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SEC Adopts New Rule Barring Material Conflicts of Interest in Certain Securitizations

On November 27th, 2023, the Securities and Exchange Commission (SEC) announced the adoption of new regulation barring material conflicts of interest for certain types of securitizations. The rule—called Rule 192—is designed to help protect the interests of investors. In this article, our Miami investment fraud attorney discusses the key things to know about the new regulation.

 A Brief Overview of the New Rule

 The SEC adopted a new regulation (Rule 192) under the Securities Act of 1933, as amended by Dodd-Frank Act’s Section 621. The rule aims to prevent conflicts of interest in the sale of asset-backed securities (ABS) by prohibiting securitization participants from engaging in transactions that create material conflicts with ABS investors for a certain period. Rule 192 allows exceptions for risk-mitigating hedging, liquidity commitments, and valid market-making activities.

What are Asset Backed Securities? 

Broadly explained, asset-backed securities (ABS) are financial instruments that are backed by a pool of assets. They most often consist of things like loans, leases, credit card debt, or receivables. These securities enable the income from these diverse assets to be bundled together and sold to investors as notes or bonds. ABS provides a way for financial institutions to convert illiquid assets into liquid capital, thereby diversifying risk and enhancing liquidity in financial markets.

For example, consider a bank that has issued numerous car loans. To manage its cash flow and reduce risk, the bank can bundle these loans into an ABS, selling them as securities to investors. These investors receive regular payments from the underlying car loan repayments. The ABS thus allows the bank to offload some risk and provides investors with an income stream, backed by the borrowers’ repayments on their car loans.

 Asset Backed Securities Can Be Risky for Investors 

Asset-Backed Securities (ABS) can pose significant risks for investors. These risks primarily stem from the quality of underlying assets. If these assets, such as loans or credit card debts, default, the ABS value can plummet, leading to substantial financial losses. Moreover, ABS complexity often obscures the true risk level, making it challenging for investors to accurately assess potential dangers. The market for ABS can also be volatile, influenced by economic shifts and changes in credit markets. Volatility adds an extra layer of risk, as the value of ABS can fluctuate widely, impacting investor returns.

Why Does the New Rule Matter for Investors 

The new Rule 192 matters for investors as it seeks to enhance market integrity by reducing the risk of conflicting interest in ABS transactions. Among other things, the regulation should help to ensure greater transparency and fairness—thereby protecting investors from practices that could compromise their interests.

 Contact Our South Florida Securities Fraud Lawyer Today

At ​Carlson & Associates, P.A., our Florida investment fraud attorneys put the needs and interests of investors first. If you or your loved one sustained major financial losses as a result of broker misconduct, we are here to help. Call us at our Miami law office today to arrange your completely private case review. Our firm advocates for investors throughout the region.



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