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Asset-backed securities field guide: Difference between revisions
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Amwelladmin (talk | contribs) (Created page with "{{a|repack|}}==A field guide to ABS== Transformation Financial services are no more immune to the civilisational sweep of the information revolution than any other aspect of our lives, and there was a similar revolution in sophistication and complexity about the same time the personal computer started landing on desks. The revolution was, at first, curiously non-technological though. That great epochal innovation, the swap, owed nothing really to the digital age be...") Tags: Mobile edit Mobile web edit |
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===Bilateral=== | ===Bilateral=== | ||
The bilateral world is the one of private, two-party (or definable, small number of parties) “[[over-the-counter]]” contracts. Loans, swaps, securities financings, OTC options. Instruments one does not typically trade “on exchange”. Indeed, one does not typically transfer them at all. While risk transfers are possible, by way of novation of [[sub-participation]], they are fiddly and involved. | The bilateral world is the one of private, two-party (or definable, small number of parties) “[[over-the-counter]]” contracts. Loans, swaps, securities financings, OTC options. Instruments one does not typically trade “on exchange”. Indeed, one does not typically transfer them at all. While risk transfers are possible, by way of novation of [[sub-participation]], they are fiddly and involved. Due diligence is required. Chin scratching. KYC. | ||
The “[[officious bystander]]” has none but a voyeur’s interest in these | The “[[officious bystander]]” has none but a voyeur’s interest in these arrangements: she is NFI. Contractual counterparties know each other, have a business relationship, are bound into a long-term commitment which they are at liberty to discuss and, if circumstances change, adjust, to meet their common needs. They can see the whites of each other’s eyes. | ||
===Unilateral=== | |||
Unilateral contracts are available to all the world. We are in the land of [[carbolic smoke ball]]s: on obligor creates a financial instrument gives it corporeal form that it can make its own way in the world, wishes it well and — against payment of subscription price — lets it go. It might periodically come back, but on to collect interest or for final redemption. It is, in one way or another, ''negotiable''.<ref>Why did we used to cross our cheques “ not negotiable”? Does anyone know?</ref> | |||
This has its pros and cons. It is more liquid: I can get out of my risk without the borrower's knowledge, by selling it in the market to someone else. And securities tend towards standardisation of terms, precisely to encourage liquidity. This has regulatory advantages: many institutions are permitted to buy security | |||