Securitization is a mechanism that pools illiquid assets and converts them into tradable securities. This transforms illiquid receivables into liquid assets and restructures balance sheets. Securitization serves as a powerful tool for financial reengineering. Common assets that are securitized include mortgages, loans, and receivables. Pioneers of securitization include the US, UK, France, Australia, and others. The first securitized asset was automobile loans. The securitization process involves credit rating the receivables, selling the assets to a special purpose vehicle which issues securities to investors to fund the asset purchase. Key players are the originator, SPV, investors, and credit rating agencies. Challenges

1. Dr.B. JOHNSON, Reader, F.M.N.COLLEGE, KOLLAM

2. What is securitization
A mechanism of pooling of illiquid
assets for converting them into
tradable securities. Illiquid
receivables are transformed into
liquid assets. It restructures the
balance sheet. Securitization serves
as a very powerful tool of financial reengineering

3. ASSETS FOR SECURITIZATION
Must have homogeneity with regard to three
risks
Credit
Maturity
Interest rate

4. Residential mortgages,
Commercial and multi -family
mortgages, Home loans,
Automobile loans, Student
loans, Credit card
receivables,Boat loans,
Warehouse loans etc

5. PIONEERS OF SECURITIZATION IN
THE WORLD
USA, UK, FRANCE, AUSTRALIA, BRAZIL, CANADA,
HONGKONG, NETHERLANDS, JAPAN, GERMANY,
MEXICO etc.
THE FIRST ASSET SECURITIZED WAS
AUTOMOBILE LOANS

6. % SHARE OF ASSETS SECURITIZED
IN THE US IN2004

7. SECURITIZATION PROCESS
Credit rating of the receivables
Originator sell the assets to the
SPV
SPV gives money to the
originator and issues tradable
securities to fund the purchase of
assets , directly to the investors or
underwriters

8. OPERATORS OF SECURITIZATION
THE ORIGINATOR/SELLER/SERVICER
SPV-SPECIAL PURPOSE VEHICLE/ISSUER/TRUST
INVESTORS
CREDIT RATING AGENCIES

9. TYPES OF SECURI……IN INDIA
ASSET BACKED SECURITIES(ABS)
MORTGAGE BACKED SECURITIES(MBS)
COLLATERALISED DEBT OBLIGATIONS(CDO)
ASSET BACKED COMMERCIAL PAPER(ABCP)

10. ISSUES OF SECURITIZATION
Heavy stamp duty
Documentation
Absence of proper taxation and accounting procedure
Lack of appropriate legislation

11. CHALLENGES
RATIONALISE STAMP DUTIES
SIMPLIFY THE DOCUMENTATION PROCESS
FORMULATE ADEQUATE LEGISLATION
IMPART THE AWARENESS AMONG THE
CORPORATES