• Alter Securities

Innovation = Existing Things in a Better Way

Updated: Oct 5, 2019

Innovation is taking two things that already exist and putting them together in a new way.

- Tom Freston

Dear Reader,

Today we would like to tell you a little more about the current financial markets, which will give you a brief idea of what led us to creating our main product: Tranched Value Securities.

Since the mid-18th century, one of the most significant innovations in the financial world was creation of asset-backed securities (ABS), which were represented by mortgage-backed securities (MBS) in the United States where farm railroad mortgage bonds were issued. Since then, many other types of financial products (derivatives) were created in an attempt to improve risk transfer between market participants by securitizing assets or cash-flows. As a result of the advancements in this area, global derivatives market has grown from $80 trillion in 1998 to over $500 trillion in 2017, which was 6x times greater than global GDP.

Can you imagine? Everyday globally, GDPs of entire nations are traded in financial markets!

You might wonder why? And there are many reasons: one for each market participant, inclduing speculation, risk management, insurance, arbitrage, and many many others.

These derivatives were created in an attempt to improve market efficiency and enhance risk transfer mechanisms (when you sell your undesired risk to someone who wants to hold that part of risk and earn from it). However, as history has shown, financial professionals have relatively failed in achieving market efficiency, as only in the past 50 years, there were over 22 notable financial crises.

Until now, most financial instruments were focused on combining several assets or cash flows and splitting the total risk with various modifications of possible claims and their timings. However, until now, nobody split a risk of individual assets and securities…

This is exactly what Tranched Value Security (TVS) does: it splits risk within each single asset, or security, and transforms the performance in such a way that allows holders of various TVSs with the same underlying asset to earn different returns even within the same time period with no additional actions! Effectively a successful implementation of multiple old-dated techniques in a new way which allows investors get exactly what they want in terms of risk-return profiles without any complicated actions.

Intrigued how is that done? Check, sign up for email updates or contact us. To stay up to date on Alter Securities news and announcements, follow us on LinkedIn, Twitter, Facebook, or Instagram.

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Alter Securities is a service mark and/or trademark of Alter Securities. Supporting documentation for any claims and statistical information will be provided upon request. Any trading symbols displayed are for illustrative purposes only and are not intended to portray recommendations.


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