Asset-backed security

Financial Weapons of Mass Destruction™ A guide to the tools of our trade. →Go uptown Top Trumps®Financial Weapons of Mass Destruction® ABS “Tax havens! Derivatives! Bearer paper!” Docs Secured MTN. Heavy, but dreary. 7 Amendability Fat chance. If you don’t like it, ummm — well, what did you buy it for? 0 Collateral Fully funded, backed with juicy second mortgages on residential homes in suburban Reno? Yum Yum. 7 Transferability Bearer paper right? Good luck with that. Buy ABS, get stuck with it. 7 Leverage Usually not, but skip down the tranches and just maybe! 4 Fright-o-meter Can frighten the bejesus out of those of a nervous disposition. But bark worse than bite. 5 Asset-backed security — The term “asset-backed security”— (A) means a fixed-income or other security collateralized by any type of self-liquidating financial asset (including a loan, a lease, a mortgage, or a secured or unsecured receivable) that allows the holder of the security to receive payments that depend primarily on cash flow from the asset, including— (i) a collateralized mortgage obligation; (ii) a collateralized debt obligation; (iii) a collateralized bond obligation; (iv) a collateralized debt obligation of asset-backed securities; (v) a collateralized debt obligation of collateralized debt obligations; and (vi) a security that the Commission, by rule, determines to be an asset-backed security for purposes of this section; and (B) does not include a security issued by a finance subsidiary held by the parent company or a company controlled by the parent company, if none of the securities issued by the finance subsidiary are held by an entity that is not controlled by the parent company. This wiki frequently includes untutored and probably disrespectful views on matters of US law, regulation and general culture. To be clear: the JC’s predominant purpose is to troll, not to give constructive advice on how to live your life, much less how to organise your regulatory affairs. The JC is not a US attorney, does not want to be one, and claims no great expertise or insight into US securities regulation, other an abiding conviction that it is way, way more complicated than it needs to be, and the benefit of that abstrusity accrues exclusively to those who are US attorneys and the organs of state that are populated by them. If you read this and take it seriously, other than as a source of entertainment, more fool you. Index: Click ᐅ to expand: FWMD Master Agreements Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.

Asset-backed security
/ˈæsɛt-bækt sɪˈkjʊərɪti/ (n.)
Different things to different people. In the Eastern wilds on the old side of the Atlantic, bascially any repack, securitisation, or monetisation that winds up in negotiable debt securities format will count.

The Americans — don’t they always? — have to be a bit more prescriptive than that — what else would regulators have to do otherwise? — and there is this definition in the federal rules (god knows which one “15 USC § 78c(a)(79)” comes from, but we think is somewhere within the general Securities Exchange Act, Securities Act, Investment Company Act memeplex). Note the curious reference to “self-liquidating financial asset”s, which means certain financings would be out of scope. Those of instruments that don’t pay a cashflow or have a stated maturity as such — one that leaps to mind is a carbon credit, and gold is another, as would any other non-financial commodities.

Why should this matter? Because, in America, there is rather hairy “risk retention rule” for those who would sponsor an “asset-backed security”. To qualify, the ABS needs to be of self-liquidating financial assets that a sponsor has transferred to the issuing vehicle (i.e. and that it has not just acquired at arm’s length in the open market).

We have a basic botanist’s guide to ABS here.

See also

• Asset-backed securities field guide
• Risk retention rule
• US private placement‎‎
• Covered bond
• Repackaging
• Securitisation
• Espievie