Lehman Minibond Series 6 解读迷债系列6

解读迷债系列6，
因为系列6是2003－2004两年间提供最高利息的迷债系列（跟系列5 或系列7－10相比），却是销售量最低的系列（低于5百万美金），其表面挂钩公司也跟其它系列不同：跟多达150个公司信贷挂钩。

Series 6 was issued in Sep.2003, and matured in Sep.2005, but was extended (by issuer) to Mar.2009.

Why Series 6?

It would be interesting to learn how the early Minibond Series was introduced. For Series 6, there was only a "PROSPECTUS". For Series 10 and later, Program Prospectus and Issue Prospectus are offered.

Because Series 6 showed us how Minibond's upfront facade / marketing selling point had been evolved over years, It also showed us how the disclosure level of Underlying Securities related information had gone from LESS to the LEAST, while the prospectus was expanded into Program Prospectus and Issue Prospectus . Similar reduction in disclosure is also observed in the DBS Constellation Notes, if one compares the much polished prospectus for Constellation Series 59 versus the Constellation Series 34-37. The Prospectus for Minibond Series 6 also showed us what banks knew at the early stage about the true features and material risks of Minibond.

Summary of Minibond Series 6.
1. Maturity Term.
Series 6 was issued in Sep.2003, with initial Maturity date in Sep.2005.
Upon maturity, the issuer has the right to extend the maturity date to Mar.2009.

2. It is credit-linked to 150 reference companies ("referecne portfolio") .
The Prospectus listed the 150 reference companies name, and their rating.

3. Prospectus listed the impact to the interest-rate with the number of default event of the 150 reference entities.
- For Sep.2003 - Sep.2005:
0 default => Minibond (Series 6)'s Interest Rate is 5%:
1 default => Minibond (Series 6)'s Interest Rate is 4.15%: ........
5 default => Minibond (Series 6)'s Interest Rate is 0.80%:
6 or more default => Minibond (Series 6)'s Interest Rate is 0:

- For extended Sep.2005 - Mar.2009:
0 default => Minibond (Series 6)'s Interest Rate is 8 %:
1 default => Minibond (Series 6)'s Interest Rate is 6.65%: ........
5 default => Minibond (Series 6)'s Interest Rate is 1.30%:
6 or more default => Minibond (Series 6)'s Interest Rate is 0:


4. Where did the Minibond Money go?
According to Prospectus, it would be used on purchasing "Underlying Securities" with maturity date at Mar.2009.
The Underlying Securities in fact was another structured products.
My Comments:
Prospectus did not use the term 'collateral', the document used 'Underlying Securities'.

5. It claimed to be principal protected. but it also said that if something happened to the Underlying Securities, the principal will be at loss (or total loss).

6. Procedures and Information related to the 'underlying securities' in the Prospectus.

(a) page 53: "APPLICATION PROCEDURES"
(...)
Relevant Dealers will inform prospective investors that copies of the documents listed under paragraph 10 in the section headed "General Information" are available for inspection at the office of the Arranger specified herein ."

(b) in Page 95, "General Information" ,
"10. (...) copies of the following documents will be available .....and the Initial Dealers " (i.e. the distributing banks).

(c) page 96: "(xii): Information Memorandum and all other relevant programme documentation relating to the Underlying Securities Issuer's US $18,000,000,000 EUR Medium-Term Notes Program guaranteed (...)"

(d) page 96: "(xiii) Pricing Supplement relating to the Underlying Securities which supplements the master terms and conditions of the Underlying Securrities set out in the Information Memorandum referered to in (xii) above to form the terms and conditiosn of the Underlying Securities"

My comment:
- The "(xiii)" , i.e. (d) above, refers to the crucial Underlying Securities information document.
- The Underlying Securities Information Documents were available at selling agent (distributor banks) office.
- The "APPLICATION PROCEDDURE" and "General Information" were in fact requiring selling-agent /distributors
(i) to inform clients/potential minibond-buyers all the document information including Underlying Securities Information Document,
(ii) to let clients/potential minibond-buyers inspect all the document information including Underlying Securities Information Document, at selling-agent's office (i.e. at banks if the distributor is a bank). => Both Program Prospectus and Issue Prospectus for later Minibond Series never invited clients to inspect such information/documents at selling agents / distributors office any more.
- Similar requirements for inviting clients to inspect the Underlying Securities Information Documents were also found in the prospectus of Constellation Series 34-37 (in the name of "Charged Asset Information" ), but NOT in the prospectus of Constellation Series 59.

