證監會譴責京華山, 京華山一全購雷曼產品

1.（轉）信報： 2011年5月13日

京華山一全購雷曼產品 涉960萬

再有金融機構向客戶回購雷曼相關結構性產品。京華山一國際（香港）承諾百分百回購迷債、精明債券及Constellation債券，涉及960萬元。同時，證監會譴責該行在銷售這些產品期間的行為。

京華山一銷售雷曼迷債、精明債券及Constellation債券的總額為約1395萬元。根據證監會與京華山一昨天達成的回購協議，該行將向所有合資格客戶提出，全數回購他們手上未到期的雷曼相關結構性產品，回購價是投資本金，扣除任何已收取的票息。

部分客戶的產品已被強制贖回，或於雷曼兄弟破產後已沽出，京華山一提出，就他們之前持有的相關產品支付賠償款項，金額是投資本金，扣除任何已收取的票息、剩餘價格及／或出售所得金額。

該行在不承認任何責任下，提出上述兩項回購及賠償建議，涉及金額約960萬元。

經過調查後，證監會質疑，京華山一向客戶銷售雷曼相關結構性產品前所進行的盡職審查是否足夠、向銷售人員提供的培訓和指引是否足夠，以確保他們理解產品投資回報的特點、結構及風險概況。證監會亦未能確定，該行有否為相關產品的銷售和推廣活動訂立適當的監察程序，以及有否實施。

京華山一同意，立即實施加強的特別投訴處理程序，並聘請獨立顧問檢討銷售程序，然後落實有關建議。京華山一是繼新鴻基投資服務、凱基證券及高信投資後，第四家與證監會達成回購協議的雷曼相關產品的證券行。


2. Core Pacific-Yamaichi International agrees with SFC to repurchase Minibonds, Octave Notes and Constellation Notes from clients at original value

SFC: http://www.sfc.hk/sfcPressRelease/EN/sfcOpenDocServlet?docno=11PR49,

The Securities and Futures Commission (SFC) has issued a reprimand to Core Pacific-Yamaichi International (H.K.) Limited (CPYI) in respect of its internal systems and controls relating to sales of Minibonds, Octave Notes and Constellation Notes (collectively, Lehman Brothers-related structured products) following an investigation by the SFC (Notes 1 & 2).

The investigation of the SFC raised a number of concerns with CPYI’s internal systems and controls relating to the sale of Lehman Brothers-related structured products. Specifically, SFC’s concerns were related to:
the adequacy of product due diligence on Lehman Brothers-related structured products before they were sold to clients;
the adequacy of training and guidance given to its sales staff to enable them to understand the investment return characteristics, structure and risk profile of Lehman Brothers-related structured products; and
the establishment and implementation of proper guidelines and monitoring procedures on the sale and marketing of Lehman Brothers-related structured products to clients.

CPYI does not admit any liability arising from these matters, but acknowledges the seriousness of these concerns. CPYI has agreed with the SFC to:
offer to repurchase from all its eligible customers (Note 3) all outstanding Lehman Brothers-related structured products at a price equal to the principal amount invested by them, less any coupon payments received; and
offer to pay compensation to all its eligible former customers (Note 4) in respect of their previous holding(s) in Lehman Brothers-related structured products in an amount equal to the principal amount invested by them, less any coupon payments, residual value and/or sale proceeds received.

The total amount that CPYI offers pursuant to the repurchase and compensation offers is approximately HK$9.6 million.

CPYI has also agreed to:
immediately implement special enhanced complaints handling procedures to resolve, in a fair and reasonable manner, all complaints in relation to the sale and distribution of structured products other than Lehman Brothers-related structured products;
engage an independent reviewer, to be approved by the SFC, to review its systems and processes relating to the sale of structured products and to report to the SFC, and to commit to the implementation of all recommendations by the independent reviewer; and
to engage a qualified third party, as approved by the SFC, to review and enhance its complaints handling procedures, and to commit to the implementation of all recommendations by such third party.

