Dear Mr Tan,
I called my distributor OCBC secruities many times to check the reason about Pinnacle Note for the distressful price, but the only thing they can tell me is to wait for the Q& A, and I never get it until now after many weeks chasing.
I have to make many calls and finally I found Morgan Stantly has set up two hot lines for Pinnacle Note holders. I asked MS people why they didn't tell us the hot lines which can address our concerns. They should understand how flucstrated their holders are facing now, but they just to say they are waiting for us to find these hotlines. Is it make sense? If they did not publish it or inform their distributors the hot lines but wait the investors to find it by ourselves. What kind of service it is?
The hotlines for Pinnacle Note holders are : 68346510/68346512, and it only open from 9:00am to 12:00am.
A desperated investor
Tuesday, November 11, 2008
Accountabiliy, transparency and social justice
Mr. Goh Chok Tong gave the keynote address at the Asia Society Hong Kong Center's annual dinner. He listed four main attributes of a political system to enable a country to flourish:
1. accountability and transparency
2. long term planning and execution
3. social justice and harmony
4. a culture of identifying and glooming talent for public service.
Accountability and transparency
I wish to reflect on whether MAS has acted with accountability and transparency in the handling of the credit linked notes. I submitted three petitions to MAS signed by 2,300 people. I request for a meeting to discuss these petitions. They were declined.
MAS said that they cannot meet with representative groups. But I suspect that they must have met with the representatives of the financial institutions.
I do not know how MAS can find a solution without listening to the views of the many thousand of people who have lost their hard earned savings.
Social justice
10,000 people have lost their hard earned or lifetime savings. A small percentage of people identified as "vulnerable" are being compensated. The remainder are left to deal on their own, on a case by case basis, against the large financial institutions. These institutions have the moral support of our leaders who labelled the investors as "greedy" and invested "with their eyes open".
I wonder if this can be called social justice?
Your views
What are your views?
1. accountability and transparency
2. long term planning and execution
3. social justice and harmony
4. a culture of identifying and glooming talent for public service.
Accountability and transparency
I wish to reflect on whether MAS has acted with accountability and transparency in the handling of the credit linked notes. I submitted three petitions to MAS signed by 2,300 people. I request for a meeting to discuss these petitions. They were declined.
MAS said that they cannot meet with representative groups. But I suspect that they must have met with the representatives of the financial institutions.
I do not know how MAS can find a solution without listening to the views of the many thousand of people who have lost their hard earned savings.
Social justice
10,000 people have lost their hard earned or lifetime savings. A small percentage of people identified as "vulnerable" are being compensated. The remainder are left to deal on their own, on a case by case basis, against the large financial institutions. These institutions have the moral support of our leaders who labelled the investors as "greedy" and invested "with their eyes open".
I wonder if this can be called social justice?
Your views
What are your views?
Reply from MAS on the 3 petitions
Dear Mr Tan,
I refer to your emails dated 7 November and 10 November to MAS, and your email to the Prime Minister dated 10 November.
MAS understands the anxiety that investors in structured notes are feeling. We have devoted substantial resources to looking into the issues, with teams of officers working on formal inquiries as well as on ensuring that there is a fair, serious and impartial resolution process for affected investors. Independent persons have also been appointed.
MAS takes feedback seriously, and reviews all feedback received. In deciding on the courses of action, we are guided by our regulatory approach and assessment of the situation. As MAS has to be fair and transparent to everyone, MAS has to communicate to all investors at the same time through public press statements. You would appreciate that MAS therefore cannot reply to particular groups of individuals or individuals writing to MAS on our intended course of action.
Our approach and our advice to investors are set out clearly in the various public comments and press statements. You may wish to refer to our earlier press statements dated 22 September, 10 October, 17 October and 20 October. We will continue to communicate with investors through public press statements when appropriate.
Dr. Andrew Khoo
REPLY
Dear Dr. Andrew Khoo
Can you indicate where your press statements can be located, and if they have addressed the points contained in the three petitions that were signed by a total of more than 2,300 people. If there are outstanding points that have not been addressed, can you reply if they will be specifically covered in future press releases?
The mode of communication adopted by MAS has added to the concern and anxiety of several thousand people. I suggest that MAS review its approach and be ready to engage in a dialogue with representative groups of the investors.
I refer to your emails dated 7 November and 10 November to MAS, and your email to the Prime Minister dated 10 November.