- Did selling agents/distributors inform and give clients Underlying Securities Information Document?
- Did selling agents/distributors read through Underlying Securities Information Document which were available at their site?
* What did they learn about the Underlying Securities' true feature and risks?
* How did the Underlying Securities Information affect Banks' understanding on the Minibond's true features and risks?
* How did the Underlying Securities Information affect Banks' understanding on the Minibond's material risk and material information?
- Is there a connection between such information with the Questions regarding to disclaimers in Wing Hang Bank's Minibond Purchaser Confirmation Form?
Questions: in http://minibondvictim.blogspot.com/2009/08/question-regarding-wing-hang-banks.html


(e) page 96: "Copies of the (...) refered to in (...) (xii), (xiii) and (xiv), will be avialable for inspection as aforesaid with effect from the Issue Date. (...)"

My Comment:
- The Prospectus disclosed that some information (e.g. Underlying Securities Information Document) will be available from the Issue Date, i.e. not available before the Sale-offer closed.
- Similar information on the availability of "Charged Asset Information" (i.e. Underlying Securities equivalent) was also found in the Constellation Series 34-37, but was not found in the prospectus for later Constellation Series (e.g. Constellation Series 59).
- Similar information (disclosure) was dropped forever in the Program Prospectus & Issue Prospectus for Minibond series 10 and later. The Program Prospectus and Issue Prospects never mentioned about the availability of Underlying Securities Information Document.
In the later series (of Minibond and Constellation notes), not only there was no mentioning of the availability of Underlying Securities (collateral) Information document, the well polished Program Prospectus and Issue Prospectus never invited clients to inspect such information/documents at selling-agents/distributors office any more.
WHY?
Because such information did not carry material information and was not relevant material information for understanding the true features and risks of Minibond / Constellation notes ?



7. Distributors of Minibond Series 6:
Dah Sing Bank,
ICBC (Asia),
Mervas Bank,
Shanghai Commercial Bank,
Sun Hung Kai Investment Services Limited,
Wing Hang Bank,
WIng Lung Bank;

8. Sales of Early Minibond Series (based on data from HSBC USA Trustee).
-----------------------------------------------------------------------
Series 5: $10.6 million USD; Reference Entities: 1 ; Interest Rate at 3.8%; Jun.2003- Jul.2010;
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Series 6: $4.75 million USD; Reference Entities: 150 ; Interest Rate at 5% for year 1-2, 8% from 3rd year-maturity, pending on number of default event; Sep.2003 - Mar.2009;
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Series 7A: $15.2 million USD; Reference Entities: 6 ; Interest Rate at 4.2%: Nov.2003 - Dec.2008;
Series 7B: $32 million USD ($250 million HKD); Reference Entities: 6 ; Interest Rate at 4.2%:
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Series 9A: $22 million USD; Reference Entities: 6 ; Interest Rate at 3.7% year 1-3, 4.3% year 4-maturity: Mar.2004 - Sep.2009;
Series 9B: $353 million USD; Reference Entities: 6 ; Interest Rate at 3.5% year 1-3, 4.1% year 4-maturity:
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Series 10: $44.6 million USD; Reference Entities: 7 + Additional 125 undisclosed reference entities hidden in CDO Collateral ; USD Interest Rate at 4.25% year 1-3, 4.75% year 4-maturity: May 2004 - Nov.2009;
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Series 11: $42 million USD; Reference Entities: 1 + Additional 125 undisclosed reference entities hidden in CDO Collateral ; fixed + Libor linked float Interest Rate: Jun.2004 - Jun.2010;
------------------------------------------------------------


My Comment:
- Series 6 was offering a higher interest rate comparing to other series because Series 6 has 150 reference entities at up front.
- Series 6 Sales was the lowest amongst all the Minibond Series.
- Comparing the Interest Rate (and sales results) offered for Series 6 versus Series 10:
Both are credit linked to over 100 reference entities. But Series 6 listed 150 reference entities at up front, Series 10 listed 1 reference entities at up front and addded another 125 reference entities in the never disclosed CDO.




