Introduction to Securitisation

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Securitisation is a financial technique of pooling various categories of assets and creating securities in order to represent an aggregated and pooled assets.

These assets are usually homogeneous with relatively same characteristics.

The assets are legally isolated from the source so that the securities will not affected by the financial performance of the originator. 

The value of the securities comes for the pool of assets and its related income stream.

As it is legally a stand-alone structure, investors rights are only to the pooled asset.

Key definitions:

Asset backed securities (ABS):

Bonds that are issues pursuant to a securitisation transaction. Such bonds shall exclude bonds that are capable of being converted into equity. Examples of such excluded bonds include exchangeable bonds and bonds with attached warrants.

  

Securitisation transaction:

An arrangement that involves the transfer of assets or risks to a third party where such transfer is funded by an issuance of bonds. Payments to investors are derived directly or indirectly form the cash flows of the assets.