The SFC considers that this agreement resolves its concerns about CPYI’s sales practices in respect of Lehman Brothers-related structured products and is in the best interests of the investors. The repurchase or compensation scheme should ensure that eligible customers and eligible former customers who accept the repurchase or compensation offers will receive return of their capital.

This agreement is also forward looking and should ensure that CPYI remediates its systems and processes to meet the standards expected from a licensed corporation which distributes investment products and/or provides investment advice to its clients.

The SFC considers this to be an appropriate outcome in light of the nature and extent of the concerns with CPYI’s sales practices that SFC’s investigation raised.

The SFC acknowledges that CPYI has fully co-operated with SFC’s investigation and has acted responsibly in agreeing to compensate eligible customers and eligible former customers.

迷債風險，金融騙局

許多媒體，政府監管機構的官員捫評論迷債，卻連迷債的真實風險究竟為何物都不敢明確地講清楚。只以複雜的“信貸掛鉤”來清淡地帶過。

請每一位評論迷債的人士在發表評論之前，先問問自己：於迷債的風險究竟為何？當初迷債的發行商和銷售銀行是如何介紹迷債的風險的？

事實是，銀行向顧客「力銷」的是“跟7個著名公司信貸掛鉤”的迷你債券，而迷你債券其實是由兩層「信貸違約掉期」產品組成，這大肆宣揚的“跟7個著名公司信貸掛鉤”的只是表面文章。這第二層「信貸違約掉期」是跟100多個公司信貸掛鉤。這第二層「信貸違約掉期」的風險和特徵，不僅顧客不知，連眾多的銀行職員捫也一直不知道。這才是迷債騙局的精華所在！！！

這也是為甚麼銀行閉口不談迷債的真實風險。
迷債騙局，在於迷債銷售商捫「力銷」產品的風險和特徵跟產品的真實風險和特徵是有著巨大區別的！
客觀事實是銀行行騙, 金管局失職, 港府卸責, 現在港府扮哂有為協助調解!

現在，不僅兼管機構，銀行，連媒體也不敢明確指出這迷債的騙局所在。只敢以信貸產品複雜，高回報要考慮高風險來為迷債發行者和銷售商辯護。迷債之複雜，在於設計者想用第一層的跟7個著名公司信貸掛鉤來欺騙客戶，以達到不告知客戶關於第二層的跟00多個信貸掛鉤的風險。
迷債設計者設計了這麼個複雜的結構，就是不想讓客戶捫了解到迷債的真實風險所在。不是太複雜而不能解釋，其實是不想解釋而做出這麼個雙層結構來欺騙普羅大眾。

”高風險“，關鍵在於何謂風險。顧客理解的迷債之‘高風險’在於公開大肆宣揚的“7個著名公司信貸”的高風險，顧客捫卻不知，還有這沒有告知的第二層的高風險存在。這第二層的高風險是跟100多個各類公司信貸掛鉤！！！ 這就是迷債騙局的根本所在，只講第一層的跟7個公司信貸掛鉤的‘高風險’，卻不講這第二層跟100多個公司信貸掛鉤的‘高風險’！！！

迷債辯護士捫可以用諸多藉口為不介紹第二層信貸掛鉤產品風險辯護，心裡卻都明白：不提第二層的風險，是因為不想客戶捫知道還有這第二層100多個公司信貸掛鉤的高風險！！！

迷債系列6真是以高息來吸引客戶， 儘管利息比同期前後的迷債系列5或7,10 都為高，銷售量卻是最差的，只有4百多萬美金，因為講明迷債的高息要跟150個公司信貸掛鉤。

