In an official statement from Citic Securities, the firm said the ABS could come either in one shot or split into multiple issues and will comprise margin loans, securities lending contracts as well as the corresponding agreed financing contracts.
The broker added that the ABS will help diversify its funding channels and facilitate the development of its flow-based business. The approval is valid until August 2017.
This asset class was only made possible last month when the China Securities Regulatory Commission (CSRC) allowed margin loans to be used as collateral for securitization.
Guotai Junan was the first out of the blocks following the rule change, pricing a Rmb500m margin loan ABS that was split into a Rmb475m 4.9% senior tranche and a Rmb25m junior subordinated piece.
The senior portion was sold mostly to Chinese banks, while the subordinated tranche was retained by the broker.
Margin loans in China have come under intense scrutiny this year, having fuelled one of the world’s most bullish equities run in the first half. China had one of the best performing stock markets in the world in H1 2015, with the Shanghai Stock Exchange Composite Index shooting up 44.1% to a record 5,178 in June.
But there were fears that the retail-heavy Chinese investor base had over-leveraged itself and those worries deepened when the market turned bearish, exemplified by the subsequent 24% drop in the Shanghai index.
That was especially concerning given how much margin lending has grown in the past year. At the height of the lending binge, the Shanghai Stock Exchange had an outstanding margin debt balance of Rmb1.48tr on June 19, a year-on-year increase of 560%.
Guotai Junan has tried to keep some of those concerns in check by adopting strict asset pool requirements.
The asset pool comes with a 5% exposure limit, which prevents any individual loan from taking up more than that stipulated amount in the portfolio. In addition, borrowers of the margin loans in the asset pool must have a collateral maintenance ratio above 150%.
Outstanding balance of margin debt on the Shanghai Stock Exchange is currently around Rmb886bn, roughly 40% lower than the peak in June.