| 1) | Conditions relating to clean-up calls |
An institution that acts in a primary role in respect of a traditional or synthetic securitisation scheme-
| a) | shall not be required to maintain capital in respect of any clean-up call contained in the said securitisation scheme provided that- |
| i) | the exercise of the clean-up call shall not be mandatory, that is, the exercise of the clean-up call shall, in form and in substance, be at the discretion of the institution that acted in a primary role; |
| ii) | the clean-up call shall not be structured in a manner that would prevent losses from being allocated to providers of credit enhancement or positions held by investors, or otherwise structured to provide credit enhancement; |
| B) | a synthetic securitisation scheme, the clean-up call shall not be exercisable unless the outstanding amount relating to the original underlying/reference portfolio is equal to or less than 10 per cent; |
| iv) | when a clean-up call is found to serve as a credit-enhancement facility when exercised, the Registrar shall, in the discretion of the Registrar, based on the requirements specified in item (b) and paragraph 17 below, take appropriate action against the institution that acted in a primary role. |
| b) | shall in respect of a securitisation scheme that contains a clean-up call, which clean-up call does not comply with the requirements specified in item (a) above, calculate and maintain a capital requirement in accordance with the requirements specified below. |
| i) | In the case of a traditional securitisation scheme, the institution that acts in a primary role- |
| A) | shall calculate and maintain a capital requirement in respect of the underlying assets as if the assets/exposures were not securitised; |
| B) | shall not recognise any gain-on-sale in respect of the underlying exposures. |
| ii) | In the case of a synthetic securitisation scheme, the institution that purchased the credit protection shall maintain capital against the aggregate amount of credit exposure as if the institution did not obtain any credit protection in respect of the relevant credit exposure provided that the institution that acted in a primary role shall treat all call provisions other than a clean-up call, which call provision effectively terminates the transaction and purchased credit protection on a specific date, in accordance with the requirements specified in regulation 23(9)(e) of the Regulations relating to Banks, which regulation relates to maturity mismatches. |
