Acronyms and technical terms abound in finance, as in many other areas of activity.  They are certainly plentiful in securitisation and in this lexicon we have attempted to cover the most common (and some pretty arcane) expressions and acronyms used in the industry. Words of warning are in order though. 

First, some of the expressions that appear here have legally set definitions in various jurisdictions.  For example, “securitisation” in the European Union is a legally defined in article 2 of the Securitisation Regulation.  Similarly, “asset-backed securities” are defined in the United States’ Dodd-Frank Act.  

Where useful, we sometimes mention such legal definitions. But this lexicon seeks to give the “conversational” meaning of any expression.  How the expression would be used by knowledgeable market participants writing or chatting about securitisation not by lawyers drafting a legally binding notice to a regulator.

Second, language is contextual and words have sometimes different meanings.  For example, “asset backed security” or “ABS” may mean any type of securitisation funded by a bond.  But it also can be used to differentiate some types of securitisations where the assets are consumer loans from others such as RMBS or CMBS.  It is the old saw that amongst animals you have animals and men and amongst men you have men and women.  Similarly, “issuer” should – as a technical and legal matter – refer to the special purpose vehicle that purchases the assets and issues the securities.  Yet, it is universally also used as a colloquial way to refer to the “originator”.  You will see or hear commonly expressions such as “Megabank is one of the largest issuers of RMBS in the US”. We have tried to account for such multiple usages.  But it is important to keep these multiple meanings when using the lexicon.

Thirdly, securitisation is a complex and varied eco-system.  Search long enough and you will find pretty much any feature you can imagine.  Dictionary definitions are simplifications setting out the usual usage of words.  Therefore, do not fret if you recall a securitisation where the word was not used in the manner suggested by this dictionary.  That will happen,

Finally, the “Z” controversy.  In the United States, securitisation is spelt “securitization”.  We have opted throughout to spell it in the European fashion derived from United Kingdom English with an “S”.

Words and expressions in italics in a definition are words and terms that are defined in the Lexicon.

We have also sometimes provided “technical notes” following an entry to clarify for the specialists a point where the entry itself has simplified some aspect for the lay person’s better understanding.

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  • a

  • ABCP Sponsor

    see Asset Backed Commercial Paper Sponsor

  • ABCP Transaction

    see Asset Backed Commercial Paper Transaction

  • ABS

    see Asset Backed Securities

  • Agreed upon Procedures

    see Pool Audit

  • Arranger

    an entity that advises and assists an originator in structuring a securitisation.

    The arranger also assists with the road show to investors and, often, with the distribution of the asset backed securities.

    Most arrangers are investment banks.

  • Article 7 Disclosure

    under article 7 of the EU Securitisation Regulation, originators and sponsors are legally required to make certain specified disclosures relating to a securitisation. These legally required disclosures are known as article 7 disclosures. These obligations fall upon all EU originators and sponsors but also, based on a 2022 interpretation of the regulation by the European Commission, on any originator or sponsor selling a securitisation to an EU investor. Since the Securitisation Regulation(...)

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  • Asset Backed Commercial Paper

    commercial paper issued by a special purpose vehicle (an asset backed commercial paper conduit) which is backed by assets purchased by the vehicle. Repayment on the commercial paper is ultimately legally dependent on the performance of the assets and the commercial paper investors have no recourse to the entities that sold the assets to the vehicle.

    This is why asset backed commercial paper is a form of securitisation. However, the vast majority of asset backed commercial paper(...)

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  • ABCP

    commercial paper issued by a special purpose vehicle (an asset backed commercial paper conduit) which is backed by assets purchased by the vehicle. Repayment on the commercial paper is ultimately legally dependent on the performance of the assets and the commercial paper investors have no recourse to the entities that sold the assets to the vehicle.

    This is why asset backed commercial paper is a form of securitisation. However, the vast majority of asset backed commercial paper(...)

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  • Asset Backed Commercial Paper Conduit

    a special purpose vehicle that issues asset backed commercial paper.

