Question by closeguy: Please explain securitization in a simplest way?
I wanted to know the concept of secuterization, so when I search google I came across few articles which state – :

Securitization is the taking of an asset or right to a cash flow and then structuring it so that it becomes a security.

Example : mortgage securitization or asset securitization

But, I still don’t think I completely understood the concept.

What does transforming asset into security mean ? Please give short example . When and how does bank securitization?

Best answer:

Answer by Raysor
It is taking a financial instrument and turning it into a share that can be traded. For example a loan is a fixed term, interest producing instrument. This could be turned into a share. Its value would depend on the borrowers ability to repay the loan and the share dividend would depend on the borrowers ability to repay the interest.
A better example might be ETFs. Let’s say you have an index (FTSE100 or DJ30). You cannot buy or sell the index but you could buy all the underlying constituents. With an ETF someone buys all the constituents and securitises them into a share. In this way that someone could sell the “index” to lots of small investors.

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