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  • Operational Requirements and Treatment of Clean-Up Calls

    • CA-6.3.5

      For securitisation transactions that include a clean-up call, no capital will be required due to the presence of a clean-up call if the following conditions are met:

      (a) The exercise of the clean-up call must not be mandatory, in form or in substance, but rather must be at the discretion of the originating bank;
      (b) The clean-up call must not be structured to avoid allocating losses to credit enhancements or positions held by investors or otherwise structured to provide credit enhancement; and
      (c) The clean-up call must only be exercisable when 10% or less of the original underlying portfolio, or securities issued remain, or, for synthetic securitisations, when 10% or less of the original reference portfolio value remains.
      January 2015

    • CA-6.3.6

      Securitisation transactions that include a clean-up call that does not meet all of the criteria stated in Paragraph CA-6.3.5 result in a capital requirement for the originating bank. For a traditional securitisation, the underlying exposures must be treated as if they were not securitised. Additionally, conventional bank licensees must not recognise in regulatory capital any gain-on-sale, as defined in Paragraph CA-6.4.3. For synthetic securitisations, the bank purchasing protection must hold capital against the entire amount of the securitised exposures as if they did not benefit from any credit protection. If a synthetic securitisation incorporates a call (other than a clean-up call) that effectively terminates the transaction and the purchased credit protection on a specific date, the conventional bank licensee must treat the transaction in accordance with Paragraph CA-6.3.4 and Paragraphs CA-4.6.1 to CA-4.6.4.

      January 2015

    • CA-6.3.7

      If a clean-up call, when exercised, is found to serve as a credit enhancement, the exercise of the clean-up call must be considered a form of implicit support provided by the conventional bank licensee and must be treated in accordance with the supervisory guidance pertaining to securitisation transactions.

      January 2015