On September 19, 2011, the Securities and Exchange Commission (“SEC”) released a proposed rule (“Proposed Rule 127B”) implementing the conflicts of interest provisions of section 621 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), which added a new section 27B to the Securities Act of 1933, as amended (the “Securities Act”). Proposed Rule 127B was released on September 19, 2011, for a 90-day comment period, which will end on December 19, 2011.

As required by new section 27B of the Securities Act, Proposed Rule 127B would generally prohibit certain persons involved in the structuring, creation and distribution of an asset-backed security (“ABS”) from engaging in transactions within one year after the date of the first closing of the sale of such ABS that would involve or result in a material conflict of interest with respect to any investor in such ABS.

The addition of section 27B of the Securities Act was one of the changes to the securities laws implemented by the Dodd-Frank Act for which the SEC invited pre-rulemaking comments. Because of the sweeping nature of new section 27B of the Securities Act, several industry participants and trade groups submitted in depth pre-rulemaking comments. Many commenters were especially concerned that section 27B, as drafted, was broad enough to prohibit a vast range of legitimate and necessary securitization-related transaction types, such as providing credit enhancement, liquidity facilities, warehouse lending and exercising control rights under a securitization. If unchecked, commenters feared, section 27B would have a chilling effect on the securitization markets.