On the basic principle of SPT legal structure in asset securitization and the perfection of relevant legislation in China

Summary: From the perspective of the actual operation process of asset securitization, SPT as an intermediary plays a vital role. Starting with the introduction of asset securitization, this paper analyzes the basic legal principles of SPT from the three aspects of legal nature, legal function and legal relationship, focuses on the design and operation of SPT legal framework in asset securitization, expounds the problems encountered by SPT in the practice of asset securitization in China and puts forward relevant legislative suggestions.
Keywords: asset securitization SPT legal framework financing

Introduction
The origin of asset securitization can be traced back to the real estate mortgage-based bonds issued by the American Government Real Estate Loan Association (GNMA) in the 1970 s, which prevailed in the United States in the mid-1980s, and asset securitization is now increasingly widely used in Europe and Asia. The so-called asset securitization refers to the appropriate combination of those assets that lack liquidity but have future cash income flow, structural restructuring of the cash flow generated by the combination, reallocating and managing different risks (including credit, liquidity, interest rate, foreign exchange and other risks), and relying on the cash flow to issue bonds to finance the process. It is asset securitization that has changed the survival state of risk, making risk from stock to flow, and the change of risk from stock to flow is a great achievement of financial innovation and an important symbol of the financial system from traditional to modern. With the continuous development of financial market liberalization and internationalization, this kind of credit system is gradually established in the world, which is changing the global financial institutions and credit allocation pattern.
From the actual operation process of asset securitization, special purpose institutions (Special Purpose Vehicle, hereinafter referred to as SPVs) play a vital role as intermediaries. The role of the SPV is that, on the one hand, it buys securities from the originator, isolating the assets from the credit risk that the originator may have, and, on the other hand, after being rated by a credit rating agency, it sells to an investment institution on the basis of the package of assets purchased. Thus, SPVs play a key intermediary role between originators and investors. From the current practice of asset securitization in western developed countries, the legal organization forms of SPV mainly include: trust SPV (special purpose trust, Special Purpose Trust, referred to as SPT), corporate SPV (special purpose company, Special Purpose Corporation, referred to as SPC) and limited partnership SPV. In China, from the relevant provisions of the Company Law, the Commercial Bank Law, the Tax Law and other laws and regulations, the SPC model is difficult to operate under the current conditions, mainly because the SPC is difficult to coordinate with the existing legislation in terms of legal personality, business premises and conditions, qualifications for issuing securities, and restrictions on the practice of commercial banks. A limited partnership SPV, while better able to avoid double taxation, is relatively lacking in risk segregation and usually has to meet some strict conditions in order to achieve insolvency segregation. SPT, on the other hand, has the advantages of risk isolation, avoidance of double taxation, and integration with China's existing legal system, so our theoretical and legislative circles have adopted SPT as the best model at this stage.
Analysis of the basic legal principles of 1. SPT
Legal nature of (I) SPT
In Western developed countries, the SPT itself exists "as a legal entity" (legal entity) and issuer (issuer), and can issue securities in its own name. The so-called "legal entity" refers to the legal subjects of non-natural persons, such as groups and social organizations, which can operate, sue and be sued in accordance with the law, and make decisions through their organs. It can be seen that SPT is first and foremost a legal subject. Trust is a kind of exquisite property system. The natural risk isolation characteristic of trust property system makes SPT become a quite suitable form of special purpose institution. The key is that under the legal structure of trust relationship, after the original equity owner trusts its basic assets to SPT, the trust relationship is established, and SPT implements separate accounting and separate management of securitized assets, and in its own name to issue a trust benefit certificate in recognition of the beneficiary's right to securitized assets to raise funds. In the process of asset securitization, although SPT is not the initiator of asset securitization, nor the underwriter or investor of securities, it only carries out a series of operations to cooperate with the issuance of asset securitization, such as bankruptcy isolation, credit enhancement, etc. But it is this operation that makes SPT a key factor in the whole process of asset securitization. Thus, an SPT is an economic entity specifically established to securitize assets and is an independent legal entity established by the promoter to achieve its specific financial objectives.
