A working group set up by the Clearing Corporation of India to study the viability of mortgage-backed and asset-backed securities has recommended listing of such securities after they are rated by an approved agency.

However, the group is still working on the disclosure norms required for such issues.

The group is seeking industry opinion on whether the disclosures could be on the same lines as those for ordinary debt issues or a separate set is required. Informed sources indicated that the group is close to finalising its recommendations and the paper will be ready by January 2005.

The working group consists of members from the Reserve Bank of India, the Securities and Exchange Board of India and other market participants including the Primary Dealers Association of India.

The working paper focuses on the regulatory aspects of the issue of such securities along with their trading, settlement and accounting.

Sources said the mandatory listing of all debt issues ordered last year was a precursor to the listing of other derivative products in the debt market.

At present, the Housing Development Finance Corporation, the National Housing Bank and Hudco are among the few institutions that have issued mortgage-backed securities.

The first float hit the market in 2002, after the Reserve Bank of India issued preliminary guidelines. Securitisation is a process by which a company bundles its assets or receivables into securities and sells them to investors.

These securities are called mortgage-backed securities since the underlying security is a house or a property mortgaged with the institution.

The main advantage of the securitisation is that it helps housing finance companies convert their loan assets into cash right away, which affords fresh loan creation.

Further, it reduces the risk associated with re-investment and the risk of earning a lower rate of return due to pre-payments, which gets passed on to investors in the mortgage-based securities.

Not only mortgages, but other assets can also be securitised. With the listing of the securities on the exchanges, liquidity is provided to the lenders and rationalises the flow of capital in the loan-against-assets market, sources in the working group said.