Portability refers to the ability of investors to transfer their interests in a securitisation to other investors. This can be done through the secondary market, where investors can buy and sell securitisation securities.
Portability is an important feature of securitisation because it allows investors to exit their investments easily. This can be beneficial for investors who want to sell their investments before maturity, or who want to change their investment strategy.
There are a few different ways to achieve portability in securitisation. One way is to use a pass-through securitisation, where the investors have direct ownership of the underlying assets. Another way is to use a collateralised debt obligation (CDO), where the investors have ownership of a pro rata share of the underlying assets.
Portability can be used in a variety of applications in securitisation. For example, it can be used to:
- Transfer credit risk: Portability can be used to transfer credit risk to investors who are willing to take on that risk. This can be done by issuing securities that have different levels of seniority, with the more senior securities having lower risk and the more junior securities having higher risk.
- Create liquidity: Portability can be used to create liquidity in the market for securitisation securities. This can be done by allowing investors to buy and sell securitisation securities on the secondary market.
- Manage risk: Portability can be used to manage risk by allowing investors to transfer their interests in a securitisation to other investors who are more willing to take on that risk.
Here are some of the benefits of portability in securitisation:
- Ease of exit: Investors can easily exit their investments in a securitisation by selling their securities on the secondary market.
- Liquidity: Portability can help to create liquidity in the market for securitisation securities, which makes it easier for investors to sell their investments if they need to.
- Risk management: Portability can help investors to manage their risk by allowing them to transfer their interests in a securitisation to other investors who are more willing to take on that risk.
Overall, portability is an important feature of securitisation. It can help investors to exit their investments easily, create liquidity in the market, and manage risk.