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  • Operational Requirements for Synthetic Securitisations

    • CA-6.3.3

      For synthetic securitisations, the use of CRM techniques (i.e. collateral, guarantees and credit derivatives) for hedging the underlying exposure may be recognised for risk-based capital purposes only if the conditions outlined below are satisfied:

      (a) Credit risk mitigants must comply with the requirements as set out in Chapter CA-4 of this Module;
      (b) Eligible collateral is limited to that specified in paragraphs CA-4.3.1 and CA-4.3.2. Eligible collateral pledged by SPSVs may be recognised;
      (c) Eligible guarantors are defined in paragraph CA-4.5.7. Banks may not recognise SPSVs as eligible guarantors in the securitisation framework;
      (d) Banks must transfer significant credit risk associated with the underlying exposure to third parties;
      (e) The instruments used to transfer credit risk may not contain terms or conditions that limit the amount of credit risk transferred, such as those provided below:
      •   Clauses that materially limit the credit protection or credit risk transference (e.g. significant materiality thresholds below which credit protection is deemed not to be triggered even if a credit event occurs or those that allow for the termination of the protection due to deterioration in the credit quality of the underlying exposures);
      •   Clauses that require the originating bank to alter the underlying exposures to improve the pool's weighted average credit quality;
      •   Clauses that increase the banks' cost of credit protection in response to deterioration in the pool's quality;
      •   Clauses that increase the yield payable to parties other than the originating bank, such as investors and third-party providers of credit enhancements, in response to a deterioration in the credit quality of the reference pool; and
      •   Clauses that provide for increases in a retained first loss position or credit enhancement provided by the originating bank after the transaction's inception.
      (f) An opinion must be obtained from a qualified legal counsel that confirms the enforceability of the contracts in all relevant jurisdictions; and
      (g) Clean-up calls must satisfy the conditions set out in paragraph CA-6.3.5.
      Amended: April 2011
      Apr 08

    • CA-6.3.4

      For synthetic securitisations, the effect of applying CRM techniques for hedging the underlying exposure are treated according to chapter CA-4. In case there is a maturity mismatch, the capital requirement will be determined in accordance with paragraphs CA-4.6.1 to CA-4.6.4. When the exposures in the underlying pool have different maturities, the longest maturity must be taken as the maturity of the pool. Maturity mismatches may arise in the context of synthetic securitisations when, for example, a bank uses credit derivatives to transfer part or all of the credit risk of a specific pool of assets to third parties. When the credit derivatives unwind, the transaction will terminate. This implies that the effective maturity of the tranches of the synthetic securitisation may differ from that of the underlying exposures. Originating banks of synthetic securitisations must treat such maturity mismatches in the following manner. A bank applying the standardised approach for securitisation must deduct all retained positions that are unrated or rated below investment grade. A bank applying the IRB approach must deduct unrated, retained positions if the treatment of the position is deduction specified in paragraphs CA-6.4.51 to CA-6.4.88. Accordingly, when deduction is required, maturity mismatches are not taken into account. For all other securitisation exposures, the bank must apply the maturity mismatch treatment set forth in paragraphs CA-4.6.1 to CA-4.6.4.

      Apr 08