MAS understands the anxiety that investors in structured notes are feeling. We have devoted substantial resources to looking into the issues, with teams of officers working on formal inquiries as well as on ensuring that there is a fair, serious and impartial resolution process for affected investors. Independent persons have also been appointed.
MAS takes feedback seriously, and reviews all feedback received. In deciding on the courses of action, we are guided by our regulatory approach and assessment of the situation. As MAS has to be fair and transparent to everyone, MAS has to communicate to all investors at the same time through public press statements. You would appreciate that MAS therefore cannot reply to particular groups of individuals or individuals writing to MAS on our intended course of action.
Our approach and our advice to investors are set out clearly in the various public comments and press statements. You may wish to refer to our earlier press statements dated 22 September, 10 October, 17 October and 20 October. We will continue to communicate with investors through public press statements when appropriate.
Dr. Andrew Khoo
REPLY
Dear Dr. Andrew Khoo
Can you indicate where your press statements can be located, and if they have addressed the points contained in the three petitions that were signed by a total of more than 2,300 people. If there are outstanding points that have not been addressed, can you reply if they will be specifically covered in future press releases?
The mode of communication adopted by MAS has added to the concern and anxiety of several thousand people. I suggest that MAS review its approach and be ready to engage in a dialogue with representative groups of the investors.
Letter to Prime Minister on Credit Linked Notes
10 November 2008
Mr. Lee Hsien Loong
Prime Minister
Republic of Singapore
Dear Prime Minister
1. I appeal to you to look into the plight and financial losses suffered by about 10,000 investors from the Mini-bonds, High notes, Pinnacle Notes, Jubilee Notes and other credit-linked notes that have been sold to them by the financial institutions.
2. This appeal is made in accordance with the following statements made by you as chairman of the Monetary Authority of Singapore at a staff seminar held on 29 October 2002 on the topic of “Market Discipline and Caveat Emptor”:
QUOTE
22. Our efforts to promote market discipline and a caveat emptor regime have focussed on enhancing the amount, quality and timeliness of information disclosed by institutions. We have shifted from a merit-based supervisory approach to a disclosure-based approach that emphasises market discipline to incentivise financial institutions to conduct their business in a sound, efficient, and professional manner. The local banks in particular have significantly improved their disclosure practices.
23. We must continue to update our disclosure standards in line with industry developments and international best practice. Furthermore, the mindset change is not yet complete. The public still expects to be protected from downside risks, for example when playing the stock market, but more so when depositing their money in banks. Hence one major motivation for introducing deposit insurance is to change this mindset, and get people to understand that only a limited first tranche of their deposits with a bank is protected should the bank run into trouble.
24. But disclosure by itself is not enough. It must be accompanied by investor education. Investors have to understand and use the information provided to them. They must learn to make sense of this information and use it to look after their own interests. We also need a pool of knowledgeable analysts and journalists who will shine the spotlight on any obscure fine print that the lay investor fails to notice. A more informed and sophisticated investor base will reinforce market discipline and form the basis for a more vibrant and mature financial sector. In all these respects, we have a long way to go.
25. Market discipline also requires an effective enforcement regime. To preserve investor confidence, penalties for transgressions must be swift and appropriate. MAS now has the power to investigate and bring a court action for market misconduct under the new civil penalty regime. This will complement the existing criminal penalty regime administered by CAD.”
UNQUOTE
3. On 10 October 2008, I submitted a Petition signed by 983 people addressed to the Singapore Government. It was handed over to Dr. Andrew Khoo, Executive Director of the Monetary Authority of Singapore, who received it on behalf of the chairman, Mr. Goh Chok Tong. This Petition said:
QUOTE
We, the undersigned, write to petition the Singapore Government, particularly the
Commercial Affairs Department (Singapore Police Force) and/or the Monetary
Authority of Singapore, to conduct a full and independent inquiry in relation to the
credit linked securities sold by various financial institutions in Singapore. These
structured products include the Lehman Minibonds, DBS High Notes, Morgan
Stanley Pinnacle Notes and Merrill Lynch Jubilee Notes.
Singaporeans, including the persons who have signed this petition, lost their hard-
earned savings by investing in these financial products. Such products clearly did not suit the risk profiles of these consumers. The consumers were not made aware of the high risks involved in the financial product when buying the product. They became innocent victims of misrepresentation by the financial institutions that distributed the structured products.