参考1: Series 6 Prospectus:
http://www.sfc.hk/sfcCOPro/EN/displayFileServlet?refno=0550&fname=Minibond%20Series%206_Prospectus_ENG2.pdf

参考2: 從 迷債系列 6 看 雷曼迷你債券騙局手段之 完美完善過程
http://minibondvictim.blogspot.com/2009/09/6_4956.html
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The SFC Lehman Minibond Report and Banks' Responsibility

Here is our comments on the“SFC Lehman Brothers Minibonds Incident Report".

We request Legco Lehman Incident Investigation Committee to investigation issues and questions presented here to SFC officer, Banks and HKMA officer during the committee's investigation.

The key issue with the Minibond is not about if it declared “it is principal protected”. The key issue is about the misrepresentation and omission of the true nature and risk of the so-called “Minibond”. If a person bought a share of HSBC, and later found out that he actually owned an option related to HSBC stock price. Can the seller claim its innocence because the “option document declared that it is not principal protected”?

- (a) The Report failed to identify the fact that many (if not all) Minibond Prospectuses had consistently given misleading information, omitted material risk in the following aspects: credit linked with 7 reference entities or credit linked with 7+MANY (over 100) reference entities; Synthetic CDO criteria and risk;

- (b) The Report failed to identify the fact that banks did not provide minibond buyers with complete information, i.e. banks did not make adequate disclosure of relevant material information about minibond.- (d) The Report faile to identify that Banks’ due diligence was at faulty (to say the least).

- (c) The Report's obversation in Section 16.3.1 and 16.3.2 was inadequate. The The Report's Section 16.4 did not reveal the understanding of banks staff which is one of key issues associated with Minibond Sales.

It is not uncommon for banks to find all the possible loophole even lame excuse to protect their own interest. The Government must try its very best to protect the public's interest, especially when public does not have much legal way to challenge banks. The Government should not join banks in finding all possible loophole and excuses to hide the truth of minibond sales, while in the name of for the best interest of Hong Kong as Financial Center. When banks made mistakes, the damage could be over billions of dollars, the damage could affect possibly tens of thousands family in Hong Kong, the damage would shock people’s trust on banks and affect banks’ image to the world. A thorough investigation on the minibond sales is also to protect the Hong Kong's reputation as a financial center in the long term.

1. A few extract from the Report.
- In the Section “2.2. Regulatory Structure”, it states “2.2.1. (...) disclosure and suitability. The first of these is the responsibility of SFC - to ensure that, based on the information provided by the product issuer, sufficient information is disclosed in the product documentation by the issuer to enable a reasonable person to make an informed decision. “.
Can we assume that ‘a reasonable person’ here refers to persons who are not credit derivative product experts such as 黃元山，迷宗?

- As reported in the news,
“證監會行政總裁韋奕禮表示、證監會角色並非要監察投資產品價格是否穩定、而是要確保所批核之投資產品，有全面市場披露”

- SFC’s William Pearson said “ (……) We are seeing more complicated products come on to the scene, but I think as long as the disclosure is clear, accurate and not misleading, we will be happy to see that carry on”, as in the Asian Structured Products Review 2005, (http://www.pacificprospect.com/downloads/asian_structured_products_review.pdf

2. Minibond Series #19, #21-#23, and #25-#36 have Synthetic CDO as collateral. Some earlier series (#12, #15-#18) probably have Synthetic CDO collateral too.

The Prospectuses Misled on Credit-Linked to 7 Reference Entities

3. The Prospectuses prominently stated that minibond was credit linked with 7 well-known reference entities. A Synthetic CDO consists of CDS with MANY other entities. By choosing Synthetic CDO as minibond collateral, it means that minibond’s value is also decided by the credit risk of its collateral’s portfolio holding. The prospectuses never clearly stated the fact that the Minibond is in fact credit linked with “7 plus MANY Other (undisclosed)” reference entities The prospectuses failed to discloses where the risks truly lie, failed to meet SFC’s “Clear, Accurate, No misleading” requirement.

