Securitisation

1. Assets - tradeable securities.

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

For example turning non-tradeable assets, like residential mortgage loans, into tradeable 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 tradeable securities created by the securitisation process.

3. Securities - issuance.

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