This information is preliminary. It has not been verified.
Hi Mr Tan,
UOB, DBS & OCBC are working closely with MAS to launch this project in Mar/Apr 2009 (delayed from earlier schedule to launch in Nov 2008).
Under current system, individual investors must go to selected banks to submit paper document to buy Singapore Government Bills & Bonds (SGBB).
The new system will allow individual investors with UOB/DBS/OCBC’s ATM to bid for SGBB through ATM machines.
Investors can bid for minimum face value of $1,000 SGBB, up to $1 mil for Bill and up to $2 mil for Bond for each issue.
The maturity period for Bills are 3 months or 1 year.
The maturity period for Bonds (both zero-coupon or with-coupon bonds) are available for 2, 3, 5, 7, 10, 15 and 20 year-term-maturity period.
MAS will announce the winners of the bidding process and all SGBB will be credited to investors’ CDP account.
(name removed)
Thursday, October 30, 2008
Undergraduate reply to Prof Lan
Hi Professor Lan Luh Luh,
I refer to your comments published in the article titled “Structured Products: Let’s not forget about personal responsibility” in TODAY on 2008/10/30.
I read your comments with a heavy heart and really hoped that the reporter has taken your comments out of context. I believe you are the first academic in Singapore to speak out and at the same time advocate caveat emptor.
I do not agree with what you said at all. I disagree with what you said on factual and moral grounds.
1) The returns on the structured products are certainly not double digits. The reporter may have asked you to comment on the wrong structured investment product. From what I have read, the returns on the structured products average about 5%. The returns on this product certainly does not match the risk the investor is undertaking.
I once commented to a friend that if the returns on these products are more than 10%, then the investors have no one to blame but themselves, as the returns would have match the risks.
In this case, the returns clearly do not match the risk. In equities, there is the risk of losing. But the investors have the opportunity to make big gains too. Here, the investors bear the risk of losing everything, but their returns are capped at ~5% no matter how well the market did. Is this fair?
2) "When people make money, nobody complains,” I think it is wrong to state this as an argument. When nothing happens, and the investors receive their ~5% returns every year, is it correct to fault them for not making any noise? I think this is normal human behavior. As the saying goes, when there is nothing wrong, why fix it?
They brought the investment product based on the relationship manager’s (RM) recommendation and trusted their RM’s explanation on how the product should work. And when the product is providing returns, is it correct to fault the investors for assuming that the product is working as it should and that they did not question further how the product should work?
For example, would a child check what are the specific hardware in a computer he just brought (assuming the child does not have the ability to check the hardware himself, and that the child has the power to purchase a computer himself), other than to just use it as it is and trust what the sales people told him? In this case, he will only find out that he has been sold a different hardware configuration only after the computer broke down and the repairman tells him that.
3) The third is on the general investor profile. When I first heard of this, I wanted to find out about the investors themselves before I make a judgment. Hence I went down to Speaker’s Corner personally on the first Saturday gathering to see for myself. I was stunned. The majority of the people I see there are people in their 50-60s who speak little or no English. The moment anyone sees this, statistics nor any scientific measures matter.
It is common sense that the people in the crowd certainly do not fit the risk profile of the investors the structure products should be targeting. If professor Lan has not seen the investors personally, I suggest professor Lan to visit the Speakers Corner this Saturday and see for yourself. More information about the gathering can be found here, http://tankinlian.blogspot.com. I stopped visiting the gathering after the first one as it really hurts to see and hear them.
4) I would like to stress that, from what I heard, the investors “thought” they “know” what they are investing. The risks and downsides were not clearly explained to them. I am almost certain that if the downsides and the true natural of the product was clearly explained, no one would buy them.
5) On caveat emptor. I think this idea is wrong and should not be encouraged at all. Caveat emptor encourage businesses to be irresponsible. I do not think that this is a desirable outcome for our economy or society. Our economy would just cease functioning normally. Everyone would have to spend lots and lots of time double checking and double check again before they buy something. Common goods that are purchased everyday on the basis of trust would have double checked, as the consumers know they have no one to turn to if something goes wrong, and that they are on their own. Is this desirable?
Our society would become one engulfed in suspicion, of anything and anyone. No one would help one another and no one is interested in one another. Everyone for themselves. Is this sort of society a desirable one to live in?
The examples I used are extremes, as I am trying to illustrate a point here. Let’s not assume caveat emptor is “correct” and just use it as it is. The question to ask should be, is it right and desirable in the first place to “advocate” something like caveat emptor even if it is an accepted reality that buyers should check their purchases? Who coined it anyway and under what circumstances was it invented?
