Study On Liquidity Of Asset-Backed Securities Market In China And Its Improvement Countermeasures

With the rapid development of the capital market in China, the product of Assets Securitization appeared in China's financial markets as a pivotal result of foreign financial innovations. From 2005, the market of Assets Securitization in China is growing fast. For example, both the Credit Assets-Backed Securities and Enterprises Assets-Backed Securities had great progresses.The essence of the Assets Securitization is to increase the liquidity of Credit Assets and Enterprises Assets. The benefit of the product is that it can help people to raise the efficiency in the use of funds, and at the mean time, promote better balance managements in both enterprises and banks. Thus, the liquidity of products is very important to the success of Assets Securitization process. As in China, with the great support of policy and system, the Credit Assets-Backed Securities and Enterprises Assets-Backed Securities are developing concurrently, While interbank market and stock exchange market are also developing simultaneously, in order that it provides liquidity to those two kinds of Securities. However, from the data provided according to those two markets, the effect is not as significant as it should be. To be specific, the major problems includes small settlement amount, low turnover ratio, small amount of trading volume and low enthusiasm to provide quotation by investors. As a result, to increase the market liquidity is very essential to the further development of Assets-Backed Securities Market in China.In order to analyze the defects of Assets-Backed Securities Market in China, we found several reasons for that phenomenon in China's financial market, including the unique characteristics of Assets-Backed Securities, the narrowness of the transaction objects, some limitation on repurchase, high trading cost and insufficiency of information disclosures system, too small issuance size, the complexity of pricing, the lack of market maker, market segmentation between interbank market and stock exchange market, and the defects of trading and clearing systems.From the experience of overseas market, the major measures of controlling the liquidity of Assets Securitization include to increase the issuance size, to increase the variety of trading product, to involve more trading groups, to set up special trading platform of fixed-income securities, to use various trading service in the system, to set up market maker system, and to improve the information disclosures system for the full set of Assets-Backed Securities, etc.From their experience, I suggest to have the following measures to increase the liquidity of Assets-Backed Securities markets in China: first, to build the central equity registry system to protect the rights and interests of investors; second, to set up the uniform trading platform by connecting the inter bank market and stock exchange market; third, encouraging more investors to join the Assets-Backed securities market; fourth, to enhance the trading mechanism arrangement; fifth, to set up special trading platform by introducing market maker to provide bid-ask price; sixth, to create more tradable Assets-Backed securities; the end, to improve the trading information disclosure system.