Financial Analysis: Securitised Loans, Derivatives, and HSBC's Role

This report provides a comprehensive analysis of securitised loans and derivative markets, focusing on their principles, regulatory aspects, and industry controls. It examines the role of these financial instruments within the context of HSBC, a major international financial institution. The report details the principles behind securitised loans, including safety, diversity, stability, and profitability. It also explores the regulatory landscape governing both securitisation and derivatives, emphasizing risk retention requirements and transparency. Furthermore, the report discusses the industry controls in place to manage credit and market risks, such as data management, risk tools, deal structuring, and loss prevention. The analysis includes examples of how derivatives can lead to undesired effects, along with lessons learned. The report concludes by summarizing the key findings and emphasizing the importance of understanding these financial instruments for effective risk management and regulatory compliance.

Assessment

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Principle behind Securitised loans and derivative markets with examples.................................1
Regulatory aspect of the Securitisation and derivative market and comment on firms
compliance...................................................................................................................................2
Discuss industry controls in place to manage credit and market risks associated with
Securitised loans and derivative products....................................................................................3
CONCLUSION ...............................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Derivatives market refers to the financial market in which various financial instruments
are able to derive from the other form of assets and can be divided into two forms exchange trade
derivatives and over the counter derivatives (Alizadeh, 2015). Securitised loans refers to the loan
which has a relationship with the lender and the borrower and it also involves the sale of loan by
the lender to the new owner. Banks also Securitised the loans for the various reasons like the risk
management, balance sheet issues, loans etc. The company choose for this report is HSBC
holding PLC is the British international and the financial bank and had its headquarter in
London, UK. The company is public limited company and was founded in the year 1865. The
topic covered under this report are the principles of the Securitised and the derivatives loan, the
regulatory aspect of the Securitised and derivative loan and the industrial control to manage the
credit and market risk.
MAIN BODY
Principle behind Securitised loans and derivative markets with examples
Principles of Securitised loan :
 Principal of Safety: Safety of the loan is an important as it helps in building the trust
between the lender and the borrower as they should pay the loan on time with proper
interest so that in future they are not get affected. It helps in sending the loans to the
new owners also and should have a proper trust in them (Black, Krainer and Nichols,
2017). The HSBC bank should also check the paying back capacity of the individual
then only the loan should be provided to the person.
 Principal of diversity: Securitised loan are diverse enough that the loan should
provide in the form of shares and debentures which are in the form of security. This
principal helps in advancing the loans to various firms, industries, business and the
traders and are in the security form and will get the result in future. The loan from the
HSBC should be diversified enough in different countries and the bank should also
take the risk of lending the money.
 Principal of stability: Securitised loans should invest there stock which have a high
degree of stability in the prices and the bank cannot afford the loss so that stability is
provided in an proper manner and the decision to be taken properly so that the
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benefit get derived in the future. The loans should be used and to be invested in the
reputed companies where the price remain stable and the benefits will be derived
easily. Bonds and debentures carried the fixed rate of interest in which the benefits
will able to derived easily by HSBC bank. Investments in the debentures and the
bonds are more successful than in companies.
 principal of profitability: The profitability of the loan should be Securitised and
invested in the proper place from where the profit will increase in the future. The
capacity of the securities and the shares depend on the dividend and the interest rate
and help in getting the fair and the stable return on the funds invested so that the
future benefits can be derived and lean can be paid back easily in an future and helps
in getting the proper results (Bomfim, 2015).
Principles of derivative markets:
 Transparency: Derivative market should be transparent enough and the decision is
to be taken in an proper manner so that it will not affect in the future and the results
can be derived easily. Derivative markets of HSBC helps is providing the proper
transparency which affect the business decision and helps in proper control while
lending the money.
 Contracts: Derivative markets should have a proper contract between the people so
that in future there will be no misuse and making the contract is an legal document
which affect the business properly and the decision can be taken in an proper
manner.
Regulatory aspect of the Securitisation and derivative market and comment on firms
compliance
Regulatory aspect of Securitisation:
 Risk retention requirements: It helps in determining the risk in an proper manner
