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Asset securitization concept
Asset-backed Securities (ABS) is abbreviated as ABS, which refers to the package combination and credit enhancement of assets with stable and predictable cash flow in the future. Based on the future cash flow of assets, the issuance of tradable securities Achieve financing purposes. As an important part of the financing market, the bond market can meet part of the financing needs of the financing market. Asset securitization is also an integral part of the bond market. Asset securitization is realized in order to better implement the national guidelines of “remove funds from virtual to real financial services” . my country's asset securitization market has maintained a good momentum of development this year, showing a new look in terms of basic assets, issuance and intermediary agencies. According to the China Asset Securitization Analysis Network, the total issuance volume of products reached 2.01 trillion yuan at the end of 2018, an increase of 32.23% compared with last year. The cumulative total issuance volume exceeded 5.86 trillion yuan, and the stock reached 2.88 trillion yuan. The issuance of credit ABS remained stable, the growth of corporate ABS was rapid, and the expansion of asset-backed notes ABN accelerated.
The number of intermediary agencies and issuances of asset securitization products has been increasing, and third-party issuing companies such as JD Finance and Duxiaoman Finance that master cutting-edge computer technology continue to appear. KPMG has predicted that financial companies other than banks can occupy about 10% of the consumer finance market, with a total value of about 4 trillion. While the ABS market is achieving its own rapid development, there are still problems such as lack of liquidity in the secondary market, insufficient capital market systems, low quality intermediaries, and lack of relevant laws and regulations. These problems hinder the asset securitization market to a certain extent. Good development.
The shortcomings of traditional asset securitization business
ABS business is mainly manifested by the characteristics of long data transmission chain, many participants, complex operation links, diversified structure, complex data and cash flow distribution and transmission process. In the traditional ABS link, central financial institutions play an important role in the flow of cash flow, asset transactions, and settlement and registration of securities. Traditional asset securitization business has the following shortcomings:
Unreasonable pricing
The basic asset pool and the complex product structure lead to pricing problems. Product issuers have a better understanding of the risk level and real situation of traditional ABS basic assets than public investors, so investors have a mistrust of products. As a result, the price of ABS products has been underestimated, the liquidity of ABS products has become weaker, and financing costs have increased substantially.
High transaction costs
Due to the existence of central financial institutions, it is necessary to carry out internal and external credit enhancements to products, resulting in high transaction costs. Financial institutions need to meet the requirements of the asset securitization credit mechanism, manage cash flow, and transfer cash flow and information flow layer by layer. The method is single, which seriously reduces the efficiency of data transmission, has low transparency, and generates high cost prices. The information is archived by the central financial institution Only after processing, the relevant information was opened to the public, making relevant data difficult to obtain, and many key information were not made public.
Principal-agent problem
Risks can be diversified through structured products, but not enough to be eliminated. ABS has a complicated transaction structure and a long transaction chain, and the asymmetry of information leads to the principal-agent problem.
Four major entities participated in the asset securitization process: (1) promoters; (2) rating companies; (3) securities intermediaries; (4) investors. There is information asymmetry between investors and other personnel, resulting in a game. Promoters have the best knowledge of basic assets and have direct right to know the quality of assets. Rating agencies and securities companies are at the core due to the structured design and hierarchical rating of products, and they have professional advantages, which are the same compared to investors With information advantages, investors are in the most disadvantaged position among many participants.
From the perspective of principal-agent theory, external buyers are in the most disadvantaged position to become principals, and those who have more information become agents. Agents have more product information, which not only makes it difficult for principals to effectively monitor agents , And let the agent out of his own profit-seeking needs, harm the interests of the principal to make himself profit. When investors' interests are severely damaged and cannot be tolerated, a large number of securitized assets will be sold, causing price risks and liquidity risks.
Incentive mismatch mechanism
The incentive mismatch mechanism means that the interests of all parties are affected by each other, and the inherent incentive mismatch will continue to circulate and strengthen, resulting in the continuous deterioration of the quality of asset securitization. The reasons for the mismatch of incentives of the four subjects are:
- Initiator. The originator’s profit mainly comes from the collection of loan fees. As for the solvency and quality of the loan, the originator does not pay much attention to it, and lacks sufficient motivation to carefully examine the credit status of the loan applicant. The loan review standard continues to decrease, and the securities The quality of chemical assets is low.
- rating agencies. The income comes from the rating of bonds, and the amount of profit is related to bond sales. Therefore, it will try to give higher ratings to bonds to attract more investors to buy.
(3) Securities intermediaries. Use models to price basic assets and package them for structural design, so that subordinated bonds can be turned into other tools for sale to buyers. (4) Investors. Investment mainly relies on the rating of securities. For safety and yield considerations, buying high-rated, high-yield securities will not pay special attention to the quality of the underlying assets. After loans are released, they are securitized. In order to obtain more income, banks and mortgage companies will issue more loans. Various links in the financial market have a certain degree of risk. Investors are finally faced with pricing through models and complicated structures. The price of investment tools is not formed by market competition. It is completely dependent on the ratings of products purchased by rating agencies. Considering products with the highest yield under the same security level, the true information of basic assets cannot be effectively known by investors, and non-performing loans are compared. Disguised by the high credit rating, the cycle of mismatch incentives continues to intensify and potential risks continue to increase.