正因為由這第二層信貸掛鉤產品，這就是為甚麼要付錢請 PWC 來 處理迷債，因為這第二層信貸掛鉤產品而引起的麻煩！！！

令香港市民利益受損，助成金融騙局令香港蒙辱的到底是誰？？？？？

這次是買入迷債的香港市民被騙，明天又是哪些香港市民？

李麗貞（香港銀行業僱員協會主席）在 “還銀行從業員一個公道”（文匯報 2011年3月24日）中就明確指出：
［ 試想一名藥房的售貨員，向顧客推銷一罐聲稱含有豐富維他命、適合兒童發展需要的最新奶粉後被發現原來這是一罐「毒奶粉」，嬰兒食用後更變為「大頭BB」。事件曝光後，政府即時檢控藥房售貨員，罪名是「對產品認識不足」及「向顧客披露不夠」。對於「毒奶粉」的來源及為何流入市場卻一概不管，相信各位讀者也會認為是荒天下之大謬，然而以上的鬧劇卻真真實實地發生在銀行前線員工身上。
。。。。。。
誠如文首的小故事，香港一旦有「毒奶粉」出現，政府只檢控藥房售貨員而拒絕嚴格監管奶粉的衛生安全，絕對是一個不公平及不負責任的做法。金管局及證監會絕不應只選擇性檢控銀行前線員工，但卻讓負責推出產品的銀行高層置身事外。整件雷曼事件的主因在於香港的金融監管機構監管不力，只懂亂批金融產品交由銀行銷售。一旦發現問題就第一時間「卸膊」，除了有損香港國際金融中心的聲譽，更令到一些向顧客推介產品的前線銷售人員蒙受不白之冤，更甚者因此前途盡毀，鋃鐺入獄。
。。。。。。
香港的金融監管機構更有責任做好把關的工作，不要被無良的投資產品設計者，以魚目混珠的包裝手法、混入不合理的槓桿投資手段，使平民百姓再墮「國際金融大騙局」，讓「金融毒奶粉」再次流入市場。但願金融海嘯不再來，讓金融業內的投資者及從業員都能在健全制度下，為香港能成為世界金融中心之首而努力！ ］

How the Synthetic CDO "Abacus" was set up

The Abacus transactions are so-called synthetic CDO.

Abacus deals were filled with default swaps that offered payouts to Goldman Sachs if certain mortgage bonds didn’t pay as promised, in return for regular premiums from the bank.

Such securitization enabled debt with the lowest investment-grade ratings to be transformed, in part, into AAA securities that turned out to not be as safe as that ranking suggested. At least $5 billion of Abacus slices now carry junk ratings, below BBB-, from Standard & Poor’s, or have defaulted, Bloomberg data show.

The SEC said that Goldman Sachs created and sold Abacus 2007-AC1 without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and also bet the CDO would default. Paulson was proved correct, and his hedge fund eventually turned a $1 billion profit and CDO investors lost a similar amount, according to the SEC

From Bloomberg http://mobile.bloomberg.com/apps/news?pid=2065100&sid=aMVnYAF6bYCw

“The SEC’s charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation,” Goldman Sachs said in a statement today.

The firm put together the Abacus deal in 2007, a year in which Goldman Sachs earned a then-record $11.6 billion, a figure it surpassed in 2009, when it earned $13.4 billion. Goldman Sachs paid Blankfein $68.5 million for 2007 -- $600,000 in salary, plus a $67.9 million bonus.

According to the SEC’s complaint, Tourre, now 31, sent an e-mail to a friend in January 2007 saying, “The whole building is about to collapse” in reference to CDOs tied to subprime mortgages.

‘Fabulous Fab’

“Only potential survivor, the fabulous Fab standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrousities!!!” Tourre wrote in the e- mail, according to the SEC. The agency didn’t identify the recipient of the note.

Reached at his London office today, Tourre declined to comment. “I need to jump, thank you, goodbye,” he told Bloomberg News before hanging up. A call to Pamela Chepiga , a lawyer for Tourre at Allen & Overy LLP, wasn’t returned. Tourre, a graduate of Ecole Centrale Paris, one of France’s top engineering schools, and Stanford University, joined Goldman Sachs in July 2001, according to his LinkedIn profile.

