STS Criterion 35. Excess spread

Description

Synthetic excess spread

Content

The protection buyer should not commit to any amount of excess spread available for the investors.

Rationale

The excess spread, although widely present in synthetic securitisation transactions, is a complex structural feature and a commitment to excess spread available for the investors should therefore not be included in the STS securitisation. The complexity arises with respect to the quantum of committed excess spread, and its calculation and allocation mechanism. For the sake of simplicity and standardisation of STS synthetic securitisation, it should therefore not be allowed to commit any fixed amount of excess spread.