GLOBAL FINANCIAL MARKETS - LAW AND PRACTICE - Essay Example

? According to Kravitt (1998), securitisation works by employing superior knowledge about the behaviour of particular assets with the help of structures that could promote a more efficient management of assets. In most legal systems around the world, securitisation can only be achieved by separating the assets subject to the securitisation from the wealth or the originator, which is in this case, the B Bank of Ruritania. In order to separate the assets subject to securitisation from the wealth of the originator, such assets must be transferred to a special purpose vehicle (SPV).

An SPV is a company whose sole purpose is to serve as a financing, holding, servicing, and liquidating assets (Kravitt et.al 1998). The isolation of the assets in securitisation is made to more efficiently deal with the indirect effects of securitisation such as but not limited to the following: (1) the attempt of the parties to the transaction to cause such transfers to be "true sales” thereby effectively eliminating the ability of the originator to call on such assets in the event where the originator becomes bankrupt (2) to cause the "perfection" of the purchasers interest in the assets which are made subject to the transfer, (iii) protection on the part of the SPV, its operations and structures to make the SPV "bankruptcy remote"2.

Part of the securitization system is the issuance of asset-backed securities (ABS) and the securitisation of receivables. In the case of Milroy v Lord (1862)3, the court ruled that “it is possible in equity to alienate a right under a contract, such as debt or other chosen action by the means of an equitable assignment or by a declaration of trust”.4 By virtue of this decision of the Court, we can safely say that B Bank can exercise its right to turn the non-liquid assets into marketable securities.

As it is, the requisites of the legality of the transaction are hereby fulfilled. Note that since the B Bank of Ruritania may use either the mortgage