    Almost invariably an ABCP conduit will purchase assets from multiple sellers, becoming involved in multiple securitisation transactions but issues just one series of commercial paper backed by all the transactions in the ABCP program.

  • Asset Backed Commercial Paper Program

    the name given to a scheme under which multiple ABCP transactions are funded by a single ABCP conduit issuing ABCP.

    Under an ABCP program, the ABCP investors take the risk of all the assets in the program and not the risk of individual transactions.

    Put differently, the ABCP conduit issues only one type of commercial paper exposed to the risk of the assets in all the ABCP transactions entered into by the conduit but backed by a single liquidity facility provided by the ABCP sponsor.

  • Asset Backed Commercial Paper Sponsor

    ABCP programs are set up and managed by the ABCP sponsor. These sponsors are usually large commercial banks. They run ABCP programs as another type of funding that can be offered to their clients, backed by financial assets owned by those clients. Although it is not legally required, the ABCP sponsor is almost always the provider of the liquidity facility. This means that, since modern liquidity facilities are almost always fully supporting, the risk of default on the assets is(...)

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  • Asset Backed Commercial Paper Transaction

    a single transaction in which an ABCP sponsor enters into a contract with a company (the seller, also known as the originator) under which the company sells receivables to an ABCP conduit. The ABCP conduit issues asset backed commercial paper (ABCP) to investors to pay the purchase price of the receivables. Because ABCP has such short maturities, almost all ABCP transactions are replenishing, in that – as receivables mature – the cash generated by those receivables is used by the ABCP(...)

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  • Asset Backed Securities

    this term has two possible meanings

    (a) any securities backed by assets in a securitisation or

    (b) securities issued under a securitisation which is not an RMBS or a CMBS or a CDO; usually therefore, a securitisation of auto-loans, consumer loans, credit cards or personal loans.

  • Attachment Point

    in a synthetic securitisation, the protection buyer will not seek protection against 100% of all losses on a reference pool.

    This would be too expensive. So, the protection buyer and protection seller will agree that a certain amount of losses up to a given number will not trigger an obligation on the protection seller to make a payment. That number is the attachment point.

    They will then agree that, once the losses on the reference pool have reached a certain maximum number,(...)

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  • AUP

    see Pool Audit

  • Average LTVsee loan-to-value
  • b

  • Back-up Serviceran entity contracted at the start of a securitisation to replace the servicer should the servicer no longer be willing or able to service the securitised assets. This is done sometimes if the investors and/or the rating agencies that are rating a securitisation are concerned about the strength of the servicer. If a servicer were to become insolvent or otherwise unable or unwilling to perform their contracted services in relation to the securitised assets, moneys owed by borrowers may not(...) Read More
  • Bankruptcy Remotenesssee Insolvency Remoteness
  • Baselsee Basel Rules
  • Basel Rulestext to be added
  • Borrowersin the context of a securitisation, this usually refers to the persons or entities obligated to pay the moneys owed under the securitised assets e.g the person who took out the loan to purchase a car and whose loan is now in a securitisation pool. They are also sometimes called the underlying borrowers
  • BTL Mortgagessee Buy-to-Let Mortgages
  • Buy-to-Let Mortgage

    a mortgage loan made to finance or refinance the purchase of a residential property that will be let by the owner to tenants.

    The converse of a BTL mortgage is an owner-occupied mortgage.

    Securitisations containing BTL Mortgages are not currently allowed in LCR pools.

  • c

  • Call Datetext to be added
  • Capital Requirement Regulation

    the European Union regulation that applies to all EU banks and sets out the rules and formulae that determine the minimum amount of capital that any bank is required by law to hold. It is abbreviated CRR. The CRR is extremely long and extremely complex. Its main impact on securitisation is

    • (a) that it sets the calculations necessary to determine how much capital an EU bank must hold against any securitisation it owns,
    • (b) it sets the rules for when a securitisation can be held in(...)
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  • CBOsee Collateralised Bond Obligation
  • CDOsee Collateralised Debt Obligation
  • CDO Cubedtext to be added
  • CDO Managertext to be added
  • CDO Squaredtext to be added
  • CDSsee Credit Default Swap
  • Clean-up Calltext to be added
  • CLN

    see Credit Linked Note

  • CMBSsee Commercial Mortgage-Backed Securities
  • Collateralised Bond Obligationtext to be added
  • Collateralised Debt Obligationtext to be added
  • Commercial Mortgage-Backed Securities=a securitisation backed by loans secured by mortgages (or other type of security) over commercial real estate such as office buildings, hotels, retail spaces, etc…

  • Commercial Paper

    a short-term debt security.