The Report quoted the declaration of “not principal protected” in “16.3.1”. But the Report failed to notice the fact that the Prospectus (page 9) stated “Are our Notes principal protected? Our Notes are not principal protected: if a credit event happens to any one of the 7 reference entities before the maturity date, you will lose part, and possibly all, of your investment.”. As a consequence, the prospectus successfully let retail clients into believing that to believe that the prominent “Credit linked with 7 reference entities” was the condition for the “not principal protected”. In other words, the minibond’s principal would be protected if there is no credit event happened to the 7 (not “7+MANY OTHER”) reference entities. Responsible banks staff also confirmed the above understanding, either due to their lack of knowledge on the true nature and risk of the minibond, or out of fraudulent intention.


4. The Report quoted “16.3.2. Our Notes are not suitable for everyone…..Before appl ying for any of our Notes, you should consider whether our Notes are sui tabl e for you in light of your own financial circumstances and investment objectives. If you are in any doubt , get independent professional advice.”, in defending the Prospectuses.
However, the Report failed to notice the statement made by the prospectuses in the page 10 of Series #27, Section “Who should buy our Notes? Are they suitable for everyone?” This Section started with “Our Notes are not suitable for everyone” the wile card statement, but followed up with a specific condition:
“Our Notes are only suitable for investors who are: (….)
confident that none of the 7 named reference entities will be affected by a credit event (….)”, to stress the confidence to the 7 reference entities. That is, if if you are confident on the 7 reference entities, the Notes is for you.

This was obviously misleading. A potential Minibond investor would mistakenly think that all the risk of the minibond is from the 7 reference entities.

As a result, many retail clients thought the risk of credit-event of the 7 reference entities could be tolerated, for the long lock up 4-7 years period. But, was the minibond really about “credit-linked to the 7 reference entities”? Was the minibond money invested into any real assets associated with the 7 reference entities?

The Prospectuses Failed to Explain How The Minibond Money Was Invested

5. The Prospectuses never clearly stated the fact that: An investor in the Minibond does not lend money directly or indirectly to the 7 reference entities or any of the undisclosed MANY reference entities that comprised of the minibond synthetic CDO collateral. It only stated “We use the money which you invest in our Notes to buy a package of assets.” (page 19, “What happens to my money? How can Pacific International Finance Limited pay me back?”).
A prospectus must reveal where the money will be invested into and where the interest and repayment of the principal will be coming from. The brand name of minibond and the credit linked to 7 reference entity gave retail clients false illusion that the money would be invested into debt/loans of the reference entities.

When we received call from our bank after Lehman filed for bankruptcy, many of us thought it would not be a big issue because the credit linked company were okay and the 7 companies should be able to pay their interest and repay the principal in the future.

For your information, the Prospectuses listed Definitions on many financial terms, such as “bond”, “loan”, “obligation”, many more on the credit rating and the 7 reference entities credit rating. But it never lists “CDO” / “Synthetic CDO”.

The Prospectuses Failed to Disclose Collateral’s Reference Entities' Criteria

6. A Synthetic CDO collateral is comprised of CDS with totally unknown number of reference entities, usually with the lower-rated tranches bearing more of the risk than the higher-rated tranches. A AAA-rated Synthetic CDO usually consists of tranches with debt at rating category varying from AAA to CCC.

Plenty of credit rating information on the 7 reference entities was disclosed. But there was no credit rating information disclosed on the reference entities that comprised of the synthetic COD of the minibond collateral.

The Prospectuses should be at least able to disclose criteria range or guideline on the criteria for selection of the reference entities. Such disclosure would help readers to assess the average portfolio credit quality and the possibility of default event in the portfolio, e.g.:
-number of reference entities or the number range;
-the portfolio credit rating distribution ratio; e.g. how many /if any entities will be below CCC; how many will be between BBB/BB or below BB-; etc.
-the intended portfolio's industry concentration rate.

The Prospectuses Failed to Disclose the Collateral's Default Event Impact

7. A Synthetic CDO could experience 100% principal loss with less than 5%-10% default event in its portfolio reference entities. The default event impact to the principal loss was never mentioned in the Prospectuses.
There was no mentioning on the impact of default event to related principal loss, e.g. 7th default->100% principal loss, out of 100 reference entities.

The Prospectuses obviously did not provide “sufficient information” as stated in SFC’s report. The prospectuses obviously did not meet SFC’s “Clear, Accurate and non misleading” requirement either. Instead, the prospectuses consistently omitted material fact and gave misleading statement, so that a reasonable person would not be properly informed of the true nature and risk of the Minibond.