We now wish to be assured that those who invested in such financial products have
not been victims of negligent and/or dishonest conduct and/or fraud by these financial institutions.
The Government has a duty to ensure that investment products are marketed and sold
appropriately in our jurisdiction. Such products must be sold in a manner compliant
with the laws of Singapore. Financial institutions, including their respective key
management, that do not follow the laws or regulations applicable to them must be
held accountable for such breaches.
Please commence a full and independent inquiry into the sale of structured products
by various financial institutions in Singapore. If the inquiry deems necessary, the
Attorney-General of Singapore should act against these financial institutions.
We also ask the Government to help these investors to claim fair and adequate
compensation from these financial institutions for their losses which are caused by the misconduct of these financial institutions.
We ask the Government to act now and restore the peoples' faith in our financial
System.
UNQUOTE
4. In a supporting letter to the Monetary Authority of Singapore, I have mentioned some of the possible areas where the laws of Singapore might have been breached. They are set out in annex 1.
5. I have received an acknowledgement from MAS of the Petition. Nearly one month has passed. I have not heard from MAS if they intend to act on the requests contained in the Petition, namely to commence a full and independent inquiry into the sale of structured products by various financial institutions in Singapore and, if the inquiry deems necessary, to act against these financial institutions.
6. I appeal to you, Prime Minister, to ask the MAS to act more swiftly and appropriately, in line with this vision:
QUOTE
Market discipline also requires an effective enforcement regime. To preserve investor confidence, penalties for transgressions must be swift and appropriate. MAS now has the power to investigate and bring a court action for market misconduct under the new civil penalty regime. This will complement the existing criminal penalty regime administered by CAD.”
UNQUOTE
7. Annex 2 contains an article written from the perspective of an investor.
8. Thank you.
Tan Kin Lian
RESPONSE FROM MAS
MAS has replied to my letter to the Prime Minister. They said that MAS will give its reply in press statements. They are not able to talk to any individual investor or group of investors.
Mr. Lee Hsien Loong
Prime Minister
Republic of Singapore
Dear Prime Minister
1. I appeal to you to look into the plight and financial losses suffered by about 10,000 investors from the Mini-bonds, High notes, Pinnacle Notes, Jubilee Notes and other credit-linked notes that have been sold to them by the financial institutions.
2. This appeal is made in accordance with the following statements made by you as chairman of the Monetary Authority of Singapore at a staff seminar held on 29 October 2002 on the topic of “Market Discipline and Caveat Emptor”:
QUOTE
22. Our efforts to promote market discipline and a caveat emptor regime have focussed on enhancing the amount, quality and timeliness of information disclosed by institutions. We have shifted from a merit-based supervisory approach to a disclosure-based approach that emphasises market discipline to incentivise financial institutions to conduct their business in a sound, efficient, and professional manner. The local banks in particular have significantly improved their disclosure practices.
23. We must continue to update our disclosure standards in line with industry developments and international best practice. Furthermore, the mindset change is not yet complete. The public still expects to be protected from downside risks, for example when playing the stock market, but more so when depositing their money in banks. Hence one major motivation for introducing deposit insurance is to change this mindset, and get people to understand that only a limited first tranche of their deposits with a bank is protected should the bank run into trouble.
24. But disclosure by itself is not enough. It must be accompanied by investor education. Investors have to understand and use the information provided to them. They must learn to make sense of this information and use it to look after their own interests. We also need a pool of knowledgeable analysts and journalists who will shine the spotlight on any obscure fine print that the lay investor fails to notice. A more informed and sophisticated investor base will reinforce market discipline and form the basis for a more vibrant and mature financial sector. In all these respects, we have a long way to go.
25. Market discipline also requires an effective enforcement regime. To preserve investor confidence, penalties for transgressions must be swift and appropriate. MAS now has the power to investigate and bring a court action for market misconduct under the new civil penalty regime. This will complement the existing criminal penalty regime administered by CAD.”
UNQUOTE
3. On 10 October 2008, I submitted a Petition signed by 983 people addressed to the Singapore Government. It was handed over to Dr. Andrew Khoo, Executive Director of the Monetary Authority of Singapore, who received it on behalf of the chairman, Mr. Goh Chok Tong. This Petition said:
QUOTE
We, the undersigned, write to petition the Singapore Government, particularly the
Commercial Affairs Department (Singapore Police Force) and/or the Monetary
Authority of Singapore, to conduct a full and independent inquiry in relation to the
credit linked securities sold by various financial institutions in Singapore. These
structured products include the Lehman Minibonds, DBS High Notes, Morgan
Stanley Pinnacle Notes and Merrill Lynch Jubilee Notes.
