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)[1]. 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[2]. 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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[1] http://www.bankinvestmentconsultant.com/news/sec-proposes-rule-to-prevent-conflict-of-interest-abs-2675209-1.html
[2] http://www.investopedia.com/terms/a/asset-backedsecurity.asp#axzz1aUw0CA16
