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FRM Part II · FRM Exam Part II · An Introduction to Securitisation

Which feature is a defining criterion for a simple, transparent and comparable (STC) securitisation that qualifies for more favourable capital treatment under the Basel framework?

STC securitisations require homogeneous underlying exposures that are not themselves re-securitisations. They also need transparent structures and payments driven by the underlying cash flows, not reliant on asset sales, and typically keep originator risk retention aligned with investors.

  1. AThe underlying pool must contain re-securitisation exposures to diversify risk
  2. BUnderlying exposures must be homogeneous and have no re-securitisationsCorrect
  3. CThe originator must sell all tranches and retain no interest
  4. DPayments must depend mainly on the sale of assets at maturity

Explanation

STC criteria require homogeneous underlying assets, no re-securitisation exposures, and payments that rely on the underlying cash flows rather than asset sales. Retention of interest by the originator is expected, not prohibited.

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