Singaporeans, including the persons who have signed this petition, lost their hard-
earned savings by investing in these financial products. Such products clearly did not suit the risk profiles of these consumers. The consumers were not made aware of the high risks involved in the financial product when buying the product. They became innocent victims of misrepresentation by the financial institutions that distributed the structured products.
We now wish to be assured that those who invested in such financial products have
not been victims of negligent and/or dishonest conduct and/or fraud by these financial institutions.
The Government has a duty to ensure that investment products are marketed and sold
appropriately in our jurisdiction. Such products must be sold in a manner compliant
with the laws of Singapore. Financial institutions, including their respective key
management, that do not follow the laws or regulations applicable to them must be
held accountable for such breaches.
Please commence a full and independent inquiry into the sale of structured products
by various financial institutions in Singapore. If the inquiry deems necessary, the
Attorney-General of Singapore should act against these financial institutions.
We also ask the Government to help these investors to claim fair and adequate
compensation from these financial institutions for their losses which are caused by the misconduct of these financial institutions.
We ask the Government to act now and restore the peoples' faith in our financial
System.
UNQUOTE
4. In a supporting letter to the Monetary Authority of Singapore, I have mentioned some of the possible areas where the laws of Singapore might have been breached. They are set out in annex 1.
5. I have received an acknowledgement from MAS of the Petition. Nearly one month has passed. I have not heard from MAS if they intend to act on the requests contained in the Petition, namely to commence a full and independent inquiry into the sale of structured products by various financial institutions in Singapore and, if the inquiry deems necessary, to act against these financial institutions.
6. I appeal to you, Prime Minister, to ask the MAS to act more swiftly and appropriately, in line with this vision:
QUOTE
Market discipline also requires an effective enforcement regime. To preserve investor confidence, penalties for transgressions must be swift and appropriate. MAS now has the power to investigate and bring a court action for market misconduct under the new civil penalty regime. This will complement the existing criminal penalty regime administered by CAD.”
UNQUOTE
7. Annex 2 contains an article written from the perspective of an investor.
8. Thank you.
Tan Kin Lian
RESPONSE FROM MAS
MAS has replied to my letter to the Prime Minister. They said that MAS will give its reply in press statements. They are not able to talk to any individual investor or group of investors.
Speaker's Corner - 15 November 2008
I will be speaking at Speaker's Corner on Saturday 15 November at 5 p.m. I will give an update about the three petitions that have been lodged with the Monetary Authority of Singapore and also give a response to the remark by a Government leader that the investors went in with their "eyes open". Mr. Goh Meng Seng will translate my speech into Chinese.
I like to ask the investors to bring your family and friends to attend this meeting, so that we can have a larger crowd than before.
I like to ask the investors to bring your family and friends to attend this meeting, so that we can have a larger crowd than before.
Sunday Times article on Petitions
Tan Dawn Wei of the Sunday Times asked the following questions about the use of petitions in Singapore. My reply to the journalist is set out below. She only used some replies that are more suitable for her purpose.
1. Why did you choose to use petitions to call for action?
Reply: I used the online petition as a convenient way to gather the signatures of the people who are affected by the credit linked notes to ask the Government to take the appropriate actions. I hope that a large number of signatures will make a difference in getting the Government to be aware about the strong support for the proposed actions. This is in contrast to writing a letter to be newspaper, as the letter reflects the view of one person, and is likely to be ignored. The letter may not be printed by the newspaper due to lack of space.
Another way to express the strong views is to organise a protest rally or demonstration. However, it is illegal in Singapore to organise such an activity without a police permit. It takes a lot of trouble to get a police permit and the applicaiton is likely to be rejected. It take a lot of effort to organise a rally anyway.
2. Did you think it would be the most effective method to push for action and that the authorities would take heed, given petitions have not typically figured in the Government's decision-making process?
Reply: It is disappointing that the Government ignore petitions that have been signed by a large number of people. I think that it is not proper for the recipient of a petition to behave in this manner, as this reflects arrogance. At the very least, the recipient should meet with the represenatives of the signatories to have a dialogue and discussion.
