29.In the case of tranched credit protection, the original securitisation tranche should be decomposed into protected and unprotected sub-tranches. However, this decomposition is a theoretical construction, and should not be viewed as creating a new securitisation transaction. Similarly, the resulting sub- tranches should not be considered resecuritisations solely due to the presence of the credit protection.

30.For a bank using the SEC-ERBA for the original securitisation exposure, the bank should use the risk weight of the original securitisation for the sub-tranche of highest priority. Note that the term “sub-tranche of highest priority” only describes the relative priority of the decomposed tranche. The calculation of the risk weight of each sub-tranche is independent from the question of whether the sub-tranche is protected (i.e., risk is taken by the protection provider) or is unprotected (i.e., risk is taken by the protection buyer).

31.For synthetic securitisations, maturity mismatches may arise when protection is bought on securitised assets (when, for example, a bank uses credit derivatives to transfer part or all of the credit risk of a specific pool of assets to third parties). When the credit derivatives unwind, the transaction will terminate. This implies that the effective maturity of all the tranches of the synthetic securitisation may differ from that of the underlying exposures.