The Bank of Korea, the country's financial markets regulator, is talking with several investment banks and investors about allowing an onshore market in synthetic collateralized debt obligations. Kang Nam Yi, a manager in the foreign exchange review division at the Bank of Korea, said it could make this decision within the coming months, but declined to elaborate.
If the regulator does give the go ahead, possibly five or more deals could be structured before year-end, according to an official at JPMorgan. "Korea's a big market," noted a trader at Deutsche Bank in Singapore, "this could help boost liquidity in Asian credits." An official at Salomon Smith Barney also noted that there is strong interest in synthetic CDOs in Korea and all three firms want to launch CDOs. The official at JPMorgan said it is in informal talks with the regulator, but the other two officials declined comment.
Currently, there is strong demand in Korea for mortgage-backed securities as well as credit-linked notes structured on domestic names. The official added that demand would primarily stem from asset managers, domestic banks and insurance companies.