Just imagine if the Chinese told the affected “too bad, you brought the milk yourself, no one forced you to buy my milk. It’s your business that your babies are being poisoned”, what will happen? And isn’t the melamine milk incident a perfect platform of advocating caveat emptor too? Think about it, why didn’t the Chinese do that?
To me, the MAS is equivalent to AVA. Its role is not there to check if the food taste good or not. Its role is to check whether if there are harmful substances in the food. I believe the AVA scientists do not have a easy time trying to determine whether something is harmful or not too. But they do their best, and when things happen, the products get redrawn, an apology issued and people get treated. A person financially ruin is akin to getting poisoned. Especially if what taken away from them are lifetime savings they intend to live on when they are old.
6) I know that the banks got themselves covered legally. Even a disclaimer from a local broker’s analyst report is longer than the actual report itself. However, it is a moral issue here, and not a legal issue. I believe if the banks were to buy back the products at cost right now, which many has the ability to do so without hurting their bottom-line, the amount of goodwill this action generated will last for multiple generations. This beats years and any amount of advertising. It’s like the 1982 Chicago Tylenol murders, and the banks are in the shoes of J&J now.
I believe professor Lan’s viewpoint may be slightly legalistic, considering your legal background. However, I urge professor Lan to be empathic to investors who have lost their savings.
I would like to stress that these are my personal opinions, and is not an attempt to show any form of disrespect. I am not personally involved any of the affected structured products.
Yours sincerely,
Morgan Wu Min-han
Undergraduate, SMU
I refer to your comments published in the article titled “Structured Products: Let’s not forget about personal responsibility” in TODAY on 2008/10/30.
I read your comments with a heavy heart and really hoped that the reporter has taken your comments out of context. I believe you are the first academic in Singapore to speak out and at the same time advocate caveat emptor.
I do not agree with what you said at all. I disagree with what you said on factual and moral grounds.
1) The returns on the structured products are certainly not double digits. The reporter may have asked you to comment on the wrong structured investment product. From what I have read, the returns on the structured products average about 5%. The returns on this product certainly does not match the risk the investor is undertaking.
I once commented to a friend that if the returns on these products are more than 10%, then the investors have no one to blame but themselves, as the returns would have match the risks.
In this case, the returns clearly do not match the risk. In equities, there is the risk of losing. But the investors have the opportunity to make big gains too. Here, the investors bear the risk of losing everything, but their returns are capped at ~5% no matter how well the market did. Is this fair?
2) "When people make money, nobody complains,” I think it is wrong to state this as an argument. When nothing happens, and the investors receive their ~5% returns every year, is it correct to fault them for not making any noise? I think this is normal human behavior. As the saying goes, when there is nothing wrong, why fix it?
They brought the investment product based on the relationship manager’s (RM) recommendation and trusted their RM’s explanation on how the product should work. And when the product is providing returns, is it correct to fault the investors for assuming that the product is working as it should and that they did not question further how the product should work?
For example, would a child check what are the specific hardware in a computer he just brought (assuming the child does not have the ability to check the hardware himself, and that the child has the power to purchase a computer himself), other than to just use it as it is and trust what the sales people told him? In this case, he will only find out that he has been sold a different hardware configuration only after the computer broke down and the repairman tells him that.
3) The third is on the general investor profile. When I first heard of this, I wanted to find out about the investors themselves before I make a judgment. Hence I went down to Speaker’s Corner personally on the first Saturday gathering to see for myself. I was stunned. The majority of the people I see there are people in their 50-60s who speak little or no English. The moment anyone sees this, statistics nor any scientific measures matter.
It is common sense that the people in the crowd certainly do not fit the risk profile of the investors the structure products should be targeting. If professor Lan has not seen the investors personally, I suggest professor Lan to visit the Speakers Corner this Saturday and see for yourself. More information about the gathering can be found here, http://tankinlian.blogspot.com. I stopped visiting the gathering after the first one as it really hurts to see and hear them.
4) I would like to stress that, from what I heard, the investors “thought” they “know” what they are investing. The risks and downsides were not clearly explained to them. I am almost certain that if the downsides and the true natural of the product was clearly explained, no one would buy them.
5) On caveat emptor. I think this idea is wrong and should not be encouraged at all. Caveat emptor encourage businesses to be irresponsible. I do not think that this is a desirable outcome for our economy or society. Our economy would just cease functioning normally. Everyone would have to spend lots and lots of time double checking and double check again before they buy something. Common goods that are purchased everyday on the basis of trust would have double checked, as the consumers know they have no one to turn to if something goes wrong, and that they are on their own. Is this desirable?