(II) the legal function of SPT
The essence of property segregation mechanism in SPT structure is the independence of trust property. According to the relevant provisions of China's Trust Law, trust has a unique bankruptcy isolation function, asset securitization adopts the SPT model, so that securitized assets (I. e. trust property) to achieve real independence, to meet the requirements of asset securitization risk isolation and real sales.
First, SPT achieves risk isolation between securitized assets and the originator (principal). Article 15 of the Trust Law provides that trust property is distinguished from other property in which the settlor has not established a trust. After the establishment of the trust, when the settlor dies or is dissolved according to law, is revoked according to law, or is declared bankrupt, the settlor is not the only beneficiary, the trust survives, and the trust property is not regarded as his estate or liquidation property. This provision indicates that when the originator establishes an SPT for securitized assets, the assets are removed from the originator's own risk and the originator's creditors have no claim on the securitized assets, thus protecting the interests of the asset-backed security holders in the assets.
Second, SPT achieves risk isolation between securitized assets and trustees. Article 16, paragraph 2, of the Trust Law stipulates: "If the trustee dies or is dissolved according to law, revoked according to law, or terminated by being declared bankrupt, the trust property shall not belong to his estate or liquidation property." In addition, Article 52 of the Trust Law stipulates: "A trust shall not be terminated by the death, loss of civil capacity, dissolution, revocation or declaration of bankruptcy of the principal or trustee, nor shall it be terminated by the resignation of the trustee." All of the above provisions indicate that when the securitized assets become trust property, there is a bankruptcy segregation between them and the trustee, and that the operation of the SPT is not affected by changes in the trustee itself, which also isolates the trust property from the trustee's own risks.
Finally, when securitized assets become trust property, they are highly independent of themselves. Article 16 of the Trust Law stipulates that the trust property shall not be classified as the inherent property of the trustee or become part of the inherent property of the trustee, and the Trust Law also stipulates that the trustee shall manage and account for the trust property separately. In addition, trust property is usually not enforceable. Through these measures, the trust property becomes an independent property, serving only the purpose of the trust.
In summary, the property segregation function of SPT is mainly reflected in the independence of trust property that is fully protected by existing laws and regulations. The independence of trust property is the essence of the trust system. Based on the independence of trust property and its legal guarantee, the property isolation function of SPT can better reflect the essential characteristics of asset securitization.
(III) SPT Legal Relations Framework
Asset securitization is not a simple financing activity, it also involves many legal subjects, including the original debtor, promoter, investor, service provider, securities dealer, credit enhancement agency, law firm and other intermediaries, and SPT must have a legal relationship with the following legal subjects:
1. The legal relationship between the SPT and the promoter. This legal relationship is the core content of SPT, which means that the promoter transfers the underlying assets to SPT, establishes a trust relationship, and SPT acts as the issuer of the securities, and the issuing representative has a trust income certificate with a share-based right to the underlying assets. In this trust relationship, the principal is the promoter, the trustee is the SPT, the trust property is the securitized portfolio, and the beneficiary is the holder of the trust income certificate (I. e. the investor). According to the legal relationship of the trust, after the promoter trusts the underlying assets to the SPT, the ownership of the assets belongs to the SPT, and the creditor of the promoter cannot claim the right to the part of the assets, thus realizing the requirement of isolating the securitized assets from the bankruptcy risk of the promoter.
2, the legal relationship between SPT and investors. Contractual claims are the legal essence of securitizable assets in the legal structure of SPT. Since the securities issued by the SPT are often in the form of bonds, the civil legal relationship between the SPT and the investor is established, with the investor being the creditor and the SPT being the debtor. Investors have the right to recover the principal and interest of the bonds on time, the right to transfer the investment, the right to know the financial and operating conditions of the issuer and other rights of the relevant creditors as prescribed by law, while SPT, as the debtor, has the obligation to pay the principal and interest of the bonds on time and to disclose information in accordance with the provisions.
