The Broader Meaning of Securitisation - Management Duniya

The Broader Meaning of Securitisation

1) Securitisation is the process of commoditisation: The basic idea is to take the outcome of this process into the market, the capital market. Thus, the result of every securitisation process, whatever might be the area to which it is applied, is to create certain instruments, which can be placed in the market.

 2) Securitisation is the process of integration and differentiation: The entity that securitises its assets first pools them together into a common hotchpot (assuming it is not one asset but several assets, as is normally the case). This process of integration then, the pool itself is broken into instruments of fixed denomination. This is the process of differentiation.

 3) Securitisation is the process of de-construction of an entity: If we think of an entity’s assets as being composed of claims to various cash flows, the process of securitisation would split apart these cash flows into different units. We classify these units, and sell these classified units to different investors as per their needs. Therefore, securitisation breaks the entity into various sub-sets.

Tags: Broader, entity, Meaning, of, Securitisation, Security
By: Management Duniya