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Pooling

Pooling refers to the process of grouping together a number of assets and then issuing securities backed by those assets. This is done to create a diversified portfolio of assets, which can reduce the risk for investors.

The pooling process typically involves the following steps:

  1. The originator identifies a pool of assets that are suitable for securitisation.
  2. The assets are evaluated to determine their creditworthiness and market value.
  3. The assets are pooled together and a special-purpose vehicle (SPV) is created to hold the assets.
  4. The SPV issues securities to investors, which are backed by the assets in the pool.

The pooling process can be used to securitise a variety of assets, including mortgages, loans, receivables, and securities.

Here are some of the applications of pooling in securitisation:

  • Raising capital: Pooling can be used to raise capital for businesses and other entities. This is because the SPV can issue securities to investors, who will provide the capital.
  • Transferring credit risk: Pooling can be used to transfer credit risk to investors. This is because the investors who purchase the securities are essentially lending money to the business or entity, and they are exposed to the credit risk of the business or entity.
  • Creating liquidity: Pooling can be used to create liquidity in the market for the underlying assets. This is because the SPV can issue securities to investors, who can then sell the securities on the secondary market.

Here are some of the benefits of pooling in securitisation:

  • Diversification: Pooling can help to diversify the risk of an investment. This is because the investor is not exposed to the credit risk of a single asset, but rather to the credit risk of a pool of assets.
  • Liquidity: Pooling can help to improve the liquidity of an investment. This is because the securities issued by the SPV can be traded on the secondary market, which makes it easier for investors to sell their investments if they need to.
  • Cost-effectiveness: Pooling can be a cost-effective way to raise capital. This is because the SPV can issue securities to a large number of investors, which can reduce the cost of issuing the securities.
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