Information Technology Reference
In-Depth Information
Fig. 12.6
Securitization
avoid the risk. Then SPV issues securities and sells these to the investors.
A servicer collects payments and monitors the assets. The servicer can often be
the originator. A financial institution reinforce the credit enhancement and the
liquidity coverage.
Generally the securities are pooling and repackaging into another securities.
Pooling is a resource management term that refers to the grouping together of
resources for the purposes of maximizing advantage and/or minimizing risk to the
users. Securities have been issued to repackage existing assets which makes them
more attractive to investors.
Tranching is the method that the securities are divided into categories as part of
the same transaction. Each category has same level of the risk. The more senior
rated tranches generally have higher ratings than the lower rated tranches. For
example there are rated the class AAA, class AA, class A, class B. The tranching is
an important mechanism of the structured finance. Generally, they are paid sequen-
tially from the most senior to most subordinate.
Dividing is the process that the securities divided into a small amount of bonds.
The repetition of pooling or repackaging and tranching or dividing increases
complexity that which debt is included in the securities and the influence of the debt.
12.6.3 Securitization and Rights Management
To control the processes of securitization, the following functions are required in
the system. Especially the function of the secondary use plays an important role.
1. Debts such as loans could be treated as the contents.
2. An investor can recognize that which securities are contained in the securities.