3. The legal relationship between SPT and securities dealers. The issuance of asset-backed securities requires a securities dealer to act as an underwriter and listing recommender to issue and recommend listed transactions. Therefore, SPT is required to enter into a securities underwriting agreement and a listing recommend agreement with a securities dealer, thereby establishing a civil agency legal relationship.
4, SPT and service providers and entrusted managers of the legal relationship. The principal-agent civil legal relationship is established between SPT and the service provider, with SPT as the principal and the service provider as the trustee, and the service provider pays and receives the cash flow of the assets according to the agency contract, and the agent exercises the right of recovery for breach of contract. SPT enters into a trust contract with a trust company and other entrusted administrators, who manage the securitized assets and establish a trust civil legal relationship. According to the trust contract, the entrusted manager shall operate and manage the trust assets, such as the reorganization and distribution of cash flow, the recovery of default, the use of funds, and the management of asset contracts.
5. The legal relationship between SPT and credit enhancement agencies. SPT and credit enhancement agencies sign guarantee contracts, insurance contracts, open letters of credit, etc., provide credit guarantee and insurance services for asset securities, improve the credit rating of asset-backed securities, and reduce investment risks and uncertainties.
In addition to the above-mentioned legal relationships, SPT asset securitization operations also have legal relationships with other intermediaries. It can be seen that the asset securitization operation of SPT includes many legal relationships. These legal relationships need to be regulated by relevant laws in order to ensure the efficiency and regulation of asset securitization.
The Design and Operation of SPT Legal Structure for 2. Asset Securitization
The range of assets that can be securitized in the design of the (I) SPT structure.
From the practice of asset securitization in western developed countries, the assets that can be securitized mainly include: first, mortgage guaranteed loans, the most typical is housing mortgage loans; second, all kinds of loans with fixed income, such as the income of toll roads or bridges and other public facilities; third, all kinds of accounts receivable, such as credit card accounts receivable, consumer credit, financial lease loans, student loans; Fourth, all kinds of commercial loans. In China, according to Article 2 of the Measures for the Administration of the Pilot Securitization of Credit Assets promulgated by the People's Bank of China and the China Banking Regulatory Commission on May 20, 2005, the scope of the pilot securitization of SPT assets is limited to the credit assets of banking financial institutions.
Design and Arrangement of (II) SPT Asset Securitization Transaction Structure
As mentioned earlier, the establishment of SPT on securitized assets has legally achieved the effect of a true sale, isolating the risk from the originator and the trustee. Through the design and arrangement of the securitization transaction structure, some or all of the securitized assets can be realized in accounting for the real sale and termination confirmation, and separated from the balance sheet of the initiating institution. Therefore, the establishment stage of SPT is a very important part of asset securitization, and the real sale of securitized assets in law and accounting should be completed at this stage. Only by doing a very detailed and solid job before and after the establishment of SPT can we build a solid foundation for the whole transaction. The following diagram shows the structure of an asset securitization SPT transaction:
Schematic diagram of SPT asset securitization transaction structure
As shown in the chart above, there is more work in the SPT setup process, most notably involving the transfer of securitized assets by the originator to the trustee's name and the trustee's issuance of asset-backed securities to investors from this trust property. The establishment of an SPT by the originator requires the transfer of securitized assets to the trust. The trustee issues asset-backed securities to investors with the beneficial rights corresponding to the trust property, and the holder of the asset-backed securities is the beneficiary under the trust for that particular purpose.
Prior to the transfer of assets and the issuance of securities, the securitization of SPT assets also includes the following important steps:
1. Determine the objectives of asset securitization and establish a pool of securitized assets. The originator needs to determine the securitization of certain types of assets and screen out the assets to be securitized according to the criteria for pooling assets.
2. Review the assets in the asset pool. Asset securitization SPT is a property trust, the investor obtains asset-backed securities representing the corresponding share of the property trust by paying the consideration, and the investor's income comes directly from the cash flow generated by the securitized assets established as the property trust. Therefore, in order to protect the rights and interests of investors, the securitized assets to be established as trusts by the originator need to be audited, which is mainly carried out by intermediaries, including law firms, accounting firms and credit rating agencies, which conduct due diligence on securitized assets from their respective perspectives.
