Legal Research On Asset Backed Securitization

Financial Innovation has become an irresistible trend in global financial field since 1970s with the rapid development of information technology, financial competition and transformation of regulatory environment. Among many systematic designs of financial innovation, Asset Backed Securitization (ABS) has attracted wide attention by its precise design and special function. ABS operates in the way that the promoter transfers the assets with stable income to a Special Purpose Vehicle (SPV) and the SPV will raise capital by issuing asset backed securities after the enhancement of credit to pay the consideration of.asset transfer. ABS is a process supported by cash flow and taking advantage of securities market to separate and restructure risks and profits of assets. The essential feature of ABS is to separate the risk of promoter's bankruptcy fromthe investors through the real sale.ABS, this new financial instrument has its unique importance in China. From the experience of developed countries and other developing countries, ABS will benefit the development of economic restructuring, deepening the reforms of financial system, increasing the hotspot of consumption, enlarging the effective demand, advancing the economic development, activating the existing assets, improving the operation of commercial banks, preventing and dissolving financial crisis, accelerating the reform of accommodation system, creation of new ways of finance and even strengthening the corporation system of the enterprises. At present, ABS has been widely discussed and initially tested as a way to resolve the liquidity of assets and advance a new way of finance in the process of fostering and development of securities market with the increasingly demand of liquidity and capital of the whole society.However, as a means of structured finance, ABS with the participation of so many subjects such as original rights holder, original debtor, credit enhancement institution, credit rating institution, service provider, and investment banker, especially SPV as the core of transaction, needs to be regulated and protected by the legal system. Firstly, The establishment, capacity, and existence of these subjects need to be regulated by law. Secondly, during various stages and links of ABS, the relations of rights and obligations between and among various subjects should be maintainedby contacts and the effects of these contacts should also be enforced by law. Thirdly, the intrinsic bankruptcy separation and real sale of ABS should be enforced by law. Legal system is very important to ABS and without the regulation and enforcement of legal system, ABS can never walk out a single step.The legal system in China - severely hurdles the implementation of ABS. The first part of this article concludes that China needs ABS as a new financial instrument while there are legal barriers in its implementation.The second part of this article analyzes the legal barriers of implementation of ABS in China in details. The analysis is carried out in accordance with the process of ABS, the construction of SPV, the transfer of assets, the enhancement of credit and the issuance of exchange of securities. As ABS is imported, the practices and provisions of foreign countries are introduced and analyzed with regard to China's concrete legal environment while the legal barriers in China has been pointed out.The third part of this article is to provide corresponding suggestions on improving the legal support of ABS in China with reference to the analysis in the second part.