Banks Provided Minibond Buyers with Incomplete Information

8. SFC failed to notice the fact that banks did not provide clients with all the minibond relavant information. “The Minibonds are secured collateral and swap” as defined by The Report “16.2”. The CDO collateral information thus held the most important details on the Minibond, because the collateral was not a conventional AAA-rated bond. The dimished collateral value also proved the criticialness of such collateral information. The prospectuses were only part of the minibond information. With the collateral information, Minibond buyers would have a (2nd) chance to have a look at what was really in the minibond, and thus to assess the true nature and risk of the Minibond, especially when banks failed in their due diligence.

Detailed Information about the collateral, including evidence of the rating and the terms and conditions of the collateral, usually would be available prior to the issue date. Banks should have requested after offer closed. Banks should have sent such CDO collateral information documents /or notice of such documents’ availability to minibond purchasers. Banks are required to disclose relevant material information to clients.

Bank’s Due Diligence Was at Faulty

9. Banks should have cautioned their clients about the risk related to the Synthetic CDO collateral. Banks should also have requested the minibond issuer to disclose related CDS information (e.g. CDS reference entities name and credit rating, percentage of portfolio held in each credit rating category, the relationship of reference entities' default rate to the consequent principal loss percentage, etc.). We contend that, instead of exercising due diligence, the Bank in fact collaborated, we would suggest fraudulently, with the minibond issuer, hiding the risk of the Synthetic CDO from the bank's retail clients, with the objective of increasing the sale of the minibonds.
- It was never pointed out to us that the minibond was not invested into any debt / loans / bonds issued by any of the 7 reference entities and that the minibond's underlying collateral CDO's key asset was CDS with many entities.
- It was never mentioned or explained to us that a "AAA-rated CDO" or "AAA-rated Synthetic CDO" was not the same as a "AAA-rated" bond. It was never explained to us what was a “AAA-rated CDO” or “AAA-rated Synthetic CDO”. It was never explained to us what a CDO is comprised of and what kind of risk a CDO may have.
- It was never mentioned or explained to us that a "AAA-rated Synthetic CDO" may not invest into any debt/loan/bond at all. Nor that a AAA-rated Synthetic CDO usually consists of tranches with debt at various rating categories from AAA to CCC.
- We were never told that the most important feature of a synthetic CDO is the tranching of credit risk.
- We were never told that the Synthetic CDO's value is decided by the credit risk of its portfolio holding. Nor that the minibond's collateral would consist of CDS with many entities which could be in various rating categories from AAA to CCC.
- It was never mentioned or explained to us that a “AAA-rated Synthetic CDO” could have an average portfolio credit quality at BBB/BBB-.
- We were never told to be aware that the minibond was, in fact, not only credit-linked with the 7 reference entities, but also credit-linked with many other entities.
- We were never told that there was no detailed information being provided on the Synthetic CDO's CDS entities & entities' credit rating, no information regarding the Synthetic CDO portfolio's industry concentration percentage, no information on the impact of the number of default event of portfolio to the principal loss (e.g. 5%-10% default event could result in 100% principal loss, etc.). We were never told that the minibond's value would be greatly affected by the default event of underlying Synthetic CDO's CDS entities.
- And we were never told that the default event or the credit rating change of all the entities included in the CDS of Synthetic CDO collateral is critical to the value of the minibond collateral.

Banks and Banks staff Breaching Code of Conduct ?


10. The Report wrote “16.4” listed a few risk mentioned in the Prospectuses.
- (10.1) Did the SFC ever check how many banks staffs were actually aware of all the risk listed in the “16.4” and explained all of them to their clients at the point of sale, other than the credit-event of the 7 reference entities and no liquidity / long lockup period?
- (10.2) The Report wrote “2.3.1 "..... Intermediaries were still under an obligation pursuant to the Code of Conduct to explain the nature and risks of the product they were selling and ensure it was suitable". Does SFC consider that giving “the credit-event of the 7 reference entities and no liquidity / long lockup period” would be sufficient for briefing clients on the true nature and risk of Minibond?
- (10.3) The Report wrote “2.5.2. The Code of Conduct also imposes obligation on intermediaries to ensure their staff are properly trained and supervised”. What was SFC’s finding on this?
- (10.4) Should banks / banks staff’s Honesty and Fairess, Care to their Clients be defined as:
"For a complex credit derivative product like the minibond, the responsibility of Bank's sale staff is limited to: passing the Issuer Prospectus to the client when being requested, and to tell the minimum information to clients, even if the minimum information could be misrepresenting and misleading on the full picture of the product”?
- (10.5) Although Minibond holders signed the minibond purchase form which has one item as “confirmed to have received Issuer Prospectus and Secured Continuously Offered Note Programme”. Most (if not all) minibond holders received the Issuer Prospectus only (if they received any prosectus), had not received the Secured Continuously Offered Note Programme at all. As a matter of fact, banks staff did not mention the Secured Continuously Offered Note Programme to most (if not all) of the minibond buyer