3. Arrange trading structures and design securities products. This includes drafting legal documents for transactions, selecting professional institutions that provide asset management services (including asset service providers, fund custodians, securities custodians, etc.), arranging credit enhancement, etc.; designing securities products according to the cash flow characteristics of the asset pool, and arranging the order of cash flow payments.
Operation Management of (III) SPT
As the manager of a specific purpose trust, the trustee is responsible for trust accounting, trust income distribution, information disclosure and other trust affairs, and in accordance with the provisions of the relevant legal documents of the transaction, organize, coordinate and supervise the asset management of asset service providers, fund custodians and other participating entities, deal with major and unexpected events, and ensure the normal operation of asset securitization projects. The trustee's management of SPT mainly includes:
1. Entrusted management and supervision of trust property. In the asset securitization transaction structure, the trustee will properly decompose its responsibility for managing the trust property and entrust it to the relevant professional institutions, giving full play to the advantages and strengths of each professional institution, while also achieving the effect of mutual checks and balances. The trustee shall manage and supervise the management responsibilities entrusted to the outside world, so as to promote the relevant professional institutions to perform the entrusted duties and truly protect the interests of the beneficiaries.
2, trust accounting. As an independent accounting entity, the trustee is responsible for accounting for the management, use and disposition of trust property, accounting for, accounting for and managing trust property separately, and organizing and preparing various statements on the status of trust property.
3, calculation and distribution of trust income. In accordance with the payment arrangements agreed upon in the Trust Contract, the Trustee calculates the amount of principal and interest allocated to investors in the current period and accounts for the relevant taxes and remuneration payable prior to the payment of each period of trust income.
4. Information disclosure. The trustee regularly discloses the recovery of trust property funds, the status of trust property fund accounts, the distribution of trust income and the management of trust affairs in accordance with relevant regulations and contractual agreements. At the same time, in the event of temporary major events, the trustee timely disclosure of relevant information.
5. Convene a general meeting of beneficiaries. When it is necessary to convene a general meeting of beneficiaries in accordance with laws, regulations or the Trust Contract, the trustee is responsible for the organization of the meeting, including the disclosure of information before and after the meeting, the organization of the meeting during the meeting, etc., and the timely implementation and implementation of the resolutions of the general meeting of beneficiaries.
6, the termination of the trust liquidation. After the termination of the trust, the trustee shall dispose of the non cash assets in accordance with the methods and procedures stipulated in the trust contract, and set up a trust liquidation group to liquidate the trust for a specific purpose. After the audited liquidation report of trust affairs is disclosed, the trustee shall distribute the remaining trust property according to the distribution method stipulated in the trust contract.
Problems and Legislative Perfection of 3. SPT in China
Prominent Problems of (I) SPT in the Practice of Asset Securitization in China
At present, the outstanding problems encountered by special purpose trusts (SPTs) in the operation of asset securitization in China are:
First, the nature of the underlying asset concession is not clear. The essence of property segregation mechanism in SPT structure is the independence of trust property. According to the basic principles of trust law, once a trust is established, the trust property is different from the inherent property of the principal and trustee, and is not affected by changes in the status of the principal or trustee, or even from bankruptcy. Thus, once the underlying assets are securitized by the establishment of a trust, their ownership and disposition rights no longer belong to the original equity holders, but to the SPT, which is the basis on which the SPT is able to safely issue trust beneficiary certificates. However, Article 2 of China's Trust Law stipulates: "The trust referred to in this Law refers to the act of the principal entrusting his property rights to the trustee on the basis of trust in the trustee, and the trustee shall manage or dispose of it in his own name for the benefit of the beneficiary or for a specific purpose in accordance with the wishes of the principal." The definition of this provision is contrary to the essence of a trust. The term "entrustment" not only fails to reveal the essential nature of the trust, but also confuses the boundaries of the legal relationship between the trust and the discipline and agency, which is extremely unscientific.