Our society would become one engulfed in suspicion, of anything and anyone. No one would help one another and no one is interested in one another. Everyone for themselves. Is this sort of society a desirable one to live in?
The examples I used are extremes, as I am trying to illustrate a point here. Let’s not assume caveat emptor is “correct” and just use it as it is. The question to ask should be, is it right and desirable in the first place to “advocate” something like caveat emptor even if it is an accepted reality that buyers should check their purchases? Who coined it anyway and under what circumstances was it invented?
Just imagine if the Chinese told the affected “too bad, you brought the milk yourself, no one forced you to buy my milk. It’s your business that your babies are being poisoned”, what will happen? And isn’t the melamine milk incident a perfect platform of advocating caveat emptor too? Think about it, why didn’t the Chinese do that?
To me, the MAS is equivalent to AVA. Its role is not there to check if the food taste good or not. Its role is to check whether if there are harmful substances in the food. I believe the AVA scientists do not have a easy time trying to determine whether something is harmful or not too. But they do their best, and when things happen, the products get redrawn, an apology issued and people get treated. A person financially ruin is akin to getting poisoned. Especially if what taken away from them are lifetime savings they intend to live on when they are old.
6) I know that the banks got themselves covered legally. Even a disclaimer from a local broker’s analyst report is longer than the actual report itself. However, it is a moral issue here, and not a legal issue. I believe if the banks were to buy back the products at cost right now, which many has the ability to do so without hurting their bottom-line, the amount of goodwill this action generated will last for multiple generations. This beats years and any amount of advertising. It’s like the 1982 Chicago Tylenol murders, and the banks are in the shoes of J&J now.
I believe professor Lan’s viewpoint may be slightly legalistic, considering your legal background. However, I urge professor Lan to be empathic to investors who have lost their savings.
I would like to stress that these are my personal opinions, and is not an attempt to show any form of disrespect. I am not personally involved any of the affected structured products.
Yours sincerely,
Morgan Wu Min-han
Undergraduate, SMU
News about Jubilee Notes arranger
Jubilee note holders and distributors and the authorities may be interested to know these reports about the Jubilee Note arranger
http://www.nytimes.com/2008/08/22/business/22auction.html?scp=9&sq=Massachusetts%20+%20Merrill%
20Lynch&st=cse http://www.nytimes.com/2008/02/02/business/02legal.html?scp=1&sq=Massachusetts%20+%20Merrill%20Lynch&st=cse
http://www.nytimes.com/2008/08/22/business/22auction.html?scp=9&sq=Massachusetts%20+%20Merrill%
20Lynch&st=cse http://www.nytimes.com/2008/02/02/business/02legal.html?scp=1&sq=Massachusetts%20+%20Merrill%20Lynch&st=cse
Conflict of interest between bank and customer
Mr. Tan
I started my career as an investment consultant which requires formulating advice from client's interest point of view. I had done some work with banks on asset allocation models and fund selection (thinking from customers' interests point of view).
Two and a half year ago, I decided to join a bank to carry on this work.
It is an uphill task to convince people within the bank to embrace the investment approach of diversifying investment risks for the interests of customers. This directly clashes with corporate interest of meeting sales target and paying high bonuses, via selling high margin high risk products.
To be more specific, areas of conflicts include:
1. Most products are high risks in nature. Recommending broadly diversified products will lead to cannibalising the business of those narrowly focused products (including structured products). Killing these high risk products mean threatening the jobs of those people making profits out of these.
2. People are generally excited by new products and not old products. So, there is an IPO mentality - new products are better than old. As broadly diversified products are considered old products, it is obvious that no bank will run a promotion on the newly launched global stock funds or global bond funds because they aren't any. As the room for innovating structured products is unlimited, excitement and hype can be easily created around these products to boost profits.
3. The compensation structure of people selling investment products is commission based, and it is difficult to drive sales on products with lower commission. Unfortunately, products that work for customers (e.g. Term Policy, ETFs, global diversified funds) are usually low in commissions.
I also sympathise with the sales people, who are not talented enough to be promoted out of their hot seats of having to sell highly risky products to vulnerable customers just to meet the forever increasing sales target. I suspect some of the sales people succumb to the lifestyle of closing deals that are not in the best interests of customers and enjoying high bonuses, while others with conscience are trying their very best to get promoted to become product managers or some other roles in the bank, or even consider moving out of the job of selling investment products to selling other safer thing like house, car etc.
