The new EU STS framework for on-balance sheet (synthetic) securitisations

The measures include the creation of a regulatory regime for simple, transparent and standardized (STS) synthetic securitizations (excluding arbitrage synthetic securitisations) via amendments to the EU Securitization Regulation (and Capital Requirements Regulation, including a differentiated prudential treatment for such transactions.

They also, however, introduce a capital charge for synthetic excess spread, which has adverse implications for the transaction economics of all synthetic securitizations (STS and non STS) involving excess spread.

This briefing provides an overview of the key points to note about the final on-balance sheet STS framework and new capital charge for synthetic excess spread.

The final on-balance sheet STS framework, new capital charge for synthetic excess spread, and this briefing will be of interest to originators and investors currently active in the synthetic securitization markets and to entities that may be interested in participating in those markets. We continue our involvement in the relevant AFME working group and will be providing input to the industry response to related technical standards.