In response to “concerns that some banks have been issuing structured products for sale to investors without telling…[them] that the bank was also helping other investors bet against those products,” the Securities and Exchange Commission has approved a new rule designed to prevent conflicts of interest in the sales of asset-backed securities (ABS). ABS are similar to mortgage-backed securities except that they are backed by loans, leases, credit card debt, receivables or royalties instead of home loans. The SEC determined that in some cases investment firms were helping investors buy these ABS while helping others bet against them – or even doing so themselves – without disclosing this information. This issue is at the root of the SEC’s recent lawsuit against Goldman Sachs.
The newly-approved rule will have a 90-day comment period before it goes into effect. It is designed to keep entities that are assembling these securities from profiting should they fail, which would constitute a direct conflict of interest.
Do you think that this is a good rule?
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