Securitisation

1.

The process of converting non-tradable assets into tradable securities.

For example turning non-tradable assets, like residential mortgage loans, into tradable assets (such as mortgage-backed securities).

This is often undertaken through a securitisation special purpose vehicle.

The credit risk of the assets is divided into tranches, and payments to the investors are dependent on the performance of the assets.

When a special purpose vehicle is used, the assets are transferred to the special purpose vehicle, which then issues securities.

Non-performance of underlying assets is a key risk for investors, and was one of the triggers for the Global Financial Crisis (GFC).

2.

The tradable securities created by the securitisation process.

3.

The trend for larger non-financial companies to use less bank lending facilities and instead to issue their own securities direct to the markets.

See also