CHINA Law and Practice Contributed by: Borong Liu, Xiaoli Liu, Jingyi Lu and Zhijie Zhang, Zhong Lun Law Firm
• the material credit risk related to the trans - ferred asset has been transferred to an inde- pendent third party; • the originator does not retain actual or indi - rect control over the transferred assets; • the originator does not bear payment obliga - tions or responsibilities towards the investors of the ABS, the investors only have recourse to the limit of underlying assets; • the underlying assets has been transferred to the SPV, and the holders of beneficial rights in the SPV have the right to pledge or trade the beneficial rights; • the trust agreement and other legal docu - ments related to the securitisation do not contain certain specific provisions, such as requiring the originator to change the assets in the asset pool, so as to enhance the quality of the asset pool, or allowing the originator to provide additional credit enhancement after assignment of the underlying assets; • the procedures for a clean-up call are compli - ant with the regulatory requirements of the Rules on the Calculation of Risk-Weighted Assets in Securitisation; and • except for a termination arising from a clean- up call, taxes, certain regulatory changes or early amortisation that meets the regulatory requirements, there are no other triggers or conditions where the originator has the right to terminate the SPV in advance. Schedule 11 of the Measures for Administration of Capital of Commercial Banks – Rules on the Calculation of Risk-Weighted Assets in Secu - ritisation provides three approaches for capital calculation of securitisations: internal ratings- based approach (IRBA), external ratings-based approach (ERBA) and standardised approach (SA). Securitisation exposures where none of the aforementioned approaches can be applied must be assigned a 1,250% risk weight. The
minimum risk weight of the securitisation risk exposures is 15%. For a securitisation which meets the Simple, Transparent, Comparable (STC) standard, the minimum risk weight of the senior class is 10%, in contrast to 15% for the other classes. However, the China STC stand - ards do not currently apply to ABCPs. 4.7 Use of Derivatives Regulations of Use of Derivatives Currently, there are no specific laws or regula - tions on the use of derivatives in securitisations; however, relevant parties (including the plan manager, trustee and investors) shall comply with the general rules applicable to derivatives transactions. In respect of credit derivatives, the trading of such instruments is mainly subject to a series of rules published by NAFMII, the SAC, AMAC, the SSE and the SZSE, such as the Guidelines for the Credit Risk Mitigation Agreement and the Guidelines for the Credit Risk Mitigation War - rants issued by NAFMII, and the Guidelines for the Investment of Publicly Offered Securities Investment Funds in Credit Derivatives issued by CSRC. As for interest rate swaps and foreign curren - cy swaps, a body of rules promulgated by the PBOC, the China Foreign Exchange Trade Sys - tem (CFETS) and the National Interbank Fund - ing Centre will apply, such as the Notice of the People’s Bank of China on Issues Concerned in Operating RMB Interest Rate Swap Business and the Notice by the China Foreign Exchange Trade System on Issuing the Trading Rules of Interbank RMB Foreign Exchange Market. Before entering into any derivatives trading, the SPV manager or trustee needs to obtain quali - fications for derivatives trading from the corre -
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