secondary securities?
- Thread starter adamoh
- Start date
Hi adam,
I did retain that primary/secondary distinction from last year (or maybe even the 2008 FRM?), but I'm not sure I'm proud of the distinction frankly; i.e., i'm not really comfortable defending it (sorry)
I think the idea with "secondary" is to describe a security that instead of a "primary" claim on real assets (sometimes you even see primary call "physical" debt or equity) the claim is on a financial asset-as-intermediate; e.g., corporation issues (host) debt and this is primary as the bond/debt holder has a claim on real corporate assets. Okay, now if you issues notes (securities) against a POOL of these primary bonds, then you'd have "secondary" bonds b/c this CDO/CBO has financial collateral (bonds) rather than issuer (physical) collateral. I think that was the intended distinction....if i am right, than the key issue is "what is the collateral underlying the notes?"
if that's correct, then IMO yes, both MBS (collateral = mortgage bonds) and CMO (collateral = same but add structured notes) would qualify as "secondary" here
Here is a brief summary of CFA podcast by Chris Finger who characterized by "distance to assets;"
http://www.bionicturtle.com/learn/article/subprime_layers_and_the_abx_index/
i.e., ABS = first-order and CDO = second-order
... IMO, both ABS & CDO would be both "secondary" again the issue seems to be "what is the collateral and how removed is our ownership from physical ownership"
I kept it so it's my fault...but FWIW, I've found the semantics around this sometimes distracting; e.g., here wise Econ of Contempt reminds everybody that CDOs are securities not derivatives and we'd safely dub them a "secondary security" ... but I'm unsure how either "secondary" or "security" makes a practical difference...
Hope that helps (I don't think i'll further retain the primary/secondary unless I can find/confirm a more satisfactory answer to your question..)
David
I did retain that primary/secondary distinction from last year (or maybe even the 2008 FRM?), but I'm not sure I'm proud of the distinction frankly; i.e., i'm not really comfortable defending it (sorry)
I think the idea with "secondary" is to describe a security that instead of a "primary" claim on real assets (sometimes you even see primary call "physical" debt or equity) the claim is on a financial asset-as-intermediate; e.g., corporation issues (host) debt and this is primary as the bond/debt holder has a claim on real corporate assets. Okay, now if you issues notes (securities) against a POOL of these primary bonds, then you'd have "secondary" bonds b/c this CDO/CBO has financial collateral (bonds) rather than issuer (physical) collateral. I think that was the intended distinction....if i am right, than the key issue is "what is the collateral underlying the notes?"
if that's correct, then IMO yes, both MBS (collateral = mortgage bonds) and CMO (collateral = same but add structured notes) would qualify as "secondary" here
Here is a brief summary of CFA podcast by Chris Finger who characterized by "distance to assets;"
http://www.bionicturtle.com/learn/article/subprime_layers_and_the_abx_index/
i.e., ABS = first-order and CDO = second-order
... IMO, both ABS & CDO would be both "secondary" again the issue seems to be "what is the collateral and how removed is our ownership from physical ownership"
I kept it so it's my fault...but FWIW, I've found the semantics around this sometimes distracting; e.g., here wise Econ of Contempt reminds everybody that CDOs are securities not derivatives and we'd safely dub them a "secondary security" ... but I'm unsure how either "secondary" or "security" makes a practical difference...
Hope that helps (I don't think i'll further retain the primary/secondary unless I can find/confirm a more satisfactory answer to your question..)
David
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