The Construction Of The System Of True Sale In China's Asset Securitization

Asset securitization refers to a system design in which the financier is separated from the certain asset originally held by him or her that can produce stable current flow, in order that the asset and the business risk of the financier get separated, also securities issue and financing activities in capital market is undergone with this certain asset as credit base. The essential characteristic is to issue securities with the credit base of certain asset. With independent asset creditability, asset securitization floats securities, separating the promoter's business risk and the securitized asset. In order to achieve the aim of the separation of asset and the promoter's business risk, the transfer of the securitized asset must conform to the standard of true sale. The paper presents a systematic research on the capital transfer system of asset securitization with a deeper analysis on the basic theory of capital transfer system and its operating mechanism, besides this, some suggestions on the construction of true sale system in China is provided based on the study of current laws and theories.The article is divided into four parts.Beginning with the basic theory of asset securitization, part 1 makes a study on its original development, definition, operating procedure, innovative sense and economic analysis and other issues so as to have a full understanding on the basic content of asset securitization. Asset securitization firstly appeared in America of 20 century. In early days of 1970s of 20 century, severe inflation occurred in America, and citizens was reluctant to save money in the bank, thus, financial institutions were not able to obtain sufficient and stable capitals, in which the condition of housing financial institution is the severest. Therefore, the three biggest financial institutions of housing loan were to make portfolio of the holding home mortgages according to deadline, interest rate and asset situation. With this as guaranty, they issued mortgage securities to raise fund, where the asset securitization of America began. Thereafter, the securitization technique is widely used in capitals beyond home mortgage until now which has become a mature financial market.The operating procedure of asset securitization is mainly composed of two steps in which the first step is about capital segregation, the organizational structure adjustment of transfer and step two is to raise fund by floating securities based on transferred capitals with stable current flow. Lawyers, accountants, credit rating agencies and capital exclusive agencies and other intermediaries are involved in the whole process of securitization.The innovative sense of asset securitization is mainly expressed in that it creates an innovative financial market which benefits all participators as corporations, financial institutions, investors and etc.Part 2 studies the theoretical issue of true sale system, not only making legal analysis on the true sale but also discussing the special problem of assignment of a credit in asset securitization. By drawing lessons from the most mature laws of America in asset securitization on its stipulations about true sale, it is generally considered that only by possessing the following conditions, can the party of capital transfer be taken as true sale: the form of capital transfer and the true meaning in the minds of parties can mean true sale; the risk of securitized asset is fully transferred; the beneficial right of securitized asset is completed transferred to SPV; the transfer of capital is irrevocable; the transfer price must be reasonable. The paper makes legal analysis on the system of true sale from three aspects: the subject of legal relationship of true sale; the asset of true sale, the content of legal relationship of asset true sale.The essence of true sale in asset securitization is the assignment of a credit which is the first step of fund-raising in asset securitization. The characteristics of assignment of a credit in asset securitization compared with common assignment of debts are: the party is mostly financial institution; debtors who are assigned with credit right are indeterminate majority; creditor's asset which is alienable must be a selective financial portfolio.Part 3 discusses the identification, legal risk and prevention of the true sale of asset. The transfer of securitized asset must conform to standards which are stipulated by accounting law and bankruptcy law. As to the identification criterion of true sale, the following aspects can be taken consideration by referring to relating legal regulations in foreign countries and combining many judgment standards of true sale in theory and practice: the intention of true sale, the mechanism of pricing, ancillary rights, the right of recourse to the promoter, the issue of providing asset management service, the redemption right of the promoter.If the act of capital transfer between the promoter and SPV can not take effective measures and not conforms to the requirement of true sale, it might lead to the inoperability of asset securitization. The article gives a discussion on risks might be suffered in the true sale of asset, such as the risk of revocable transaction, re-qualitative process, entity merger-type risk, and also some preventive measures are provided against the above risks.On the basis of the analysis of the current legal environment in China, part 4 puts forwards envision on the construction of true sale system. The asset securitization of China is still in the preliminary stage. Though there are precedents of international asset securitization, China's asset securitization is still in the stage of theoretical exploration and experiments. There are many aspects involved in the theoretical exploration of China's asset securitization; however, the paper mainly deals with the necessity of constructing true sale in the current legal environment and investigates the legal environment of constructing true sale system. Based on this, the author brings forward legislative envision on the construction of true sale system in China.The meaning of constructing true sale system under the current legal system mainly is that: the system of asset true sale makes up the disadvantages of bankruptcy law and security law in China.There are many legal aspects involved in asset securitization, of which many are beyond China's current legal system. This overstepping means comparative large-scale of legislation, law modification and law abolition to countries with written laws. The paper attaches importance to the analysis on the current legal environment of constructing true sale system in China in the following aspects: legal regulations on asset transfer of bank credit, regulations on the legal formalities of the transfer of credit right, the stipulations of bankruptcy law on the asset sale with low price and collateral mortgage with price above average and stipulations on the future assignment of a credit.Since the successful operating of asset securitization requires a good legal environment, the paper brings up some thoughts on the construction of China's legal system of true sale based on theoretical study: first is to set up the range of assets that can be securitized, stipulate the way to transfer asset, simplify formalities of asset transfer and define clearly the condition of asset true sale. The second is that by drawing legislative experience from American, Japan and other countries, the announcement is to be included in specialized asset securitization law or in relevant sections of obligation law, taking the proclamation method of assignment of a claim as a supplement to the original noticing way. Third is to define conditions of true sale. The fourth is to amend the stipulations of the current Guarantee Law that the principal creditor's right is not negotiable in the mortgage contract of maximum amount.The current asset securitization in China still needs further improvement and the legal system that is in set with asset securitization to make up the legal loopholes, regulate the acts of employment agencies and protect the interests of many investors in order to provide an appropriate legal environment for asset securitization.