Research On Legal Regulations And Improvement Of Asset Backed Securities

As speeding up of the globalization and development of financial technology,the competitions among countries are getting more and more fierce.At the same time,financial innovations are strongly needed for the growth of economies.Under the circumstances above,there come both the pressure and the challenges for financial industry,as well as precise opportunities and vast space for progression.As an important financial innovation,the wave of securitization greatly swept the global financial market,triggering the revolution of financial markets and financial systems,and improving the development of related legal systems.The birth and growth of securitization completely changed the economies and financial markets,which played a significant role in the innovation of financial products and financial instruments,thus greatly contributed to the development of capital markets.The legal issues of securitization include the aspects of underlying assets,true sale and bankruptcy isolation in securitization transactions,Asset Backed Securities(hereinafter referred to as ABS),externality legal issues and so on.The issue of legal regulations towards ABS is one of the series legal issues of securitization above.But it is the most important part of them.Legal regulations on ABS are the keys to open the doors of legal regulations on securitization,which fundamentally determine what are the values and functions of legal regulations during the process of the spreading of systematic risk to the capital market brought by securitization.In this dissertation,the author is making efforts to research on legal regulations of ABS deeply,thoroughly,completely and systematically.The other legal issues of securitization are not involved deeply in this dissertation.ABS are results and output elements of securitization,as well as concrete forms of securitization in capital market.Being different from other kinds of securities which are based on the credit of issuers as payment sources,ABS are a kind of securities which are based on predictable and stable cash flows coming from underlying asset pools in the future as payment sources.Subject to various kinds of underlying assets,different types of securitizing operations,and different degrees of complexity of securitization led by interactions between those two elements above,there are various types of ABS in captital market.However,the core of legal attributes of ABS are the payment realization mechanism and the risk transmission mechanism between underlying assets and securities.ABS are very important financial instruments in the development of securitization in all countries,which played positive roles in improving the liquidity of assets,diversifying the credit risks and promoting the development of financial markets.Theoretically,legal regulations towards ABS are ways of realizing the functions of financial laws.Being built on the base of protecting and promoting the development of securities industry,the legal regulations on ABS clarify the rights and obligations of every securitization participants,strengthen the protection of investors,and prevent from the systematic risks brought by ABS to the capital markets.From perspectives of laws,it is significantly important on both theoretical and practical aspects that realizing the healthy growth of ABS and maintaining the stability and safety of financial market through making and enacting laws and regulations,as well as reforming the financial supervision patterns.There are seven parts in this dissertation.The first chapter is introduction part,which briefly introduces the research background and the significance of the topic,and reorganizes the related important literature.In the second chapter,it is mainly discussed about the theoretical basis of legal regulations on ABS.In this part,it is firstly analyzed the basic issues of securitization.The author points out that the concept of securitization has been absent and vague,and then introduces the classifications of ABS in different standards.As the outcome and productions of securitization,ABS are being analyzed from perspectives of concept,features,difference,connection,etc.,which leads to the core concept and the focus of discussion.Then the author studies on the practical innovation and social value of ABS.The significance of ABS includes building a supportive relationship between underlying assets and securities,improving the decomposing of civil rights triggered by underlying assets,deepening the intension of guarantee relationship,as well as promoting the development and revolution of the concept and legal features of securities.The author then focuses on the ideas of legal regulations on ABS,which are applying the game theory and keeping balance between financing facility and transaction security,as well as the protection of ABS investors and their interests.Based on the theoretical research above,in the third chapter there is systematic study on the legal attributes of ABS.The author summarily puts forward the disputes of the legal attributes of ABS,then makes brief analysis and comments by pointing out that economic substance principle should be applied when we recognize the legal features of ABS.From the perspective of statute laws,the author points out that it is significant for the broad concept of "Securities" to the recognition of legal features of ABS by studying the Securities Act of 1933 as a typical example.The author also maintains that "the support from self-liquidation assets to securities" and "converting into cash flow in finite time period" are important description for ABS by analyzing the Dodd-Frank Act of the United States,which reflect the decisive influence of the economic