Second, the circulation of trust beneficiary rights certificates and the channels for raising trust funds are restricted. This is mainly manifested in: First of all, the nature of SPT trust beneficiary right certificate is not clear. Although the Trust Law makes it clear that trust beneficiary right can be divided and circulated, the Trust Law does not give the trust beneficiary right certificate the nature of securities, resulting in the beneficiary right certificate not being able to use the usual acceptance, discount, transaction, redemption and other methods of securities, and it does not have a unified and efficient trading market of its own. This greatly hinders the circulation of certificates of beneficial rights. In addition, China currently limits the way trust funds are raised to private placements. The Interim Measures for the administration of fund trust of trust and investment companies stipulates that the funds raised by trust institutions shall not be marketed through newspapers, television, radio and other public media, and the number of investors in each collective trust plan shall not exceed 200. As a result, the channels and amount of trust funds raised are greatly limited.
Third, there are too many restrictions on SPT. Since the second half of 2005, Kaiyuan, Jianyuan, Unicom income plan, Guanshen income plan, etc. have been listed one after another, but these products can only be regarded as quasi-asset securitization products due to their respective design characteristics and institutional restrictions. Moreover, the launch of these products is specially approved by the competent authorities on a case-by-case basis, and there is no institutionalized issuance procedure. Behind these quasi-securitized products, there are clear signs of government involvement in control. The restrictions are also reflected in the few current systems. For example, the ''Administrative Measures for the Pilot Program of Credit Asset Securitization ''stipulates that the trading market for asset securitization products is in the inter-bank bond market, and the participants can only be eligible to enter the inter-bank bond market. Institutional investors have imposed exclusive restrictions on the promoters, investors, and trading venues and methods of asset securitization.
(II) the relevant legislative proposals to improve the SPT system in China.
According to the market experience of western developed countries, in view of the problems encountered in the practice of asset securitization in China, the following suggestions are put forward:
First, in the asset securitization law, we should first clarify the nature of "transfer of basic assets" and define SPT as: "the so-called trust refers to the transfer of property rights or other disposition, so that others can manage or dispose of their property according to certain purposes", and further distinguish the property rights of basic assets, that is, the beneficiary enjoys the right to benefit and dispose of the property, and the trustee enjoys the right to possess and use the property. In order to be consistent with the principle of trust, the trust property under securitization should also be characterized as ownership, and it is clear that the ownership of the trust property under securitization belongs to the trustee (I. e. SPT), in order to effectively achieve "bankruptcy isolation".
Second, in view of the reality of asset securitization in China, the trust benefit certificate is characterized as marketable securities in the law, and the following provisions can be considered: "Under the conditions of asset securitization, trust and investment companies can issue benefit certificates, and benefit certificates can be used as transaction carriers, and can be registered or anonymous according to the requirements of investors. Only the mark, number, terms of the trust, the firm name of the trustee, the name or name of the beneficiary, the face amount and the signature of the representative director shall be recorded on the registered beneficial securities." In addition, it is necessary to strengthen the construction of the secondary market for capital credit, remove the restrictions on the number of investors in the collective trust plan, and clearly stipulate: "When the trust and investment company collectively manages, uses, and disposes of trust funds, there is no limit to the number of fund trust contracts accepted by the client. The amount of each contract is 10000 yuan." In this way, the most critical part of asset securitization can be realized, that is, the sales problem.
Third, deregulation and the elimination of unnecessary investment restrictions. The experience of developed securitization markets shows that asset securities are a high-yield, high-credit-grade investment vehicle. Emerging markets should eliminate unnecessary legal restrictions on investment in asset securities, so that institutional investors such as pension and social security funds, insurance companies, and even savings institutions can enter the securitization market. Without the participation of institutional investors, the securitization market cannot obtain sufficient liquidity and depth. Therefore, restrictions on the underlying assets, promoters, investors and transaction methods of asset securitization should be relaxed, and the form of securitization should be diversified, which can include both tangible property and intangible property: equity, creditor's rights, intellectual property rights, expected income (accounts receivable) and so on. Only in this way can we provide broad development space for financial innovation, cultivate a mature asset securitization market, and continuously improve China's financial environment. (6619 words)
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(This article won the 2009 National Lawyers Forum excellent papers)