On Legal Problems Of Asset Transferring In Securitization

Asset securitization originated from the United States mortgage backed securities in the 1970s. Securitization is a sale of assets in the United States, generally a pool of receivables held by a bank, a financial institution or a commercial company, to a dedicated vehicle that finances this purchase by issuing financial instruments on the market. Cash flow generated by the securitized assets is assigned to the payment of principal and interest due under the financial instruments. It has great difference from the bank credit and the commercial credit. The law allows an Special Purpose Vehicle( SPV ) to purchase from some type of credit including doubtful receivables ,pooling these receivables and issue securities to the investors. Asset securitization plays an important role on defending and dispersing the risk of the finance mechanism.The first asset-backed securities will be issued in the third season in 2005 in our country. But the law is far more away from matching the demand of the securitization market. In our country the civil law, company law and trust law provide with the evidence to securitization, on the other hand, there is still much obstruction in practice. The securitization trend has nurtured the interest in certain classes of assets such as future receivables, mortgage backed receivables, export receivables or collateralized debt obligations and the need for specific regulations. In order to capitalize this growing interest and to attract investors, the Securitization Law should be enacted or amended in order to facilitate the transfer of certain categories ofreceivables, to issue new financing instruments and to secure the applicable cash flow mechanisms.Asset transferring is the beginning of the asset securitization. Which credit asset can use to securitize, how to transfer the receivables and how to build a SPV are the most important problems during the transferring procedure.The securitization asset not only characterize the high stability, homogeneity, low risk and high feasibility, but also need to considerate the laws and the fundamental contract in order to assure its legitimacy grounds. As regards the guarantee real rights, there still have many obstruct to put it to securitize. Novation, assignment, trust and sub-participation are the ways of asset transferring, which can be distinguished true sale or guarantee finance. True sale is the aim for the sake of the risk remoteness. And it can protect both the buyer and the seller. The court can judge whether a transferring consists of true sale or guarantee finance on the base of the market value, buyback option, intention expression, right of recourse and whether the asset is far from risk despite the originator' s bankruptcy or not. The basic rights change in the different subjects during the asset securitization procedure and the law should be enacted about offsetting right and contradicting right. Although the civil law clearly stated that any security interest attached to the credit were automatically transferred to the new creditor, issues should be raised in practice as to the transfer of certain types of security interests.Company, joint enterprise or trust can be entitled as the form of...