The U.S. Securities and Exchange Commission has re-proposed Wednesday a regulation that would forbid conflicts of interest by investment banks and other Wall Street firms that create asset-backed securities, a security whose value is backed by a pool of typically illiquid assets.
The re-proposed rule “fulfills Congress’s mandate to address conflicts of interests in the securitization market, which contributed to the 2008 financial crisis,” SEC Chair Gary Gensler said in a statement. The regulator proposed a version of the rule in 2011, though it was never completed.
The proposed rule would ultimately prohibit firms involved in securitizations from short selling an asset-backed security (e.g. mortgage bonds) within one year of the security’s sale, according to the release. Other types of wagers, such as credit default swaps or other credit derivatives, that could conflict with the interests of investors who purchased the security would also be banned.
If approved by a majority of the regulator’s five commissioners, the proposal will be open for public comments for at least 30 days before another vote takes hold to finalize the rule.
In September 2022, sixteen Wall Street firms agreed to pay $1.1B to settle SEC’s texting/email probe.