Israel Securities Authority Working to Launch Securitization Market in Israel
The Israel Securities Authority recently published an advisory document for public comment ahead of the publication of a legal memorandum for the regulation of the securitization field in Israel.
A securitization transaction is one in which the repayment of issued bonds is secured by an anticipated and defined cash flow, where such cash flow stems from a credit portfolio that includes asset-backed securities. A designated corporation that received these asset-backed securities from a sponsor through a sales transaction offers the bonds to the public.
Many countries around the world already recognize the importance of a securitization market. This is due to its advantages in increasing the distribution of risks within the financial market and in increasing the pool of financing sources. Both the sponsor and the investing public share in the benefits securitization transactions offer. The sponsor, for its part, may allocate capital for additional investments while limiting the risk of offering the bonds to the asset-backed securities only. On the other hand, the investing public enjoys the creation of a financing source for small- and medium-sized businesses. It also enjoys the expansion and diversification of investment and savings opportunities in the funds managed by institutional bodies.
Despite the advantages of securitization transactions, it is important to recall they constituted one of the primary catalysts to the 2008 financial crisis in the United States. The ISA froze similar past initiatives to develop an Israeli securitization market in light of the 2008 crisis. Now, though, the ISA is attempting to advance the matter once more. Simultaneously, it is establishing tight regulatory and monitoring mechanisms to prevent manipulation of this tool by the banks and other players in the capital and credit markets.
The purpose of the advisory document is to increase the investing public and sponsors’ familiarity with the main characteristics of securitization transactions. The ISA also hopes to receive feedback on the primary issues that may arise when executing securitization transactions. The main goal is to establish effective regulation in the area.
To review the advisory document the ISA published, see here.