I am not deterred by the negative response. I will continue to gather signatures for future petitions to ask the Government to do "the right thing". The Government should realise that people in Singapore are generally afraid to sign a petition as they do not wish to be seen to be disagreeing with the Government on its decision. For the signatories to muster the courage to sign the petition and provide their name and other particulars (such as NRIC, address or contact number), it must reflect a strong grievance that should be addressed.
3. Do you think the petitions you initiated had any bearing on the decisions made by MAS?
Reply: I have not received any communication from the MAS on the three petitions that have been lodged with them. They also do not wish to meet with me to discuss the petitions or to seek clarification. I suspect that these petitions have also been ignored.
4. What do you think the seemingly increasing number of petitions (eg. Serangoon Gardens, repeal 377A) we're seeing says about the Singapore psyche?
Reply: It reflects that people feel strongly on several issues and the existing channels to express these views are not effective. The internet allows them to communicate and reach out to other people who feel strongly about these issues, so that they can get together to express their collective views. It reflects the power of the internet as a new medium for the affected people to come together to express their grievances and to seek solutions.
1. Why did you choose to use petitions to call for action?
Reply: I used the online petition as a convenient way to gather the signatures of the people who are affected by the credit linked notes to ask the Government to take the appropriate actions. I hope that a large number of signatures will make a difference in getting the Government to be aware about the strong support for the proposed actions. This is in contrast to writing a letter to be newspaper, as the letter reflects the view of one person, and is likely to be ignored. The letter may not be printed by the newspaper due to lack of space.
Another way to express the strong views is to organise a protest rally or demonstration. However, it is illegal in Singapore to organise such an activity without a police permit. It takes a lot of trouble to get a police permit and the applicaiton is likely to be rejected. It take a lot of effort to organise a rally anyway.
2. Did you think it would be the most effective method to push for action and that the authorities would take heed, given petitions have not typically figured in the Government's decision-making process?
Reply: It is disappointing that the Government ignore petitions that have been signed by a large number of people. I think that it is not proper for the recipient of a petition to behave in this manner, as this reflects arrogance. At the very least, the recipient should meet with the represenatives of the signatories to have a dialogue and discussion.
I am not deterred by the negative response. I will continue to gather signatures for future petitions to ask the Government to do "the right thing". The Government should realise that people in Singapore are generally afraid to sign a petition as they do not wish to be seen to be disagreeing with the Government on its decision. For the signatories to muster the courage to sign the petition and provide their name and other particulars (such as NRIC, address or contact number), it must reflect a strong grievance that should be addressed.
3. Do you think the petitions you initiated had any bearing on the decisions made by MAS?
Reply: I have not received any communication from the MAS on the three petitions that have been lodged with them. They also do not wish to meet with me to discuss the petitions or to seek clarification. I suspect that these petitions have also been ignored.
4. What do you think the seemingly increasing number of petitions (eg. Serangoon Gardens, repeal 377A) we're seeing says about the Singapore psyche?
Reply: It reflects that people feel strongly on several issues and the existing channels to express these views are not effective. The internet allows them to communicate and reach out to other people who feel strongly about these issues, so that they can get together to express their collective views. It reflects the power of the internet as a new medium for the affected people to come together to express their grievances and to seek solutions.
Call to the Government to be fair to the affected persons
Dear Mr. Tan,
I am writing to commend you, as many before me had, for the care and bravery you have displayed in giving a much-needed helping hand and direction to thousands of aggrieved investors. I personally have not invested in these investments but unfortunately my homemaker wife have in the above said notes. To be honest, we cannot be said to be in the vulnerable category as defined by the FIs. But neither are we high risk investors, never going beyond stocks, shares and properties.
We take responsibilty for a lapse of care and caution in not fully realising the extent of the risks and toxidity of these notes, partly because the returns do not commensurate these. We also were lulled into comfort of its officialdom and apparent similarity in process to the equity market by the fact that CDP is the official custodian for these notes.
We regretted for not receiving or asking for a risk review by the distributors or a copy of the Prospectus before we signed up for the purchase. For sure the implication of the most damaging and hitherto unfamiliar term of "first-to-default" credit event, in the nature of a total loss on the weakest link, was lost in us and had this been emphasised to us, I am quite certain that the risk-return will not be accepatble to me.
