Securitisation

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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