EBA publishes final draft technical standards on the determination of the exposure value of synthetic excess spread in synthetic securitisations

EBA published its final draft RTS specifying the determination by originator institutions of the exposure value of SES in synthetic securitisations.
These draft RTS aim to ensure the soundness and stability of the securitisation market while providing greater clarity and consistency in determining the exposure value of SES in synthetic securitisations by clarifying the calculation of the components that should be included in the __exposure value, taking into account the relevant losses_ that are expected to be covered by SES.
SES refers to the excess spread generated in a securitisation transaction that is synthetically replicated using credit derivatives, such as CDS or TRS. These financial instruments enable originator institutions to transfer the credit risk of a pool of underlying assets to investors, allowing them to achieve regulatory capital relief and funding cost savings.
The STS label is a regulatory framework that applies to securitisations, meeting certain eligibility criteria. As part of the CMRP, the STS label was extended to on-balance-sheet securitisations, accompanied by a capital charge addressing prudential concerns related to the use of SES in synthetic securitisations. Originator institutions must consider the SES designated to cover for the losses of the securitised exposures as a securitisation position.
These draft RTS specify the calculation of the components of the exposure value of this position, which should include the SES designated for past and current periods that is still available to absorb losses__, and any SES contractually designated for future periods. A derogation is included from that exposure value in the specific case of the SES designated for future periods that does not encumber the originator institution’s income statement in a manner similar to an unfunded guarantee, subject to certain conditions.