Under this situation, I had not lodged a complaint to the the FI or signed any petition, as I could not with clear conscience alleged no-responsibilty on my part. But I have been following closely what's going on through your website in particular.
I believe there are many aggrieved investors in a similar position as mine. Having absorbed all the comments and opinions by investors, MAS and the senior-level ministers (including the damning comments by MM), the first strong impression is that our authorities is taking us to task on the grounds that we signed the sales documents on our own will and "caveat emptor" applies. Case closed as far as our ministers are concerned.
By doing this, MAS and the authorities are without solid evidence taking sides, in the favour of the FIs. This is unaccepatble coming from a supposedly popularly-elected govt who should a fiduciary responsibilty for the care of its people.
In fact this riles me and spurs me now not to want to call it quits. Why? I don't expect the government to provide financial subsidy for our losses nor to take the sides with the investors just because they are citizens. If we have made a wrong and bad investment decision, we take what comes with it. But it doesn't absolve the FIs from any wrongs they might have committed. Then the most decent thing we should expect from our govt is to embark on an independent investigation to verify if there have been any wrongdoings by the FIs.
We the investors are not in the position in technical and financial capability and authority to conduct this on our own if we deal with the FIs on case by csae basis.
In this respect, an investigation should be addressed at the least the following:
1) design, structure, pricing and comission /fee income of these products,
2) the ill intent and motive of the originators in introducing these products, especially whether there is ill or even fraudulent intent in scheming to lay off to the unknowing public risks embedded in substantially subprime exposures which could be anticipated by the originators to deteriorate in credit quality in short time after the sales
3) the callousness and carelessness of the distributors in the marketing and selling of such complex and risky products to retail investors, and the use of unqualified and poorly trained sales staff to engage in mass selling on a brochure-based mode. A test is whether if the sales staff were in fact well equipped to counsel intending investors adequately on the complexities and high risk nature of the products.
4) whether the marketing brochure was designed with an intent to mislead the investing public on a "No Ask No Tell" approach and focuses on better returns and the strong rating of the reference companies while downplaying on the real toxidities.
Now if an investigation indeed reveals negative revelations against these FIs, then they ought to be taken to task, fined and penalised to compensate investors, as had happened in othe jurisdictions. As you had said before, sharing (rather than taking full) responsibilty and pain with the investors will be satisfying to most investors.
I wonder if you think you will re-focus or redirect the petitioning along this line and if so whether you will talk about it at this Saturday's session at the Speakers Corner.
If you wish to develop this approach further and want me to contact you, please let me know by return email.
SB
REPLY
The first Petition sent in early October asked the Government to carry out an independent investigation into the possible wrong doings by the financial institutions that created or marketed these credit linked securities, and to take the appropriate action against these financial institutions, including seeking fair compensation for the losses suffered by the affected persons.
I have been disappointed by the lack of information from the Government on this matter, although they appear to be taking some action on behalf of the "vulnerable" investors. The other investors are left to fend on their own to face the financial institutions who are now emboldened by the remarks by our Government leaders.
I am writing to commend you, as many before me had, for the care and bravery you have displayed in giving a much-needed helping hand and direction to thousands of aggrieved investors. I personally have not invested in these investments but unfortunately my homemaker wife have in the above said notes. To be honest, we cannot be said to be in the vulnerable category as defined by the FIs. But neither are we high risk investors, never going beyond stocks, shares and properties.
We take responsibilty for a lapse of care and caution in not fully realising the extent of the risks and toxidity of these notes, partly because the returns do not commensurate these. We also were lulled into comfort of its officialdom and apparent similarity in process to the equity market by the fact that CDP is the official custodian for these notes.
We regretted for not receiving or asking for a risk review by the distributors or a copy of the Prospectus before we signed up for the purchase. For sure the implication of the most damaging and hitherto unfamiliar term of "first-to-default" credit event, in the nature of a total loss on the weakest link, was lost in us and had this been emphasised to us, I am quite certain that the risk-return will not be accepatble to me.
Under this situation, I had not lodged a complaint to the the FI or signed any petition, as I could not with clear conscience alleged no-responsibilty on my part. But I have been following closely what's going on through your website in particular.
I believe there are many aggrieved investors in a similar position as mine. Having absorbed all the comments and opinions by investors, MAS and the senior-level ministers (including the damning comments by MM), the first strong impression is that our authorities is taking us to task on the grounds that we signed the sales documents on our own will and "caveat emptor" applies. Case closed as far as our ministers are concerned.
