Banking (prudential standard) determination No. 6 of 2006 - Prudential Standard APS 120 - Funds Management and Securitisation
Purchase of securities issued by SPVsPurchase of securities issued by SPVs
Start here
Get a plain-English read of Purchase of securities issued by SPVs
Turn the raw legal text into a practical explanation grounded in Banking (prudential standard) determination No. 6 of 2006 - Prudential Standard APS 120 - Funds Management and Securitisation.
Purchase of securities issued by SPVs
- An ADI may purchase securities issued by a SPV, and treat them for capital adequacy purposes according to the risk weight attached to the securities themselves, provided:
(a) the conditions in sub-paragraphs 17(a)-(c) are satisfied; and
(b) the volume of purchases is not disproportionate to the amount of securities issued by the SPV (i.e. less than 20 per cent of the value of securities outstanding as a guide). APRA will consider holdings above 20 per cent in an SPV on a case-by-case basis, where an ADI is seeking to develop new funds management or securitisation products.
-
An ADI should have in place adequate systems and controls to ensure that it does not accumulate disproportionate levels of aggregate exposure to securities issued by SPVs, relative to the ADI’s total assets and capital.
-
Purchases of subordinated securities issued by a SPV should be treated as a credit enhancement, as either a first or a second loss facility depending on the level of loss the securities are supporting. Where subordinated securities are protected only by an unfunded credit enhancement, the securities held should be treated as a first loss facility.
-
An ADI may undertake to make a market in securities issued by a SPV, provided that:
(a) the ADI’s role in making the market is on a “reasonable endeavours” basis only and the ADI is under no obligation to purchase securities at any time;
(b) the ADI can withdraw from its market-making role at any time following reasonable notice (90 days as a guide);
(c) offers of prices by the ADI are broadly based and not directed solely at current investors; and
(d) investors are informed as to the terms under which the ADI’s market‑making activities will be conducted.
Where these conditions are not met, any acquisitions arising from market-making activities should be regarded as credit enhancements.
- Where APRA assesses that an ADI’s purchase of securities implies that it is supporting investments in a SPV beyond any legal obligation, the ADI will be required to hold capital against all the securities issued by the SPV.