China looking to expand its asset-backed securities market

Bloomberg reports that China is looking to expand its asset-backed securities market.  The big question is how will it do this?

Will it require that asset-backed securities provide observable event based reporting  so investors can know what they are buying and know what they own or will it allow the securities to provide out of date information that leaves buyers and sellers blindly gambling on the contents of a brown paper bag?

China may allow more firms to develop asset-backed securities businesses with the goal of boosting liquidity, the nation’s market regulator said. 

The China Securities Regulatory Commission will lower its threshold for securities companies to undertake such businesses, the CSRC said today on its website. Asset-backed securities could be based on accounts receivable, credit assets, bonds, stocks and commercial properties, it said. 

The CSRC issued draft rules for the asset-backed securities business today and asked for public feedback, according to the statement. 

China Development Bank Corp., the nation’s largest policy bank, sold 9.27 billion yuan ($1.5 billion) of asset-backed securities, the bank said Sept. 7, in the country’s first such sale since 2008. 

The difficulty of assessing risk in bonds that are backed by loans was a major contributor to the 2008 global financial crisis.