By doing this, MAS and the authorities are without solid evidence taking sides, in the favour of the FIs. This is unaccepatble coming from a supposedly popularly-elected govt who should a fiduciary responsibilty for the care of its people.
In fact this riles me and spurs me now not to want to call it quits. Why? I don't expect the government to provide financial subsidy for our losses nor to take the sides with the investors just because they are citizens. If we have made a wrong and bad investment decision, we take what comes with it. But it doesn't absolve the FIs from any wrongs they might have committed. Then the most decent thing we should expect from our govt is to embark on an independent investigation to verify if there have been any wrongdoings by the FIs.
We the investors are not in the position in technical and financial capability and authority to conduct this on our own if we deal with the FIs on case by csae basis.
In this respect, an investigation should be addressed at the least the following:
1) design, structure, pricing and comission /fee income of these products,
2) the ill intent and motive of the originators in introducing these products, especially whether there is ill or even fraudulent intent in scheming to lay off to the unknowing public risks embedded in substantially subprime exposures which could be anticipated by the originators to deteriorate in credit quality in short time after the sales
3) the callousness and carelessness of the distributors in the marketing and selling of such complex and risky products to retail investors, and the use of unqualified and poorly trained sales staff to engage in mass selling on a brochure-based mode. A test is whether if the sales staff were in fact well equipped to counsel intending investors adequately on the complexities and high risk nature of the products.
4) whether the marketing brochure was designed with an intent to mislead the investing public on a "No Ask No Tell" approach and focuses on better returns and the strong rating of the reference companies while downplaying on the real toxidities.
Now if an investigation indeed reveals negative revelations against these FIs, then they ought to be taken to task, fined and penalised to compensate investors, as had happened in othe jurisdictions. As you had said before, sharing (rather than taking full) responsibilty and pain with the investors will be satisfying to most investors.
I wonder if you think you will re-focus or redirect the petitioning along this line and if so whether you will talk about it at this Saturday's session at the Speakers Corner.
If you wish to develop this approach further and want me to contact you, please let me know by return email.
SB
REPLY
The first Petition sent in early October asked the Government to carry out an independent investigation into the possible wrong doings by the financial institutions that created or marketed these credit linked securities, and to take the appropriate action against these financial institutions, including seeking fair compensation for the losses suffered by the affected persons.
I have been disappointed by the lack of information from the Government on this matter, although they appear to be taking some action on behalf of the "vulnerable" investors. The other investors are left to fend on their own to face the financial institutions who are now emboldened by the remarks by our Government leaders.
Business Times: Look at pricing structure, risk disclosure too
11 Nov 2008
By OH BOON PING
LAST month, DBS Bank agreed to return up to $80 million to investors who were mis-sold the DBS High Notes 5 series - a welcome move by many. But as the saga continues, public attention should be paid not just to the way products were mis-sold, but also the pricing structure and risk disclosures involved.
To recap, the note is a 5.5 year credit-linked series that pays 5 per cent annual premium on the Singdollar tranche with an underlying 'default' basket of eight securities including the now collapsed Lehman Brothers. If either of the reference entities undergoes a credit event - such as bankruptcy, this means that investors who bought the notes will receive only the net market value of only the underlying securities tied to the defaulting entity.
In a sense, they have become insurers against the total credit risks of the underlying basket in exchange for 5 per cent premium each year on the Singdollar tranche.
And this raises the question: is the interest payment fair given the types of risks involved? Indeed, if we assume that the chances of entities hitting a 'credit' event are mutually independent and equal, this means that investors are paid 5 per cent annually to insure against a total credit risk that is eight times that of one reference entity - scant compensation by any measure.
Yes, all the entities had strong ratings of between BBB+ and AA- when the notes were structured, and the issuer can point to those ratings as evidence that a low interest payout is fair.
Identical insurance
However, it is conceivable that the long counterparty may have to cough out a lot more in premiums if he had bought an identical insurance from general insurance firms with diversified portfolios of insurance assets.
A second issue concerns the level of professionalism among the relationship managers. Not only was product structure not properly explained to some investors, but the investments were sometimes sold to clients who did not have the risk appetite for them.
This is clear from the several cases of mis-selling, where High Notes 5 were sold to 'low-risk tolerance' investors who should not have bought the product in the first place.
