Securitization is the transformation of receivables and cash
flow created from a collection of financial assets into securities
which are backed by these assets. Hence, the idea of securitization
is to generate a capital market product and it results in the
generation of a security which is a marketable product, asset
backed securities are considered both a fixed income and a
Asset securitization is the issuance of a debt instrument backed
by a revenue producing asset of the issuing company and this
encompasses producing bearer asset backed securities which can be
freely traded and which are secured by a portfolio of receivables.
So as to ensure marketability, the instrument must have general
acceptability as a store of value; therefore the security is
generally either rated by credit rating agencies, or is guaranteed
by an independent guarantor.
Worldwide Analysis of Asset Backed Securities
Securitization plays a crucial role in the world because it
reduces their borrowing cost and in the case of banks, lowered
regulatory minimum capital requirements. In particular,
international financial markets encounter new financial tools which
depend on developments that affect the financial market. Through
new financial tools or innovations, there is an importance of asset
backed securitization instead of traditional investment banking
applications. In addition to this, Turkey has financial market
dynamic because the privatization program is initiated by the
government in order to enhance economic productivity through
country, so this circumstance reflect to make Turkish currency
convertible and remove the restrictions on cash flow in and out of
the country. Turkey's financial market is principally dependent
on the Istanbul Stock Exchange (ISE) which is stock or securities
exchange in the country.
Foundation Stage of Asset Financed Funds in Turkey
Turkey is an emerging market among its neighbors with its own
dynamic structures and there is a significance expectation in terms
of asset backed securitization. There is the impact of
securitization on the capital market since securitization allays
transaction costs in the capital market by generating a market for
financial claims otherwise, there would be have remained illiquid.
In respect to this, securitization preserves intermediation costs
because the specialized intermediary cost are service related and
generally lower. Securitization is beneficial tool in terms of
saving as it offers a security to investors with guaranteed
interest or payments and an assurance of credit quality. As a
result of this, securitization avoids the informal difficulty as
this is offered generally in a public offer, and its features are
well disclosed to the investors. In respect to this, Turkish
government brings new regulations for asset backed securitization
because this is important for the investors. Additionally, so as to
sustain financial stability, Asset Backed Securities issuance is
launched Capital Markets Board Communique Series III, No.58.1,
published in the Official Gazette of January 9th 2014.
According to Article 7, all applications shall complete the
necessary documents to the Board and there is twenty working days
which is concluded by the Board. Asset finance fund is a separate
property which is formed with the proceeds of asset backed
securities (ABS) issued, in accordance with the principle of
fiduciary ownership. Asset finance fund (AFF) must be established
within the borders of Turkey. AFF does not have a legal entity and
its assets are separate from those of the founder, servicer and
other originators. Services shall possess the qualifications of a
founder who responsible for the day to day management of the assets
in the AFF portfolio. In accordance with article 10, asset-financed
funds shall keep 5% total nominal value of asset backed security
for the purpose of hedging the liquidity risk. Besides Capital
Market Board of Turkey (CMB) is authorized body to augment the
reserve ratio up to 10% of total asset value in terms of underlying
asset. The purpose of this is to regulate the establishment and
activities of asset finance funds, the principles related to
registration and issue of asset backed securities and also the
related public disclosure principles.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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