Which of the statmetns are correct? Statement 1 The sponsor usually maintains the decision making power and voting control over the spe Statement 2: The equity owners of spe usually receive rate of return that is tied to performance of SPE Answer is both are incorrect. I thought statement 1 is correct. Why is it incorrect? Here is the explanation from schweser. But I did not understand The sponsor does not usually have voting control over SPE. The structure of SPE transfers risks and rewards from equity owners to variable interest owners In return equity owners reeive a fixed return. Does sponsor and variable interest owner one and same?My understanding is sponsor controls SPE, though they don’t have much equity. Because of Enron, it is changed that control is more important than percentage of ownership. Let me know what is wrong.

it was also my understanding that the sponsor is also the variable interest owner because they get the residual interests and take on risk. however, they do not have to have voting control. i think many firms used to circumvent the voting control rule in order to not consolidate the vie and the new rule was supposed to avoid that. so under the new rule, voting control is not a factor in deciding who should have to consolidate the entity. but you’re right. that schweser explanation’s confusing.

i hate this question and schweser. the answer depends on whether the SPV/SPE is a VIE.

And whether SPE is VIE or not depends on four choices :- 1. Equity owner lack decision-making 2. Equity owner doesn’t get residual return 3. Equity owner doesn’t share residual losses 4. Equity owner have no voting rights I don’t think sponsor comes into picture at all. pacmandefense Wrote: ------------------------------------------------------- > i hate this question and schweser. the answer > depends on whether the SPV/SPE is a VIE.

ok i looked up the schweser LOS. the SPE has equityholders and variable interest holders. the equity holders post the collateral and get a fixed rate of return and have no exposure to risk/reward of the SPV value.