    To be commercial paper, a security must have a maturity of less than one year in Europe and less than 270 days in the US. But most commercial paper (also known as CP) is for much shorter maturities – sometimes as short as 7 or 14 days.

    With such short maturities, CP is usually treated by investors as a cash equivalent.

    CP is issued by corporations but also by asset backed commercial paper conduits.

  • Constant Prepayment Ratetext to be added
  • CPsee Commercial Paper
  • CPRsee Constant Prepayment Rate
  • Credit Default Swap=abbreviated CDS, it is a type of swap under which one party (Party A) agrees to pay another party (Party B) a fixed contracted amount and Party B agrees to pay Party A only upon the credit default of one or more named entities. For example, Megabank will enter into a €250m CDS with HedgeFund One to cover the default of of TechCorp. Under one leg of the CDS, if TechCorp defaults on its loans generally, HedgeFund One will pay go Megabank €250m at the time of default. Under the other leg,(...) Read More
  • Credit Enhancementtext to be added
  • Credit Eventsin the context of a synthetic securitisation, the events listed in the contractual documentation relating to a reference obligation that obligate the protection seller to make a payment to the protection buyer to compensate it for the loss.
  • Credit Linked Note

    abbreviated CLN, it is a tradeable security issued by an entity where the repayment of capital is conditional on some other third-party entity performing on an unrelated financial obligation.

    For example, Big Bank Inc. may issue a €500m, five year 3.5 % CLN linked to Ruritania’s 10-year sovereign bond. During the life of the CLN, Big Bank Inc. will pay interest of 5% per year. At year five, it will only repay the principal of €500 if Ruritania has not defaulted on its 10-year bond.(...)

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  • Credit Tranchingsee Tranching
  • CRRsee Capital Requirements Regulation
  • d

  • Data Repositorytext to be added
  • Detachment Pointsee Attachment Point
  • e

  • EBAsee European Banking Authority
  • EBA Guidelinestext to be added
  • Eligibility Criteriatext to be added
  • Equity Tranchetext to be added
  • ESMAsee European Securities and Markets Authority
  • European Banking Authoritytext to be added
  • European Securities and Markets Authoritytext to be added
  • Excess Spreadtext to be added
  • f

  • Fanny Maetext to be added
  • FCC 

    see Fond Commun de Créances

  • FCT =see Fond Commun de Titrisation

  • Final Legal Maturity =text to be added

  • First Loss Position =text to be added

  • Fond Commun de Créances=text to be added

  • Fond Commun de Titrisationtext to be added
  • Freddy Mactext to be added
  • Full-stack Securitisationtext to be added
  • Fully Supporteda term almost exclusively used in the context of ABCP, it denotes an ABCP Program that benefits from a fully supporting liquidity facility.
  • Fully Supporting Liquidity Facilitytext to be added
  • Fundedtext to be added
  • g

  • Gestora=see Sociedad Gestora de Fondos de Titulización

  • GFCGreat Financial Crisis, being the crisis that began in late 2007 in the United States and triggered by defaults in certain US securitisation products such as sub-prime RMBS and CDOs.
  • Ginnie Maetext to be added
  • Government Sponsored Enterprisetext to be added
  • GSEsee Government Sponsored Enterprise
  • h

