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Series 7 practice questionmediumABS — Securitization Process

In the securitization process, the entity that creates the asset-backed securities by purchasing the underlying assets from the originator is called:

  1. AThe transfer agent
  2. BThe special purpose vehicle (SPV) or special purpose entity (SPE)✓ Correct answer
  3. CThe underwriter
  4. DThe clearing corporation
Explanation

Why B — The special purpose vehicle (SPV) or special purpose entity (SPE)

A Special Purpose Vehicle (SPV) or Special Purpose Entity (SPE) is a legal entity created specifically to purchase assets from the originator and issue securities backed by those assets. The SPV isolates the assets from the originator's balance sheet, so if the originator goes bankrupt, the assets in the SPV are not affected. This bankruptcy remoteness is a key feature of the securitization process that protects ABS investors.

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