A new regulation in South Africa likely to come into effect at the end of March is expected triple the volume of securitizations and synthetic securitizations, which will in turn boost the over-the-counter derivatives market. Gill Raine, head of financial engineering at Rand Merchant Bank in Johannesburg, expects the number of securitizations to rise to 30-40 a year from about 10. "This could open a whole new world for over-the-counter derivatives," according to Bruce Stewart, chief derivatives dealer at South African bank Nedcor Bank in Johannesburg. Structuring securitizations requires fixed income derivatives, and the market should be boosted as a result. He said there is no doubt that volumes will increase but thinks that the demand for synthetic securitizations might not take off as quickly because investors will have to get comfortable with the products.
Michael Blackbeard, head of the legal division of the South Africa Reserve Bank's supervision department, said the new regulation will be more flexible, bringing South Africa in line with international practices. At the moment, for example, the originating bank in a securitization is not allowed to play any other role in the transaction, such as maintaining a secondary market in the assets. This makes securitizing debt expensive. Blackbeard said the central bank is waiting for the Bank for International Settlements to publish its recommendations on capital adequacy next week before it makes the final alterations. The amendment has to be approved by the Minister of Finance, but few expect the proposal not to go through. Blackbeard predicts that it will be in place by the end of the first quarter.
