The Korean regulator is planning to allow the local issuance of synthetic collateralized debt obligations. Members of the FSS's Financial Supervisory Service's asset backed securities team are in the process of preparing a revision to the ABS. Act of 1998. Hyejin Lee, an associate on the team, declined to give an exact date for the changes, but said it would be this year or next.
The ABS Act was brought in following the 1997 Asian financial crisis, and, though it places no restrictions on investment in CDOs from the domestic or offshore market, it defines securitization as an asset-transfer transaction and excludes the use of credit derivatives. Lee noted the revisions were being drafted because of the growing securitization markets worldwide. The act is also no longer sufficient to support the ABS market, which has changed significantly since the inception of the act, with innovations such as credit-default swaps on ABS being added to CDOs.
One banker at a local house believed it would be difficult at this stage to estimate the size of the potential market, but said he thought it was an important step as it would allow Korean institutions better opportunity to hedge against credit exposure. A Hong Kong structurer also noted that the market could potentially get fairly large and open new doors for new investors.