The American Securitization Forum (ASF) expressed its support for the portion of the Dodd-Frank Act that addressed conflicts of interest in securitization in a letter to the Securities and Exchange Commission (SEC) today.
The ASF also warned the SEC to avoid imposing overly broad rules while implementing the Dodd- Frank Act because they could create serious unintended consequences.
"The ASF strongly supports the intent of this provision, which is to eliminate incentives for market participants to intentionally design asset-backed securities to fail," said Tom Deutsch, ASF executive director. "However, the rules implemented by the SEC must be crafted to eliminate these incentives without unintentionally prohibiting appropriate hedging, market making and other legitimate transactions, and causing unnecessary adverse impacts on the markets for asset-backed securities."
The trade association in its letter proposed language for a rule that it believes strikes the appropriate balance between achieving the specific goals Congress sought to achieve while also permitting the healthy functioning of the market.
"We believe the Congressional Record makes clear that this provision is intended to prohibit market participants from intentionally designing asset-backed securities to fail," Deutsch said, "and we agree with Senators Jeffrey Merkley and Carl Levin, who introduced the measure, that eliminating incentives leading to that result is necessary for a robust securitization market."