SECN 5.8 Retention of the first loss tranche

1The retention of the first loss tranche referred to in SECN 5.2.8R(1)(d) may be fulfilled by holding either on-balance sheet or off-balance sheet positions and by either of the following methods:

1. (a)

   provision of a contingent form of retention or of a liquidity facility in the context of an ABCP programme, which fulfils all of the following criteria:

   1. (i)

      the exposure covers at least 5% of the nominal value of the securitised exposures;

   2. (ii)

      the exposure constitutes a first loss position in relation to the securitisation;

   3. (iii)

      the exposure covers the credit risk for the entire duration of the retention commitment;

   4. (iv)

      the exposure is provided by the retainer; and

   5. (v)

      the investors have been given access within the initial disclosure to all information necessary to verify that (i) to (iv) are complied with; or

2. (b)

   over collateralisation, if it operates as a ‘first loss’ position of not less than 5% of the nominal value of the securitised exposures.

Where the first loss tranche exceeds 5% of the nominal value of the securitised exposures, the retainer may choose to retain a pro-rata portion of such first loss tranche only, provided that portion is equivalent to at least 5% of the nominal value of the securitised exposures.