“ABS”). This prohibition applies until one year after the first closing of the sale of the ABS and starts on the date the “securitization participant” reaches an agreement that it will become a securitization participant with respect to that ABS.

As market participants prepare for the Final Rule’s compliance date (The Final Rule will apply with respect to securitizations that have their first closing on or after June 9, 2025), there are many implementation questions. The webcast we hosted earlier this year identifies a number of these questions that market participants are working through.

Last week SIFMA released the first version of an implementation guide for the Final Rule (“Market Guide”). In collaboration with Mayer Brown and a dedicated working group, which included SIFMA dealer and AMG members, the LSTA and others, SIFMA has developed an extensive Market Guide which offers answers to common implementation questions supported throughout by cites to the text of the Final Rule and the SEC’s commentary from its Adopting Release. The Market Guide covers ten broad topic areas ranging from what kinds of securities and market participants are in scope, to criteria that may help identify a conflicted and therefore prohibited transaction, to what the hedging and market making exemptions require and how they differ from the Volcker Rule exemptions, and more.

While the document is not an opinion or legal advice, it will undoubtedly be a valuable resource for securitization market participants. SIFMA notes that it is expected that this document may be updated in the future as interpretations and any SEC guidance crystallizes, and therefore label this as version 1.0.

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