Goldman Sachs and Tourre knew it would be difficult, if not impossible, to sell the CDO if they disclosed to investors that Paulson played a significant role in selecting the collateral and was also betting against it, the SEC said.

‘Surreal’ ACA Meeting

The bank also knew that at least one potential investor, Dusseldorf, Germany-based IKB Deutsche Industriebank AG , wasn’t likely to invest in a CDO that didn’t have a collateral manager to analyze and select the portfolio, according to the complaint.

In January 2007, Goldman Sachs approached ACA Management LLC , a firm that analyzes credit risk, to select the portfolio for a CDO transaction sponsored by Paulson. In an internal memo on March 12, 2007, Goldman said it would “leverage ACA’s credibility and franchise” to help distribute the transaction, the SEC said.

Paulson, Tourre and a representative from ACA met in February 2007 to discuss assets that would be included in the residential-mortgage backed security, the SEC said. While Paulson and Tourre knew Paulson intended to short the security, ACA wasn’t in the loop.

“I am at this ACA meeting,” Tourre wrote in an e-mail to an unidentified Goldman Sachs employee during the meeting. “This is surreal.”

Goldman’s ‘Extensive Disclosure’

Goldman Sachs also said that it lost more than $90 million because it had an investment in the deal, overwhelming the $15 million it made in fees. The firm said it provided “extensive disclosure” to IKB and ACA about the risk of the underlying mortgage securities. Goldman Sachs never told ACA that Paulson was going to be a “long” investor in Abacus, and ACA selected the underlying securities, the firm said.



《博客主的建议》

建议高盛邀请香港金管局和证监会为他们辩护.

香港金管局和證監會會說：
合成 CDO "Abacus" 有 AAA的評級，不需要多講其它，風險披露也講了“本產品不保本”，這就是足夠的風險披露了, 就是［“vital information" about the CDO］了，不需要披露其它甚麼 ［“vital information" about the CDO］， 況且買家（投資者）是專業機構投資者。
看看我们香港的银行散户是什么水平。银行，雷曼亚洲以及有关的人员和机构都是只要跟散户讲雷曼迷债／星展Constellation Notes /大摩精明债券是 ’跟几个著名公司信贷挂钩，本产品不保本。抵押品是 AAA的評級‘ 就足够了！ 根本不需要解释产品的抵押品的实质，特征以及具体详情呢！抵押品实为跟100多个公司信贷挂钩以及挂钩公司的信息都是多余，是不需要的信息！

什么是 “vital information" about 雷曼迷债／星展Constellation Notes /大摩精明债券？ ‘ ’跟几个著名公司信贷挂钩，本产品不保本。’就是 “vital information" ！

我们香港的银行散户就都会完全明白这雷曼迷债／星展Constellation Notes /大摩精明债券的真实特征和重大风险了。



Related reading:
SEC Sues Goldman Sachs, Alleging Fraud in CDO Tied to Subprime

THE VALUE OF MINIBOND ? 85%-99% ?

ARE HKMA and SFC trying to hide the true value of Minibond from Hong Kong retail investors?

ARE BANKS in Hong Kong trying to rip off their clients again from the minibond buyback plan?


On 14 December 2009, the value of Australia Mahogany Notes (a minibond alike product, arranged by Lehman Aaia) ,was announced in the ASX announcement:
Minibond-like Credit-Linked Notes sold in Australia (Mahogany Notes I & II by Lehman Asia) are worth $99 and $85. The notes/series that would mature at a later stage (2016) is worth $85. The notes/series that would mature much earlier in 2010 hence it is worth $99, is worth $99.

WHEN will Hong Kong retail investors get any updates on the value of the Minibond?

The banks buyback was only 60-70% of the issued value.

Who is losing more money?
Who is making profit from the Minibond sales & Minibond buyback?
The bank or the small investor?

