Financial Innovation and Structured Finance : The Case of Securitisation

The paper investigates the use and role of securitisation as main structured finance tool, and assesses the legal pitfalls that underlie the arrangement of this financing technique, particularly with regards to its more innovative contours. This is done firstly by looking at the legal development of securitisation and at the regulatory incentives that have more recently shaped the "originate-and-distribute" model. Attention is then drawn to the legal mechanisms that govern the structuring of the transaction, from its simplest form, to the more complex CDOs and CDSs. The paper attempts to reach a conclusion as to whether structured finance represents a perilous means to finance business and the extent to which financial innovation contributed to creating an unstable securitisation market