I believe no sales person is happy with the consequences of causing losses on monies of customers with no intention to take any investment risks. I am sure sales people are also suffering significant degree of guilt.
The conflict of interests between banks and customers remain unresolved until today.
Unless this conflict is resolved totally, I remain uncomfortable working for a bank. And I believe most people who have worked in a bank will agree with me, while others who do not, may have numbed their conscience due to helplessness.
May be the banks now seriously need regulators to set specific governance framework, to help them counter the unsurmountable vested interests that are in direct conflict with customers.
(name deleted)
I started my career as an investment consultant which requires formulating advice from client's interest point of view. I had done some work with banks on asset allocation models and fund selection (thinking from customers' interests point of view).
Two and a half year ago, I decided to join a bank to carry on this work.
It is an uphill task to convince people within the bank to embrace the investment approach of diversifying investment risks for the interests of customers. This directly clashes with corporate interest of meeting sales target and paying high bonuses, via selling high margin high risk products.
To be more specific, areas of conflicts include:
1. Most products are high risks in nature. Recommending broadly diversified products will lead to cannibalising the business of those narrowly focused products (including structured products). Killing these high risk products mean threatening the jobs of those people making profits out of these.
2. People are generally excited by new products and not old products. So, there is an IPO mentality - new products are better than old. As broadly diversified products are considered old products, it is obvious that no bank will run a promotion on the newly launched global stock funds or global bond funds because they aren't any. As the room for innovating structured products is unlimited, excitement and hype can be easily created around these products to boost profits.
3. The compensation structure of people selling investment products is commission based, and it is difficult to drive sales on products with lower commission. Unfortunately, products that work for customers (e.g. Term Policy, ETFs, global diversified funds) are usually low in commissions.
I also sympathise with the sales people, who are not talented enough to be promoted out of their hot seats of having to sell highly risky products to vulnerable customers just to meet the forever increasing sales target. I suspect some of the sales people succumb to the lifestyle of closing deals that are not in the best interests of customers and enjoying high bonuses, while others with conscience are trying their very best to get promoted to become product managers or some other roles in the bank, or even consider moving out of the job of selling investment products to selling other safer thing like house, car etc.
I believe no sales person is happy with the consequences of causing losses on monies of customers with no intention to take any investment risks. I am sure sales people are also suffering significant degree of guilt.
The conflict of interests between banks and customers remain unresolved until today.
Unless this conflict is resolved totally, I remain uncomfortable working for a bank. And I believe most people who have worked in a bank will agree with me, while others who do not, may have numbed their conscience due to helplessness.
May be the banks now seriously need regulators to set specific governance framework, to help them counter the unsurmountable vested interests that are in direct conflict with customers.
(name deleted)
Old news that may be useful
1. Leading Case of Negligence by an Investment Adviser Sets Standard of Care
http://www.tannerdewitt.com/media/publications/field-v-barber-asia.php
2. Guided by Greed
http://www.tannerdewitt.com/media/publications/guided-by-greed.php
3. SFC Suspends Andrew Nicholas Barber for Unsuitable Investment Advice
http://www.sfc.hk/sfcPressRelease/EN/sfcOpenDocServlet?docno=05PR153
"The SFAT's Reasons for Determination confirm that express warnings on the face of the investment product documentation do not absolve an investment adviser from their duty to properly explain the risks involved to the client. Although the SFAT accepted that Barber had gone over the documentation with the client, the Code of Conduct for Persons Licensed by or Registered with the SFC requires an investment adviser, when providing services to a client in derivative products, including futures contracts or options, or any leveraged transaction, to assure themselves that the client understands the nature and risks of the products and has sufficient net worth to be able to assume the risks and bear the potential losses of trading in such products."
http://www.tannerdewitt.com/media/publications/field-v-barber-asia.php
2. Guided by Greed
http://www.tannerdewitt.com/media/publications/guided-by-greed.php
3. SFC Suspends Andrew Nicholas Barber for Unsuitable Investment Advice
http://www.sfc.hk/sfcPressRelease/EN/sfcOpenDocServlet?docno=05PR153
"The SFAT's Reasons for Determination confirm that express warnings on the face of the investment product documentation do not absolve an investment adviser from their duty to properly explain the risks involved to the client. Although the SFAT accepted that Barber had gone over the documentation with the client, the Code of Conduct for Persons Licensed by or Registered with the SFC requires an investment adviser, when providing services to a client in derivative products, including futures contracts or options, or any leveraged transaction, to assure themselves that the client understands the nature and risks of the products and has sufficient net worth to be able to assume the risks and bear the potential losses of trading in such products."
