Academic journal article Duke Journal of Comparative & International Law

The Law of Cross-Border Securitization: Lex Juris

Academic journal article Duke Journal of Comparative & International Law

The Law of Cross-Border Securitization: Lex Juris

Article excerpt

I. INTRODUCTION

This article discusses the process by which the law of cross-border securitization evolves and becomes uniform. In a former article entitled Cross-Border Securitization: Without Law, but Not Lawless, I posited that "the laws governing cross-border securitization are developed first by decentralized lawmaking `markets,' and then absorbed by centralized lawmaking of communities, large intermediaries, and corporations." (1) I suggested that a cyclical process is involved. New forms of cross-border securitization and new legal issues emerge while old forms and settled issues solidify into rules. This article continues the inquiry. The first part of the article also defines the meaning of a unified cross-border securitization "law." Because much has been written about cross-border securitization, (2) the first part of the article focuses on select features of the securitization transactions. These are the features relevant to the inquiry about unifying the laws that govern the transactions.

In the second part of this article I ask: Who makes the law of cross-border securitization? The law of cross-border securitization has been analogized to lex Mercatoria, that is, the law created by merchants in dealing with each other, and the rules created by their institutions to facilitate these dealings. I conclude that even though both laws are "market made," they differ mainly because the law of cross-border securitization is developed not by the parties to the transactions, but by lawyers. I therefore call the law "lex Juris" after the name of its creators.

In the third part of the article I ask: How do lawyers create and produce unified law in a decentralized market? To answer this question, I examine lawyer-made law (LML) in the United States and in civil law countries, and discuss the differences between LML generally and the lex Juris governing cross-border securitization. The examination reveals how LML and lex Juris laws can be, and are, standardized in a decentralized, contract-driven market.

The fourth part asks: How is lex Juris distinguished from lawmaking by political units, that is, the courts and the legislatures? I suggest that lex Juris reflects both types of lawmaking, but the mix is different. Lex Juris offers guides for the future, like legislation, not resolution of past conflicts, like judicial decisions. Yet, it pertains to specific cases, like judicial decisions, and only later is it generalized in form contracts and processes, like legislation.

The last part of this article addresses a broader question: Does the system that is evolving today as lex Juris for cross-border securitization provide a useful model for other laws in a global context? This part anticipates the future of lex Juris. In a fast-moving and changeable environment, a system grounded in private lawmaking can be more flexible and very useful when conflicts ultimately arise. It can be copied by other actors and adjusted to their needs, natures, and cultures, to become a truly cosmopolitan private lawmaking process. This private lawmaking, however, requires a relatively small group of interacting private law-makers, and a peaceful coexistence with applicable domestic laws.

I conclude that lex Juris belongs to a growing number of cross-border contract-based legal systems, for example, laws concerning the Internet. (3) Lex Juris may be the forerunner of a new type of lawmaking regulating global activities: law-like rules that escape tight control of domestic laws, but take them into account; rules that are highly flexible for a fast-changing environment, but quickly unified into standards and guidelines of sufficient predictability.

II. ABOUT CROSS-BORDER SECURITIZATION

A. Purpose and Process

Securitization is a process by which illiquid financial assets are converted into securities, to facilitate their sale and trade. (4) One salient feature of the securitization process is its "disjoined" or "decomposed" nature. …

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