  • Homogeneitytext to be added
  • i

  • Insolvency Remotenesstext to be added
  • Issuertechnically, in the context of a securitisation, the entity which issues the debt instruments backed by the securitised assets which it has purchased from an originator. This is usually an insolvency remote special purpose vehicle. However, colloquially if inaccurately, the term is also often used to describe the entity which ultimately receives the cash raised by the securitisation, ie the originator.
  • l

  • Law 130text to be added
  • LCRsee Liquidity Coverage Ratio
  • LCR Pooltext to be added
  • Liquidity Coverage Ratiotext to be added
  • Liquidity Facilitya lending facility provided by a financial institution which can be drawn upon to cover a shortfall in the amount payable under a securitisation resulting from liquidity issues rather than credit defaults. One should distinguish two broad types of liquidity facilities in securitisations that operate somewhat differently and are used for different purposes ABCP liquidity facilities and term liquidity facilities.
  • Loan-to-value=although not exclusively a residential mortgage loan concept, in the context of securitisation, loan-to-value or LTV is considered a key component of the credit analysis of an RMBS transaction. LTV is the amount the residential mortgage loan to the market value of the residential property purchased or refinanced by that loan. For example, if a borrower borrows €400,000 to purchase a €600,000 property, the LTV is 66%. It is usually accepted that the lower the LTV of a loan, the lower the(...) Read More
  • LTVsee Loan-to-value
  • m

  • Manufacturers

    The term ‘manufacturers’ is used as shorthand for originators, original lenders, sponsors, and securitisation special purpose entities (SSPEs), as defined in the proposed rules by UK PRA

  • Master Trusttext to be added
  • MBSsee Mortgage-Backed Securities
  • Mezzanine Tranchetext to be added
  • Mortgage-Backed Securitiesabbreviated MBS it means both RMBS and CMBS. It is primarily a US expression and is not commonly used in Europe.
  • n

  • National Competent Authoritiestext to be added
  • NCAsee National Competent Authorities
  • NFCtext to be added
  • Non-financial Companiestext to be added
  • Non-performing Loanstext to be added
  • NPLtext to be added
  • NPL Securitisationtext to be added
  • o

  • On-balance Sheet Securitisationanother name for synthetic securitisation. see Synthetic Securitisation
  • Original Lendersometimes the originator will securitise assets that it did not create but which it purchased from the entity that originally created them. For example, a Fund F may securitise a pool of mortgages that it purchased from Bank B that made the original loans to borrowers to purchase their homes. Sometimes, there may be more than one link in the chain, with Fund F purchasing the mortgages from Bank B that itself purchased them from Bank C. The entity that made the original advance to the(...) Read More
  • Originate-to-distributetext to be added
  • Originator=an entity that owns and sells assets to a securitisation SPV. The originator is the party that benefits from the securitisation by being the ultimate recipient of the money raised. The name stems from the fact that most originators originated the securitised assets – ie made the original loans to the borrowers. However, the term will also be used to describe an entity that did not originate the securitised assets but, for example, purchased them from the real originator as long as it is(...) Read More
  • p

  • Pass-Througha key feature of securitisations. Because the investors in a securitisation are not supposed to take the credit risk of the originator, all moneys received from borrowers (whether interest or principal) is passed on immediately to the issuer. Broadly, principal payments are then passed-through to the securitisation investors. This is important because in most securitisations, the borrowers are entitled under the contracts that make up the securitised assets to repay their loans early. For(...) Read More
  • Placed Securitisationsee Retained Securitisation
  • Pooltext to be added
  • Pool Audittext to be added
  • Pool Cuttext to be added
  • Pro-rata Amortisationtext to be added
  • Protection Buyertext to be added
  • Protection Sellertext to be added
  • r