NTUC Bonus Cut was a bad idea
Hi Mr. Tan
When NTUC cut the bonus last year, the reason was to allow NTUC to invest the surplus into the stockmarket to get a higher return. Many policyholders opposed this move, as it would increase the risk. These policyholders are now proven correct, as the stockmarket dropped by 50%. It now appears that the cut in bonus is gone and cannot be recovered.
Earlier this year, you organised a collective protest against the bonus cut but did not lodge it at the AGM due to the assurance given by former NTUC boss Lim Boon Heng and the chairman Ng Kee Choe. The chairman also gave some assurance at the AGM. Are the assurances being kept and honoured?
As the bonus cut turns out to be a disaster, can the policyholders organise another protest to restore the old bonus rates? Can you take this matter to Speakers' Corner?
REPLY
Let me sort out the problem with the minibonds and other structured products over the next few months. We can review this matter in early 2009.
When NTUC cut the bonus last year, the reason was to allow NTUC to invest the surplus into the stockmarket to get a higher return. Many policyholders opposed this move, as it would increase the risk. These policyholders are now proven correct, as the stockmarket dropped by 50%. It now appears that the cut in bonus is gone and cannot be recovered.
Earlier this year, you organised a collective protest against the bonus cut but did not lodge it at the AGM due to the assurance given by former NTUC boss Lim Boon Heng and the chairman Ng Kee Choe. The chairman also gave some assurance at the AGM. Are the assurances being kept and honoured?
As the bonus cut turns out to be a disaster, can the policyholders organise another protest to restore the old bonus rates? Can you take this matter to Speakers' Corner?
REPLY
Let me sort out the problem with the minibonds and other structured products over the next few months. We can review this matter in early 2009.
Financial Services Authority fines Lloyds Bank in 2002
From Business Times
Lloyds TSB was fined GBP 1 million (S$2.35 million) in 2002 by the Financial Services Authority (FSA) of the UK and had to set aside GBP 165 million to compensate claims relating to mis-sold endowment policies, involving 45,000 policyholders.
In 2003, Lloyds TSB was further fined GBP 1.9 million and had to compensate GBP 98 million to 22,500 investors, many of them pensioners. This was related to the mis-selling of high-income 'precipice' bonds touted as an 'Extra Income and Growth Plan'. These bonds promised a return of 9.75-10.25 per cent over three years (twice the bank deposit rates then) and were linked to 30 stocks. They were called 'precipice' bonds because the investors' capital returns could 'fall off a cliff' if the markets fell below a pre-set trigger point.
The markets linked to the 30 stocks did indeed fall. These high-risk bonds, which were highly leveraged, were sold to inexperienced investors. Some 16,500 investors had never purchased equity-related investment products before.
22,500 sales out of 51,000 (that is, 44 per cent) of the total sold were deemed to have been mis-sold. Howard Davies, outgoing chairman of FSA, said that the products sold by Lloyds were 'inherently wicked' (because they were highly leveraged) and they were sold to unsuitable people.
Andrew Proctor, FSA director of enforcement, said: 'There was nothing wrong with the product itself. The problem was that too much of it was sold to the wrong people.'
Lloyds TSB was fined GBP 1 million (S$2.35 million) in 2002 by the Financial Services Authority (FSA) of the UK and had to set aside GBP 165 million to compensate claims relating to mis-sold endowment policies, involving 45,000 policyholders.
In 2003, Lloyds TSB was further fined GBP 1.9 million and had to compensate GBP 98 million to 22,500 investors, many of them pensioners. This was related to the mis-selling of high-income 'precipice' bonds touted as an 'Extra Income and Growth Plan'. These bonds promised a return of 9.75-10.25 per cent over three years (twice the bank deposit rates then) and were linked to 30 stocks. They were called 'precipice' bonds because the investors' capital returns could 'fall off a cliff' if the markets fell below a pre-set trigger point.
The markets linked to the 30 stocks did indeed fall. These high-risk bonds, which were highly leveraged, were sold to inexperienced investors. Some 16,500 investors had never purchased equity-related investment products before.
22,500 sales out of 51,000 (that is, 44 per cent) of the total sold were deemed to have been mis-sold. Howard Davies, outgoing chairman of FSA, said that the products sold by Lloyds were 'inherently wicked' (because they were highly leveraged) and they were sold to unsuitable people.
Andrew Proctor, FSA director of enforcement, said: 'There was nothing wrong with the product itself. The problem was that too much of it was sold to the wrong people.'
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