In some cases, even the relationship managers did not understand the products but continued to market them to clients, according to some reports.
This is a serious breach of professional conduct since industry best practices dictate that those providing client advisory services have a duty of ensuring that only suitable investment products are recommended to clients, and related information should be transmitted accurately.
What the episode illustrates is that financial advisory standards still leave much to be desired among some local banks and brokers.
A third issue relates to the disclosure of market information on those structured products. Unlike stocks, structured products are not openly traded in a liquid secondary market and investors have no means of getting the latest market data or information except by calling their relationship managers.
The result? Investors have no means of making timely investment decisions, and this may hurt them in volatile market conditions like now.
For example, a check on the Bloomberg showed that spreads on Lehman's five-year senior credit default swap in US dollars had risen rapidly to a few hundred basis points in recent months, while credit spreads widened steadily over the same horizon.
Amending the rules
However, as most investors did not have access to such information, they may end up holding on to a depreciating asset instead of cutting losses.
Therefore, financial regulators may wish to consider amending the rules to require issuers to release such vital market information.
Already, the push for more disclosure in gaining momentum elsewhere, like when the Depository Trust & Clearing Corp said it will now release weekly credit-default-swap data, and similar moves should also be made in Singapore.
Institutional issuers have a duty of ensuring greater transparency, as individual investors deserve no less.
By OH BOON PING
LAST month, DBS Bank agreed to return up to $80 million to investors who were mis-sold the DBS High Notes 5 series - a welcome move by many. But as the saga continues, public attention should be paid not just to the way products were mis-sold, but also the pricing structure and risk disclosures involved.
To recap, the note is a 5.5 year credit-linked series that pays 5 per cent annual premium on the Singdollar tranche with an underlying 'default' basket of eight securities including the now collapsed Lehman Brothers. If either of the reference entities undergoes a credit event - such as bankruptcy, this means that investors who bought the notes will receive only the net market value of only the underlying securities tied to the defaulting entity.
In a sense, they have become insurers against the total credit risks of the underlying basket in exchange for 5 per cent premium each year on the Singdollar tranche.
And this raises the question: is the interest payment fair given the types of risks involved? Indeed, if we assume that the chances of entities hitting a 'credit' event are mutually independent and equal, this means that investors are paid 5 per cent annually to insure against a total credit risk that is eight times that of one reference entity - scant compensation by any measure.
Yes, all the entities had strong ratings of between BBB+ and AA- when the notes were structured, and the issuer can point to those ratings as evidence that a low interest payout is fair.
Identical insurance
However, it is conceivable that the long counterparty may have to cough out a lot more in premiums if he had bought an identical insurance from general insurance firms with diversified portfolios of insurance assets.
A second issue concerns the level of professionalism among the relationship managers. Not only was product structure not properly explained to some investors, but the investments were sometimes sold to clients who did not have the risk appetite for them.
This is clear from the several cases of mis-selling, where High Notes 5 were sold to 'low-risk tolerance' investors who should not have bought the product in the first place.
In some cases, even the relationship managers did not understand the products but continued to market them to clients, according to some reports.
This is a serious breach of professional conduct since industry best practices dictate that those providing client advisory services have a duty of ensuring that only suitable investment products are recommended to clients, and related information should be transmitted accurately.
What the episode illustrates is that financial advisory standards still leave much to be desired among some local banks and brokers.
A third issue relates to the disclosure of market information on those structured products. Unlike stocks, structured products are not openly traded in a liquid secondary market and investors have no means of getting the latest market data or information except by calling their relationship managers.
The result? Investors have no means of making timely investment decisions, and this may hurt them in volatile market conditions like now.
For example, a check on the Bloomberg showed that spreads on Lehman's five-year senior credit default swap in US dollars had risen rapidly to a few hundred basis points in recent months, while credit spreads widened steadily over the same horizon.
Amending the rules
However, as most investors did not have access to such information, they may end up holding on to a depreciating asset instead of cutting losses.
Therefore, financial regulators may wish to consider amending the rules to require issuers to release such vital market information.
Already, the push for more disclosure in gaining momentum elsewhere, like when the Depository Trust & Clearing Corp said it will now release weekly credit-default-swap data, and similar moves should also be made in Singapore.
Institutional issuers have a duty of ensuring greater transparency, as individual investors deserve no less.
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