so that the decision can be taken on time which affect the people and the security of
the people of taking the loan and the investment so that the decision can be done on
time and will not affect in future.
 Transparency: There should be proper transparency as it holds the both investors
holding positions and the securities so that the relevant information can be derived
easily and also helps in taking the decision in an proper manner. Transparency helps
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in making the decision in proper decision in HSBC bank so that the future discussion
take place easily and will not affect the business. Proper rules and regulations are to
be followed so that in future decision can take place.
Regulatory aspect of derivative market:
 Tax: It is the major issue which helps in taking the decision in an proper manner and
help in deriving the result and the decision can be taken properly. Timely tax are paid
to the people so that it will not affect in the future and helps in getting the payment
on regular basis (Chance and Brooks, 2015). These markets helps in doing the online
screen based trading.
 Proper monitoring of the derivative market is done so that in future the trading
become successful and no one can misuse its power. Derivative trading helps in
analysing the result properly and the decision can be taken easily on the timely basis.
Discuss industry controls in place to manage credit and market risks associated with
Securitised loans and derivative products
 Data management: The data should be managed in an proper manner so that no risk
will able to arise in the future and the decision can be taken on the time. There will
be no delays in the work and data will be able to managed in an proper way.
 Risk tools: There should be proper use of the risk tools while giving the loans and
have proper check in the derivative market so that it will not affect in the future. The
individual repaying capacity should be checked in an proper manner so that the
HSBC bank will able to know weather the given loan will get back in the future or
not.
 Structure the deal: The dealing with borrowers should be good enough the proper
document should be taken on time and managed quickly so that it will not affect in
the future and the decision can be taken on time. Knowing the borrowers is an
important part of the business as it helps in deriving the results and have an security
of giving the loan to the people (Guo and Zhang, 2020). The HSBC bank should
have the proper structure and detailed information which not affect the person and
helps in dealing and engaging the people properly regarding the future decision and
the bank should provide the transparency in front of the customers so that they get
attracted easily.
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 Sharing of details: Sharing of the information to the customer is an important part as
they become more sure about the company. The documents can be taken on the
proper time and helps in achieving the results in proper manner. By sharing the
information loans by HSBC bank will easily taken by the people and knowing the
consumer information bank have security if getting back of the money and loan taken
by the company (Griffin and Maturana, 2016). These details helps in getting knowing
the borrower and the lender in an proper manner so that in future no issues will rise
regarding the loan.
 Loss prevention: The company help in prevention of the losses in the market so that
there is proper flow of the economy and helps in deriving the results. Losses in the
future will also derived easily . Loan from the HSBC banks will get easily but the
security is provided in an proper manner which help in prevention of losses in the
future. The derivative market should take the decision in an proper manner which
will not affect in the future and helps in raising the funds by giving the proper
interest so that the results can be derived easily.
CONCLUSION
From the above report it has been concluded that the Securitised loans are the loans in
which the proper security of the lender and the borrower are taken and to be observe in the
proper manner. Derivative markets are the markets in which the future contracts are take place
and can easily derived from the other assets. The trades are divided into two parts exchange
trading and the over counter derivatives. The examples of the derivative markets are the
Forwards, Future, Option and Swaps. In this report we studied about the different principles like
the principal of safety, stability, transparency to understand the market in an proper manner.
Regulation of the Securitisation and the derivative market is studied which helps in knowing the
proper rules and the different internal control methods are studied properly.
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REFERENCES
Books and Journals
Alizadeh, A. H. And et. al., 2015. Liquidity effects and FFA returns in the international shipping
derivatives market. Transportation Research Part E: Logistics and Transportation
Review. 76. pp.58-75.
Black, L., Krainer, J. and Nichols, J., 2017. From origination to renegotiation: A comparison of
portfolio and securitized commercial real estate loans. The Journal of Real Estate
Finance and Economics. 55(1). pp.1-31.
Bomfim, A. N., 2015. Understanding credit derivatives and related instruments. Academic
Press.
Chance, D. M. and Brooks, R., 2015. Introduction to derivatives and risk management. Cengage
Learning.
Griffin, J. M. and Maturana, G., 2016. Who facilitated misreporting in securitized loans? The
Review of Financial Studies. 29(2). pp.384-419.
Guo, Z. and Zhang, S., 2020. The syndicate structure of securitized corporate loans. Financial
Review. 55(1). pp.61-89.
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