contact: minibondVictim@gmail.com

迷債文件達到証監會的“清晰，准確， 無誤導、全面披露風險” 的要求??

The “SFC Lehman Brothers Minibonds Incident Report” did not reveal fact that many Minibond Prospectuses had consistently omitted material fact and risk disclosure.

迷債#20-#36及一些更早期的許多迷你債卷的抵押品是SyntheticCDO.

- 1. 數年來迷債文件都沒直接披露迷債抵押品跟諸多相關公司 挂鉤的事實. 即迷債事實上是跟“7 + 諸多其它一籃子（可能是100多個）”相關公司信貸挂鉤. 而后者的一籃子挂鉤公司的信貸可以是從AAA 到 CCC（junk bond rating）不等。
For example: Series #27 has 155 CDS in the minibond collateral. 只是大肆宣講“跟6－7家著名公司信貸掛鈎”, 是否隻能說是“片面”披露風險? 其結果是 “誤導” (misleading) 加 “缺乏披露”（non-disclosure)？

- 2. 數年來迷債文件都沒有批露一些 迷債抵押品 Synthetic CDO 的詳情.
迷你債卷唯一的資產就是抵押品和(CDS)信貸破產掉期合約. 迷債抵押品 Synthetic CDO 的價值取決於相關公司的信貸風險, 即取決於所有相關公司 的破產事件和信貸評級. 通常幾個破產事件足以造成 Synthetic CDO portfolio 100%本金損失. 迷債文件一點也沒有沒有披露這些條款。
沒有關鍵的信息，迷債文件符合証監會的“清晰，准確， 無誤導、全面披露風險”的要求嗎？ 應該要求披露的詳情諸如:
- Synthetic CDO 有多少相關挂鉤公司, 或者大約范圍，如30-50個，或120-160個，等等;
- Synthetic CDO 具體的挂鉤公司名稱和評級, 或者, 至少會披露其相關掛鈎公司的信貸評級組成的百分比, 諸如AAA 評級的公司有百分之幾, BBB / BB 評級的公司有百分之幾, CCC 評級的公司有百分之幾，而不是只以 AAA 評級的 Synthetic CDO 帶過. 至少給投資者一些關於“信貸破產掉期”掛鈎公司的“清晰”信息.
- 抵押品 Synthetic CDO的挂鉤公司的破產事件對 造成Synthetic CDO 100％的本金損失的條件。比如，應該披露至少第幾個破產事件 (e.g. 7 out of 100 entities?) /或百分之幾 (e.g. 5％?)的挂鉤公司的破產事件才會 造成100％的本金損失。

- 3. The Prospectuses never clearly stated the fact that: An investor in the Minibond does not lend money directly or indirectly to the 7 reference entities or any of the undisclosed MANY reference entities that comprised of the minibond synthetic CDO collateral.

- 4. 請問証監會數年來，是站在發行商的角度上，鑽法律漏洞，來達到事實上的最小披露呢？（比如：反正有了“The Notes is not principal protected” 萬能擋箭牌）, 還是站在公共大眾的利益上，根據產品的復雜性來，盡量的要求提供明了，詳盡，清晰的發行章程，來達到”清晰, 准確, 無誤導, 全面披露風險” 的要求嗎 ?

Australia Mahogany Notes (a Credit Linked Notes)

The "Mahogany Notes" is a Lehman credit linked notes sold in Australia.
It has similar nature to the Hong Kong's Minibond.

