True Sale in Securitization Essay Example | Topics and Well Written Essays - 1000 words - 1

True Sale in Securitization - Essay Example The power to sell the receivables by the creditor stems from the concept of securitization, which is a â€Å"contractual right of a creditor to sell the goods of the debtor and apply the proceeds thereof in or towards the satisfaction of the debt.†1 There are three types of securitization currently used in the market. First, it could be treated as a â€Å"true sale† which is characterized by a transfer of all rights over the receivables to the SPV by the originator. Second is the synthetic securitization where the originator does not sell the accounts receivables but enters into a derivative transaction. Third, are the whole business securitizations, which a form of secured financing, and not a sale of the accounts receivables from the originator to the SPV. Of the three types of treatment, the rue sale may prove to be the safer ground for the seller. There are two points of view in true sale transactions namely the originator’s perspective and that of the SPV. Since Bank A falls under the category of an originator, we will then the originator’s perspectives. As earlier discussed, securitization is aimed at raising funds. For the originator, it is also a method of extracting profit. However, extraction of profit must be done with caution as it has the tendency to run foul with regulations and accounting principles. Under the rules and guidelines of the Securitisation and Asset Transfers (SE) as embodied in the FSA’s Interim Prudential Sourcebook for Banks, extraction of profits may be effected in the following manners, namely (a) as administration fees.