Assets - tradable securities.
To convert 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).
- Originators & Sponsors in securitisation
- "For the purposes of the Securitisation Regulation, the Originator of an asset is either a party that was directly or indirectly involved in the original creation of the asset, or acquired the asset for its own account and then securitised it.
- ... the Sponsor of a securitisation is a party that sets up the securitisation and manages it, but does not securitise its own assets."
- Originator - Sponsor - the Treasurer's Wiki.
- Covered bond
- Global Financial Crisis (GFC)
- Mortgage-backed securities (MBS)
- Securitisation Regulation
- Securitisation special purpose vehicle
- Securitisation swap
- Significant Risk Transfer
- Whole business securitisation