(Adds SEC chair comment in paragraph 6, vote in paragraph 8,
detail in paragraph 10)
Nov 27 (Reuters) – The U.S. Securities and Exchange
Commission on Monday adopted a financial crisis-inspired rule
barring traders in asset-backed securities from betting against
the same assets they sell to investors.
The SEC move is mandated by the Dodd Frank law, aimed at
eradicating behavior seen in the 2008 global financial crisis.
The rule is among the last to be adopted under 2010’s Dodd
Frank Wall Street reform legislation and faced a winding road to
completion. An earlier version on traders’ “conflicts of
interest” was first proposed in 2011 but never finalized.
The rule blocks “securitization participants” from entering
deals that involve shorting or buying credit-default swaps
against those same securities. Parties covered by the rule
include underwriters, placement agents and sponsors for
asset-backed securities.
The rule exempts activities such as hedging risk and
market-making.
In a statement, SEC Chair Gary Gensler said the rule applied
to a market that “was at the center of the 2008 financial
crisis.”
In concessions to industry, SEC officials said they had
modified the proposal first issued in January to carve out
exceptions for affiliates who do not act in concert with
traders. Another exception is for investors with “long”
positions, as opposed to those who are short, or betting that
the securities will decline in value.
Four of the SEC’s five members voted to approve the rule.
Republican Commissioner Hester Peirce, a frequent critic of the
SEC’s rulemaking agenda who had approved the January proposal
with reservations, voted against it.
Goldman Sachs agreed in 2010 to pay a record $550
million penalty to resolve SEC allegations that it had misled
investors. A Senate investigation later revealed how the bank
had marketed mortgage-backed securities without disclosing
substantial bets that these assets would lose value.
The SEC says it will require compliance with the rule for
asset-backed securities with closing dates falling 18 months
after the rule appears in the Federal Register.
(Reporting by Douglas Gillison; Editing by David Gregorio and
Marguerita Choy)