Regulators mull looser ABS policies

The China Securities Regulatory Commission (CSRC) is considering regulations which could allow more brokerages to enter the asset-backed securities (ABS) market, according to a draft issued by the commission Tuesday.

Specifically, brokerage with a license to offer asset management services and a record free of irregularities for more than a year could apply to sell ABS to investors under the terms of the draft.

These conditions stand in contrast to the previous requirements issued in 2009, which state that only brokerages with an A rating or above from the CSRC and more than 2 billion yuan ($321 million) in highly-liquid assets during the preceding 12 months could apply to conduct ABS transactions.

At the same time, the draft may also add to the list of assets eligible for securitization by including accounts receivable, loans, trust beneficiaries, infrastructure dividends, commercial papers, bonds, equities, as well as commercial property and other types of real estate.

These rules are largely aimed at helping securities companies strengthen their earnings as their assets under management continue to increase rapidly, Zhang Xin, an analyst from Guotai Junan Securities, told the Global Times.

As of the end of 2012, China's brokerages had over 1.89 trillion yuan in assets under their management, up 570 percent from the 281.87 billion yuan they held as of December 31, 2011, data from the Securities Association of China show.

Once implemented, these more liberal regulations are expected to promote the development of the sector by allowing more securities companies to broaden their business horizons, said Zhang. These policies could also lower risks for brokerages offering asset management services by allowing them to bundle and resell more of their assets, effectively shifting their risk onto investors, Zhang explained. "In this regard, investors will need to be more cautious with such derivatives," he added.

China first launched an experimental ABS program in 2005 authorizing China Development Bank and China Construction Bank to securitize their loans. Regulators hit the brakes on the program in late 2008 amid concerns about the role ABS played in precipitating the global financial crisis. The CSRC began taking steps to restart the program again in 2012.