Monday, September 21, 2020

BSE ponders securitization amid sub prime market crisis

The Botswana Stock Exchange (BSE) was this week mulling-over a plan to introduce securitization at the height of international markets meltdown largely blamed on similar concept that triggered sub-prime housing market in the Unites States of America.

By this week, as the regional financial markets were gathered in Gaborone to make an input on the BSE concept, Asian and European major stock markets were all in the red underpinning how the financial markets have been globalised.

On Friday, the world’s biggest markets got a whack ÔÇö similar to that of Black Monday in October 1987ÔÇö- the biggest loss recorded in a single day in over 10 years. The Tokyo’s Nikkei was off 9.6 percent, London FTSE 100 dipped 13 percent in earlier tradingÔÇöslipping below the 4000 mark for the first time in five years ÔÇö before recovering to 5.4 percent.

In Germany, the DAX was down 7.9 percent, France’s CAC was out 6.1 percent while in Vienna the stock market trading was suspended and Iceland was technically bankrupt.

“I am not sure this is the right time for this product to be introduced in the world let alone in Botswana,” Chairman of the BSE, Ritz Desai said at the opening of the conference.
However, he implored participants to look for opportunities that might exist for BSE in the securitization of assets.

“We must examine and develop strategies that might be developed in Botswana,” he added.
Securitisation is a system where financial institutions group some of the illiquid assets and put them under a Special Purpose Vehicle (SPV) and get them listed on the stock exchange.
“The benefits of developing a securitization in Botswana are very clear to see because BSE cannot trade on equities alone,” Desai said.

BSE is trying to embark on a number of products roll-out aimed at making it one of the world’s most sophisticated markets in the African region. As such, it is looking at securitizing ÔÇô a system where the financial sector can group assets that is illiquid and then lists them on the market.

The assets could take the form of mortgage loans, car loans or credit cards which would be packed together and be sold to a third party while the originator is left with the business of collection of monthly premium and passing it to the third party.
The formation of the securitization will involve a number of people market players, such as lawyers, accountants and credit rating agencies to work on the packages that are to be brought to the market.
To avoid the problem similar to that of the United States of America, which has become a global problem now; it will require strict regulation to duck out of the backlash that has brought disrepute to an investment vehicle that was first introduced in the market some 40 years ago.

“Reports from America are tainting the image of securitization. I see them as a biog threat. I am waiting to see how regulators are going to react to securitization in the next 12 to 18 months,” Werner Nel of Absa Capital said.

The developments in the USA have led to a situation where credit rating agencies are now re-looking at their rating models following the sub prime crisis and expected to exercise some amount of transparency.

“I think we are going to be regulated to some certain extent,” Tertius Smith of Flitch Rating agency said.

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