SEC Grants No-Action Letter Providing Limited Relief for Rule 192 Simplifying Implementation of the Rule Outside the ABS Trading Desk

Summary:

The SEC adopted Rule 192 relating to potential conflicts of interest in securitizations which prohibits certain transaction participants in a securitization, from engaging in certain types of conflicted transactions (See Insights- “SEC Rule 192 — Prevention of Conflicts in Securitizations” December 4, 2023 for an analysis of the Rule).
Rule 192 became effective on February 5, 2024, and compliance is required with respect to any ABS on the first closing of the sale that occurs on or after June 9, 2025.
On May 16, 2025, the SEC’s Division of Corporation Finance issued a no-action letter granting relief from certain aspects of Rule 192¹.
Rule 192’s definition of ‘Conflicted Transaction’ includes a broad catch-all provision that encompasses certain trading activities, even in the absence of coordination.
The rule contained a carve out for these trading activities for affiliates and subsidiaries of the securitization participants who did not have access or receive information about the applicable securitization but did not specifically include the securitization participant itself.
The no-action letter addresses concerns that Rule 192 could be inadvertently triggered when two separate investment teams within the same firm unknowingly take opposing positions.

Key Provisions:

Rule 192 currently defines three types of ‘Conflicted Transactions’:
- A short sale of an asset-backed security that is being marketed;
- The purchase of a credit default swap (CDS) that would generate payments if a marketed asset-backed security defaults;
- Any other transaction that is economically linked to either of the above.
The third category is so broadly defined that it has posed significant challenges in developing effective policies and procedures for compliance for trading activity that may occur at a firm.
The No-Action letter defines two types of employees:
- ABS Deal Teams – which structure and sell ABS deals
- Non-Deal Team Employees – which do not structure and sell ABS deals but could be investment professional

The no-action letter allows firms to be in compliance with the third prong of the rule if:

(a) The Securitization Participant has written policies and procedures in place reasonably designed to:

Prevent the coordination of ABS Deal Teams with Non-Deal Team Employees in connection with the relevant ABS; and
Prevent access to, and receipt of, Restricted ABS Information by Non-Deal Team Employees from ABS Deal Teams; and

(b) The Non-Deal Team Employees did not engage in such coordination with ABS Deal Teams and there was no access to, or receipt of, Restricted ABS Information by Non-Deal Team Employees from ABS Deal Teams; and

(c) Even if such individuals were in technical compliance with parts (a) and (b) above, they were not part of a plan or scheme to evade the prohibition in Rule 192(a)(1).

Takeaways:

Use of Information Barriers: Establishing an information barrier—potentially even a one-way barrier—between the ABS desk and other trading desks could help reduce the risk of violating Rule 192. Depending on the firm’s structure and risk tolerance, alternative policies and procedures may be acceptable—but success hinges on the details.
Training: Incorporating Rule 192 and information barrier protocols into the training programs for relevant trading personnel would help prevent inadvertent violations.
Compliance Testing: Conducting regular compliance testing (particularly targeted email review) to confirm that no coordination has occurred is likely to become standard practice for firms engaged in securitization activities.

(1) SIFMA et al.