(a) Transfer. Except as
permitted by section 244.7(b)(8), and subject to section 244.5, a
retaining sponsor may not sell or otherwise transfer any interest
or assets that the sponsor is required to retain pursuant to subpart
B of this part to any person other than an entity that is and remains
a majority-owned affiliate of the sponsor and each such majority-owned
affiliate shall be subject to the same restrictions.
(b) Prohibited hedging by sponsor and affiliates. A retaining sponsor and its affiliates may not purchase or sell
a security, or other financial instrument, or enter into an agreement,
derivative or other position, with any other person if:
(1) Payments on the security or other
financial instrument or under the agreement, derivative, or position
are materially related to the credit risk of one or more particular
ABS interests that the retaining sponsor (or any of its majority-owned
affiliates) is required to retain with respect to a securitization
transaction pursuant to subpart B of this part or one or more of the
particular securitized assets that collateralize the asset-backed
securities issued in the securitization transaction; and
(2) The security, instrument, agreement,
derivative, or position in any way reduces or limits the financial
exposure of the sponsor (or any of its majority-owned affiliates)
to the credit risk of one or more of the particular ABS interests
that the retaining sponsor (or any of its majority-owned affiliates)
is required to retain with respect to a securitization transaction
pursuant to subpart B of this part or one or more of the particular
securitized assets that collateralize the asset-backed securities
issued in the securitization transaction.
(c) Prohibited hedging by issuing entity. The
issuing entity in a securitization transaction may not purchase or
sell a security or other financial instrument, or enter into an agreement,
derivative or position, with any other person if:
(1) Payments on the security or other financial
instrument or under the agreement, derivative or position are materially
related to the credit risk of one or more particular ABS interests
that the retaining sponsor for the transaction (or any of its majority-owned
affiliates) is required to retain with respect to the securitization
transaction pursuant to subpart B of this part; and
(2) The security, instrument, agreement,
derivative, or position in any way reduces or limits the financial
exposure of the retaining sponsor (or any of its majority-owned affiliates)
to the credit risk of one or more of the particular ABS interests
that the sponsor (or any of its majority-owned affiliates) is required
to retain pursuant to subpart B of this part.
(d) Permitted hedging activities. The following
activities shall not be considered prohibited hedging activities under
paragraph (b) or (c) of this section:
(1) Hedging the interest rate risk (which
does not include the specific interest rate risk, known as spread
risk, associated with the ABS interest that is otherwise considered
part of the credit risk) or foreign exchange risk arising from one
or more of the particular ABS interests required to be retained by
the sponsor (or any of its majority-owned affiliates) under subpart
B of this part or one or more of the particular securitized assets
that underlie the asset-backed securities issued in the securitization
transaction; or
(2) Purchasing or
selling a security or other financial instrument or entering into
an agreement, derivative, or other position with any third party where
payments on the security or other financial instrument or under the agreement,
derivative, or position are based, directly or indirectly, on an index
of instruments that includes asset-backed securities if:
(i) Any class of ABS interests in
the issuing entity that were issued in connection with the securitization
transaction and that are included in the index represents no more
than 10 percent of the dollar-weighted average (or corresponding weighted
average in the currency in which the ABS interests are issued, as
applicable) of all instruments included in the index; and
(ii) All classes of ABS interests in
all issuing entities that were issued in connection with any securitization
transaction in which the sponsor (or any of its majority-owned affiliates)
is required to retain an interest pursuant to subpart B of this part
and that are included in the index represent, in the aggregate, no
more than 20 percent of the dollar-weighted average (or corresponding
weighted average in the currency in which the ABS interests are issued,
as applicable) of all instruments included in the index.
(e) Prohibited non-recourse
financing. Neither a retaining sponsor nor any of its affiliates
may pledge as collateral for any obligation (including a loan, repurchase
agreement, or other financing transaction) any ABS interest that the
sponsor is required to retain with respect to a securitization transaction
pursuant to subpart B of this part unless such obligation is with
full recourse to the sponsor or affiliate, respectively.
(f) Duration of the hedging and transfer restrictions.
(1) General rule. Except as provided in paragraph
(f)(2) of this section, the prohibitions on sale and hedging pursuant
to paragraphs (a) and (b) of this section shall expire on or after
the date that is the latest of:
(i) The date on which the total unpaid
principal balance (if applicable) of the securitized assets that collateralize
the securitization transaction has been reduced to 33 percent of the
total unpaid principal balance of the securitized assets as of the
cut-off date or similar date for establishing the composition of the
securitized assets collateralizing the asset-backed securities issued
pursuant to the securitization transaction;
(ii) The date on which the total unpaid
principal obligations under the ABS interests issued in the securitization
transaction has been reduced to 33 percent of the total unpaid principal
obligations of the ABS interests at closing of the securitization
transaction; or
(iii) Two years
after the date of the closing of the securitization transaction.
(2) Securitizations of residential mortgages.
(i) If all of
the assets that collateralize a securitization transaction subject
to risk retention under this part are residential mortgages, the prohibitions
on sale and hedging pursuant to paragraphs (a) and (b) of this section
shall expire on or after the date that is the later of:
(A) Five years after the date of the closing
of the securitization transaction; or
(B) The date on which the total unpaid principal balance of the residential
mortgages that collateralize the securitization transaction has been
reduced to 25 percent of the total unpaid principal balance of such
residential mortgages at the cut-off date or similar date for establishing
the composition of the securitized assets collateralizing the asset-backed
securities issued pursuant to the securitization transaction.
(ii) Notwithstanding paragraph (f)(2)(i)
of this section, the prohibitions on sale and hedging pursuant to
paragraphs (a) and (b) of this section shall expire with respect to
the sponsor of a securitization transaction described in paragraph
(f)(2)(i) of this section on or after the date that is seven years
after the date of the closing of the securitization transaction.
(3) Conservatorship or receivership of sponsor. A conservator or receiver of the sponsor (or any other person holding
risk retention pursuant to this part) of a securitization transaction
is permitted to sell or hedge any economic interest in the securitization
transaction if the conservator or receiver has been appointed pursuant
to any provision of federal or State law (or regulation promulgated
thereunder) that provides for the appointment of the Federal Deposit
Insurance Corporation, or an agency or instrumentality of the United
States or of a State as conservator or receiver, including without
limitation any of the following authorities:
(i) 12 U.S.C. 1811;
(ii) 12 U.S.C. 1787;
(iii) 12 U.S.C. 4617; or
(iv) 12 U.S.C. 5382.
(4) Revolving
pool securitizations. The provisions of paragraphs (f)(1) and
(2) are not available to sponsors of revolving pool securitizations
with respect to the forms of risk retention specified in section 244.5.