substance of ABS towards its legal features.From the perspective of case laws,this paper focuses on the "Howey Test Rule" by studying Case Howey and Case Forman.The "Howey Test Rule" teaches us a way on how to analyze legal features of ABS,by which we can use "gaining the investment profits by relying solely on the income of underlying assets" as a train of thought.Besides,in the case of Reves v.Ernst&Young,it would be accurate and effective to use the "Family Resemblance Approach" to study legal features of ABS,as well as using the way of differentiating backgrounds of facts by pointing out that whether they are on a financial basis or merely on a commercial purpose.Based on the research above,it is finally summarized on the legal features of ABS.In the fourth chapter,it is discussed about the legal regulation issues on credit rating and credit enhancement of ABS.Starting from the process of ABS,it is analyzed of the product design and transaction of ABS in detail,and pointed out that the rating agencies have important functions towards ABS.Through rating credit risks,rating agencies professionally offer investors detailed and objective information,so that the investors can make correct and rational investment decisions based on the rating conclusions.In the process of issuing and exchanging of ABS,the analysis of quality of underlying assets closely relates to credit rating.Therefore,it is significant to impose legal regulations on ABS rating system by changing rating payment system,improving rating techniques,and relieving the reliance on the external rating conclusions and so on.As to the credit enhancement of ABS,it is significant to narrow the gap between the demand of investors and the credit levels of products through both internal and external credit enhancements.During the process of credit enhancement,the internal credit enhancement which focuses on raising the quality of underlying asset pool should be the core part of legal regulations.Besides,it is also significantly important of preventing the systematic risk from spreading out of the ABS when external credit enhancement is taken.So that we can ensure the certainty and stability of the collection of cash flow from ABS,as well as improving the credit quality and credit levels of ABS.The fifth chapter deeply focuses on legal regulations of issuing and exchanging of ABS.As to the legal basis of ABS issuing,the author studies on the revolution of registration system and filing system of Chinese ABS market,comparing them to the previous examination and approval system.Based on that,the author puts forward the regulatory objectives and guiding principles of ABS issuing.Then it is talked about the legal regulation system frame of ABS issuing.The author starts from studying the information disclosure system of ABS issuing,which emphasizes on the disclosure of information of underlying asset pool.Then it is analyzed about the Shelf Registration System for ABS issuing.As to ABS issuing in private placement,it is pointed out that based on the speciality of qualifications of investors and information disclosure,it should be applied of some special legal regulations.Then the author analyzes the specific legal regulations on exchanging of ABS from both the public offering and private offering.For the public offering ABS,it is important to prevent market manipulate and stable securities price.For the private offering ABS,it is vital to improve circulation and strengthen information disclosure.The sixth chapter is mainly about the legislative suggestions on legal regulations of Chinese ABS under the background of the amending of Chinese Securities Law.Firstly,the author briefly studies the current situation of Chinese ABS market and legal regulation systems.Then it is analyzed and briefly commented of the advantages and shortcomings of current legal regulations on Chinese ABS according to the Amendment Draft of Chinese Securities Law.Then the author does research on how to build a macro frame for Chinese ABS regulations improvement by studying the centralized legislation and decentralized legislation.Finally,it is straightforwardly pointed out that how to improve legal regulations on Chinese ABS.To be more specific,it is critical to clearly define and recognize the concept and legal features of ABS.Then it is important to build accurate and fair credit rating systems for ABS,which mainly rely on the internal rating instead of the external rating.Besides,it is necessary to improve the credit enhancement of ABS,in which the internal credit enhancement should be the core part.From the perspectives of issuing and exchanging of ABS,we should improve issuing systems mainly by information disclosure,as well as promoting exchanging systems to facilitate the circulation of ABS.The seventh chapter is the last part of this dissertation,as well as the conclusion and prospects part.The author points out that China is being in its golden age of securitization development.Therefore,the most important thing of legal regulations should be keeping a healthy balance between the free market and the financial supervision.The ways to achieve the goals should be protecting the industry development and technical innovation of securitization through legal regulations,while keeping alert on and diminishing systematic risk brought by high leverage and over complexity of securitization.As to ABS,we should continually keep developing and improving legal regulation systems,and constantly remain exploring and adjusting between financial innovation and financial supervision.Eventually,a freer,safer,more efficient and more influential securitization market will form,which will greatly contribute to the growth of capital market and promote the development of national economy.