But the information and disclosure from its Prospectus are quite different from the Minibond's Prospeucts. Here is the Mahogany Note's prospectus dated in Januay 2006. http://www.mahoganycapital.com.au/mahogany/PageAttachmentServlet?PageID=4762

同樣由雷曼亞洲一手安排的在澳洲銷售的信貸掛鈎票據 Mahogany Notes 清晰地介紹了
- 該信貸掛鈎票據之本金跟100個公司信貸掛鈎，（7個破產就會失去100％本金），
- 該票據之利息跟150個公司信貸掛鈎（破產事件跟票據利息之關係）
- 該票據所有信貸掛鈎主體之評級（AA 到 BBB- 及 低於 BBB- 之公司數目，等）和公司之業界類別等信息。
該票據明確指出其資金不是投入於任何信貸掛鈎主體（公司）。
買的人明確瞭解它們買入的產品是甚麼，所以雷曼暴煲之後，Mahogany Notes 票據持有者們沒有高呼上當，沒有投訴銷售結構。因為他們知道他們買的是甚麼。

1. The difference is in its prospeucts.
Mahogany Notes' prospectus has far more quality disclosure if comparing to Minibond's prospectus.

Here is some brief on the Mahogany Notes:

(i) Page 6 listed "TERM SUMMARY".

"Key Characteristics: Portfolio Linked Note.


Principal repayment is linked to a Capital Portfolio of 100 Investment Grade corporate entities with the required credit protection to achieve an ‘AA’ rating of Principal as at the Issue Date.


Interest is linked to an Interest Portfolio which has two components, a Return Component of 150 entitiesand a Protection Component of 50 entities. The payment of Interest is not rated.


The Notes are classified as unsecured notes for the purposes of section 283BH of the Corporations Act."


(ii). (page 8) "WHAT IS A PORTFOLIO LINKED NOTE? (PLN)":

" In traditional debt securities the repayment of principal and payment of interest is dependent upon the performanceof a single entity. A PLN has payments referenced to the performance of a number of entities (collectively called theportfolio) which may include governments and companies.


An investor in a PLN does not lend money directly or indirectly to the entities in the portfolio. An investor lends money to the issuer, and the issuer in return agrees to repay the money invested and to pay interest. The issuer typically gains exposure to the entities through derivativecontracts that reference the portfolio. In this way, investors in a PLN have interest and principal payments referenced to the performance of the portfolio entities."


(iii) (page 9) "WHAT ARE THE PORTFOLIOS?"
It listed the details of the portfolio component.


(iv) (page 9) "HOW DO THE PORTFOLIOS AFFECTTHE REPAYMENT OF THE PRINCIPAL?"

and "HOW DO THE PORTFOLIOS AFFECTTHE PAYMENT OF INTEREST?"
It explained the default event's impact to the loss of principal or interest: - The 7th default event of the 50 entities (in their capital portfolio) => 100% loss in principal;
- The Net 6th default event of the (150+50) entities (in their interest portfolio) => 100% loss in the interest payment;
The 150+50 scheme works like this: Saphir obviously sells insurance on the 150.
Thus, default event of the 150 is a negative impact (loss) on the interest payment;
Saphir obviously buys insurance on the 50. Thus, default event of the 50 is a positive impact (gain).
if 1 default from the 150 pool and 1 default from the 50 pool => net default is 0.


(v). (page 18). It stated the portfolio rating "AA", and requirements on the portfolio entities' credit rating, (on Issue Date): - "No entities in the Capital Portfolio is below 'BBB-'; - "No entities in the Return Portfolio is below 'BB-'; -- "No more than 15 entities in the Return Portfolio is below 'BBB-';

(vi). (page 22-24) It also showed the country concentration rate and industry concentration rate of each portfolio reference entities.

2. What did the Minibond Prospectus say about the reference entities included in the Minibond's collateral issued by Beryl Finance for Series #20 till #36 (excluding #24) ?
"NONE", other than it is a "AAA-rated Synthetic CDO" or "the CDO will be linked to a portfolio o finternational credits".

3. Why did SFC consider the Minibond Prospectus meetings its requirement of "Full Disclosure" (全面披露) ?
Did all the Minibond Prospectus (for all series) meet the SFC's requirements of "Clear, Accurate, Fully-Disclosure" (“清晰，准確”,“全面披露風險”)?

4. Where was Banks' due diligence to say the least?
Why did not banks request disclosure on such key information? Why did not banks mention the possible un-disclosed reference entities risk to its retail clients?

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