Current ABS blockchain application practice
The four Internet industries of JD.com, Tencent, Baidu and Alibaba have been deployed in the blockchain industry in advance. Blockchain service is BaaS (Blockchain as a Service), which refers to the provision of task submission, search query and other services based on the blockchain. Currently, it is mainly carried out on the alliance chain. It ignores the technical process and focuses on the production of products. Taking the example of Duxiaoman Finance, the application of blockchain technology in the process of asset securitization and the use of blockchain as the basic technology of the asset management system have achieved the landing of ABS products. Baidu proposed the BaaS blockchain development platform on July 21, 2017. This platform relies on the Du Xiaoman Trust blockchain solution to assist enterprises in establishing their own alliance chain. The excellent operating efficiency and private space of the private chain are owned by the alliance chain. There is a difference between the alliance chain and the public chain. It is not completely decentralized and focuses on the protection of privacy. Only the alliance nodes on the alliance chain have the authority to view relevant information , Flexible but also easy to operate. The launch of these high-tech service platforms in the field of asset securitization has lowered the barriers to entry for ABS business and made the issuance of ABS products more convenient and easier.
Classic case-Du Xiaoman Financial ABS
In May 2017, Duxiaoman Financial, Huaneng Trust and Qianmo Leasing jointly issued ABS products based on blockchain technology, with a scale of 426 million yuan. This is the first time that blockchain technology is used to issue private ABS in China. The basic assets of this project The pool is a private consumer car lease bond. On September 19, 2017, Duxiaoman Finance, as a blockchain service provider, and Changan Xinsheng Financial Investment Co., Ltd., issued the ABS product "Baidu-Changan Xinsheng-Tianfeng 2017 First Phase Asset Support Special Plan" on the Shanghai Stock Exchange (later The article is referred to as "Baixin 2017-1"), and continued to issue the second phase of products on July 1, 2018. The basic assets of the two phases are auto consumer credit. This is an innovative attempt by Duxiaoman Finance in the ABS business.
Duxiaoman Finance was founded on December 14, 2015, and the ABS business is in charge of the structured financing department. Du Xiaoman Finance first issued a blockchain-based ABS product, which received the focus of the industry. Du Xiaoman Financial aims to "make stock and increase". The asset securitization business is mainly divided into three types: the first is its own credit assets; the second is the introduction of external assets, and the financing ability of the asset issuer is acceptable. As an intermediary, Duxiaoman Finance provides financing services for entities; the third type serves entities with weak issuance capabilities, and its own risk control and financing capabilities are flawed. Duxiaoman Finance will intervene in the securitization process and provide blacklists, flow, and risk. Control methods and other services to meet financing needs. The main advantages of Duxiaoman Finance in the entire business process are mainly product issuance, survivability, and the design of securitization structure.
Du Xiaoman Financial ABS trading program innovation
Use Xiaoman Trust blockchain to build a consortium chain network, run ABS projects, apply blockchain technology in ABS products, and provide efficient, transparent, and true information in asset screening, due diligence, portfolio design, regulatory approval, and terminal sales. On-chain services. It is most important to ensure the authenticity and timeliness of the data on the ABS chain. The architecture of the alliance chain is adopted to allow all participants to participate in transmission, accounting and storage.
- Asset side: Introduce the underlying asset information, the information is more comprehensive, the rating and screening are more accurate, and bubble assets and low-quality assets are effectively contained;
- Trust agency: enter trust plan information;
- Issuing agency; enter the issuance plan, asset valuation, asset risk rating;
- Accounting firms and law firms: audit data on the chain and write analysis and evaluation reports;
- Rating agencies: write asset rating reports, make data public, and analyze with justification and evidence, making them more objective and credible
- Investors: learn about asset changes in real time, understand all aspects of asset sources, ratings and other information, and make further rational investment choices without spending huge learning costs;
- Regulatory agency: to monitor assets through the entire life cycle.
All ABS participants have become more transparent, information disclosure has become more adequate, and the flow of funds and assets has become easier.
Advantages of Blockchain ABS Trading Solution
Information disclosure on the chain
Thousands to hundreds of thousands of loan assets are packaged in the bottom layer of consumer finance ABS products. Asset transparency is poor, and the market has high requirements for ABS supervision and issuance. It is difficult to use traditional technology to conduct accurate credit ratings, asset purchases, or adjust information disclosure. Even if it can be done, it is difficult to gain the trust of investors due to the existence of a centralized model. The block chain completely stores the static information when the ABS product is formed, the change in the duration of the asset, and the investor purchase and redemption information into the block. The blocks are connected back and forth to form a chain. The continuity of data changes is guaranteed by the chain structure , It becomes very difficult for any party to tamper or forge information, effectively eliminating the possibility of tampering with data in a centralized mode. The data on the chain is open to all managers, investors, liquidity providers, and rating agencies, which solves the problem. The trust problem caused by asymmetry makes product pricing reasonable.
Objective rating, effective risk control, real supervision
Relying on the transparent, open, and non-tamperable data on the blockchain, with the help of smart contract technology, it provides reliable data input and output for risk management, due diligence, credit rating, and product valuation. Rating and pricing information is published on the chain and pricing The objectivity is guaranteed, the objective and independent issues of the issuer’s paid entrusted rating results are resolved, and the auditable and traceable feature reduces product risks and meets the needs of regulatory supervision.
Reduce operating costs and improve business efficiency
Blockchain is based on distributed ledger technology, and multiple parties jointly maintain data on the chain. The high-speed circulation and sharing of asset information ensures the timeliness and authenticity of assets. Business operations with clear rights and responsibilities can be realized by smart contracts. The entire business process More transparency, standardization and standardization, while reducing the original issuance, operation, and monitoring of asset costs, while simplifying the original tedious and redundant reconciliation work.
Original link: Asset Securitization ABS + Blockchain