CA-6.3.3
Past version: Effective from 01 Apr 2008 to 31 Mar 2011
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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.
(g) Clean-up calls must satisfy the conditions set out in paragraph CA-6.3.5.
Apr 08