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Securitisation of Financial Assets[1]

Securitisation of Financial Assets[1]

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Published by vahid

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Published by: vahid on Feb 24, 2009
Copyright:Attribution Non-commercial

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05/10/2014

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 SECURITISATION OF  SECURITISATION OF FINANCIAL ASSETS FINANCIAL ASSETS 
 
 
Securitisation is a process by whichSecuritisation is a process by which
(iii)(iii)
intangible and illiquid assets are monetized into cash,intangible and illiquid assets are monetized into cash,
(iv)(iv)
(ii) risks related to the specific assets are separated from the transferor's (i.e., the originator) own credit(ii) risks related to the specific assets are separated from the transferor's (i.e., the originator) own creditand operating risk, andand operating risk, and
(v)(v)
(iii) securities are issued to investors which are designed for the specific risk tolerance profile of such(iii) securities are issued to investors which are designed for the specific risk tolerance profile of suchinvestors.investors.The above statements define the theme of securitisationThe above statements define the theme of securitisationSimply stated, a securitization is the term used to describe the process of issuing securities backed by theSimply stated, a securitization is the term used to describe the process of issuing securities backed by thecash flows from a pool of underlying assets. Securitization has also been defined as "the sale of equity or cash flows from a pool of underlying assets. Securitization has also been defined as "the sale of equity or debt instruments, representing ownership interests in, or secured by, segregated, income-producing assetdebt instruments, representing ownership interests in, or secured by, segregated, income-producing assetor pool of assets, in a transaction structured to reduce or reallocate certain risks inherent in owning or or pool of assets, in a transaction structured to reduce or reallocate certain risks inherent in owning or lending against the underlying assets and to ensure that such interests are more readily marketable and,lending against the underlying assets and to ensure that such interests are more readily marketable and,thus, more liquid than ownership interests in and loans against the underlying assets." The cash from thethus, more liquid than ownership interests in and loans against the underlying assets." The cash from thecertificate holders goes to the originator, and the originator can then use that cash to originate morecertificate holders goes to the originator, and the originator can then use that cash to originate moreloans. The certificate holders receive monthly payments, constituting a paydown of their principalloans. The certificate holders receive monthly payments, constituting a paydown of their principalinvestment and interest on that investment."investment and interest on that investment."
RBI:RBI:
Securitisation is a process by which assets are sold to a bankruptcy remote special purposeSecuritisation is a process by which assets are sold to a bankruptcy remote special purposevehicle (SPV) in return for an immediate cash payment. The cash flow from the underlying pool of assetsvehicle (SPV) in return for an immediate cash payment. The cash flow from the underlying pool of assetsis used to service the securities issued by the SPV. Securitisation thus follows a two-stage process. In theis used to service the securities issued by the SPV. Securitisation thus follows a two-stage process. In thefirst stage there is sale of single asset or pooling and sale of pool of assets to a 'bankruptcy remote'first stage there is sale of single asset or pooling and sale of pool of assets to a 'bankruptcy remote'special purpose vehicle (SPV) in return for an immediate cash payment and in the second stagespecial purpose vehicle (SPV) in return for an immediate cash payment and in the second stagerepackaging and selling the security interests representing claims on incoming cash flows from the assetrepackaging and selling the security interests representing claims on incoming cash flows from the assetor pool of assets to third party investors by issuance of tradable debt securitiesor pool of assets to third party investors by issuance of tradable debt securities
 
 
Elements of SecuritisationElements of Securitisation
Conversion of existing illiquid assets likeConversion of existing illiquid assets likeloans, advances and receivables into tradableloans, advances and receivables into tradablesecuritysecurity
Reconverting them into fresh assets throughReconverting them into fresh assets throughcapital market operationscapital market operations
 

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