  • Re-securitisationa securitisation where the securitised assets are themselves securitisations. Examples of re-securitisations would be CDO squared securities. After the GFC and the very severe losses incurred on re-securitisations such as CDO squared and CDO cubed securities, re-securitisations were considered a main trigger of the financial crisis. As a result, re-securitisations are banned in the EU (article 4 of the Securitisation Regulation). Although they are currently banned in the UK, current(...) Read More
  • Reference Obligationin the context of a synthetic securitisation, an obligation (usually a loan) contained in the Reference Pool and in respect of which, on the occurrence of a credit event, the protection seller is obligated to pay a contractually agreed amount to the protection buyer.
  • Reference Poolin the context of a synthetic securitisation, the list of all the obligations in respect of which the protection buyer is purchasing protection and will be compensated by the protection seller once losses have reached the attachment point and before they reach the detachment point.
  • Reg ABsee text to be added
  • Regulation ABtext to be added
  • Residential Mortgage-Backed Securitiessecurities issued under a securitisation where the securitise assets are residential mortgage loans made to finance or refinance the purchase of a residential property. Traditionally, RMBS has been the largest category of securitisation by placed issuance volumes, although in the EU it is now challenged by auto-loan securitisations.
  • Residual Valuetext to be added
  • Residual Value Risktext to be added
  • Retained Securitisation=not to be confused with Retention. Securitisations are eligible collateral under various lending windows by the ECB and the Bank of England. This means that a bank wishing to borrow funds from its central bank can do so provided it furnishes some form of collateral to that central bank. The collateral that central banks will accept (eligible collateral) is tightly defined and includes, for both the ECB and the Bank of England, certain types of securitisations. Therefore, in recent year,(...) Read More
  • Retentionsee Retention Obligation
  • Retention Obligation

    Following the GFC, regulators and policy makers as well as many academics and market participants concluded that one of the key problems with US sub-prime RMBS was that of originate-to-distribute.

    To ensure that originators maintained an economic interest in the securitised assets they had originated even after the securitisation had been completed (skin-in-the-game) regulators and policy makers in multiple jurisdictions prohibited originators from securitising assets without(...)

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  • RMBSsee Residential Mortgage-Backed Securities
  • s

  • Securitisationtext to be added
  • Securitisation Regulation

    text to be added

  • Securitisation Special Purpose Entitysee Special Purpose Vehicle
  • Securitisation Special Purpose Vehiclesee Special Purpose Vehicle
  • Senior Tranchesee Tranching
  • Sequential Amortisationtext to be added
  • Servicertext to be added
  • Servicertext to be added
  • Servicertext to be added
  • Servicer=text to be added

  • Servicer=text to be added

  • Servicer=text to be added

  • Servicertext to be added
  • SEStext to be added
  • Significant Risk Transfer Ruletext to be added
  • Simple, Transparent and Standardisedtext to be added
  • Skin-in-the-Game =see retention obligation

  • Sociedad Gestora de Fondos de Titulización=text to be added

  • Solvency 2text to be added
  • SPEsee Special Purpose Vehicle
  • Special Purpose Entitysee Special Purpose Vehicle
  • Special Purpose Vehicletext to be added
  • Spreadtext to be added
  • SPVsee Special Purpose Vehicle
  • SRTtext to be added
  • SRT Rulestext to be added
  • SSPEsee Special Purpose Vehicle
  • Step-up Coupontext to be added
  • STStext to be added
  • STS Registertext to be added
  • STS Verification

    text to be added

  • Substitutiontext to be added
  • Synthetic Excess Spreadtext to be added
  • Synthetic Securitisationa securitisation where the securitised assets are not sold by the originator but instead the originator contractually agrees with the investors that, if the originator suffers a loss on the securitised assets, the investors will pay to the originator a cash amount to compensate it for the loss suffered as a result of that default so long as the loss falls between the attachment point and the detachment point. Because the securitised assets are not sold but remain on the balance sheet of(...) Read More
  • t

  • Third Party Verification Agenttext to be added
  • Tranchesee Tranching
  • Tranchingtext to be added
  • True Saletext to be added
  • u

  • Underlying Borrowerssee Borrowers
  • Unfundedtext to be added
  • v

  • Verification Agenttext to be added
  • w

  • WALsee Weighted-Average Life
  • Warehousetext to be added
  • Warehousing Facilitytext to be added
  • Waterfalltext to be added
  • Weighted-Average Lifetext to be added
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