In the ASX announcement as of 14 December 2009, it stated that for
"Mahogany Capital Limited – A$75 million Notes Series I and A$50 million Notes Series II ", the "Structured Credit Research has estimated a value for:
AUD 75MM ANZ Floating Rate Note maturing 10 Dec 2011 (XS0208078732) of $99 as of 30 November 2009 (the ultimate Collateral for Mahogany Notes Series I),
and a value for:
AUD 50MM RBS Floating Rate Note maturing 17 Mar 2016 (XS0247983058) of $85 as of 30 November 2009 (the ultimate Collateral for Mahogany Notes Series II). (...) These valuations represent the highest valuations received since the bankruptcy of Lehman Brothers in September 2008."


[ full text of the ASX announcement on the value of Australia Mahogany Notes:
https://www.macquarie.com.au/edge/static/eclipse/Hidden/Company%20Announcements/ISSUED%20CAPITAL/2009-12/010222460.pdf ]

Australia Mahogany Notes (by Lehman Brother Asia) related information::

1. Summary Information:
It is credit-linked to 100-150 reference entities which are explained in the 2-page product summary. The interest rate (of the notes) and the principal loss are affected by the number of default events which are clearly outlined in the 2-page product summary.
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）。

2-page summary from the issuer: "Mahogany Notes II - a CDO defence",
http://www.mahoganycapital.com.au/mahogany/PageAttachmentServlet?PageID=4764

2. Prospectus
All the reference entities related information, the impact of default event(s) to the interest rate, the impact of default event(s) to the principal loss are clearly outlined in the prospectus.

http://www.mahoganycapital.com.au/mahogany/PageAttachmentServlet?PageID=4762

3. Related Analysis:
http://minibondvictim.blogspot.com/2009/01/austalia-mahogany-notes-prospectus.html
and
http://minibondvictim.blogspot.com/2009/01/how-was-mahogany-notes-ii-being-briefed.html

SCMP:Watchdog accused over Lehman probe decision

4 August 2009

Lawmakers criticised the financial regulator for suspending an investigation over the selling of non-minibond products after banks agreed a HK$6.3 billion deal to repay Lehman Brothers minibonds buyers.

Securities and Futures Commission chief executive Martin Wheatley said the commission had not only ended its top-down inquiry into minibonds, but also suspended investigation of other products from the 16 banks under the agreement.

He was speaking at a hearing of the subcommittee on the debacle surrounding the sale of Lehman Brothers financial products.

Democrat James To Kun-sun told the five-hour meeting: "It's about the minibonds agreement with the banks, but you {hellip} voluntarily suspended your statutory duty to investigate the systematic failure [over the selling] of non-minibonds products."

Another democrat, Kam Nai-wai, asked Mr Wheatley if he thought the interests of other buyers who bought Constellation Notes, a derivative similar to minibonds also issued by Lehman Brothers, or equity-linked notes had been sacrificed.

Lehman Brothers minibonds holders will receive letters before Monday from the banks who will repay them at least 60 per cent of the value of their initial investment.

Mr Wheatley said the investigation into non-minibonds products, involving about 500 cases, had been suspended because the latest deal required the banks to immediately implement improved complaints-handling procedures to resolve all complaints they received.

He said the investigation of three other banks, which were not included in the payout deal because they sold Lehman-related products apart from minibonds, continued. Investors should first turn to banks if they had complaints, and then the Hong Kong Monetary Authority.

Subcommittee chairman Raymond Ho Chung-tai said it would ask the commission to submit an original copy of the agreement, investigation findings of the 16 minibond-selling banks, as well as e-mail exchanges the commission had with the Monetary Authority and financial officials before it reached the deal.

Minibonds are not corporate bonds, but consist of high-risk credit-linked derivatives, and are marketed as a proxy investment in well-known companies. Hong Kong investors lost billions of dollars on minibonds guaranteed by Lehman Brothers when the US investment bank went bankrupt last September

From SCMP:Watchdog accused over Lehman probe decision

Repeating History after Ignoring It - Lehman's mini-bonds scandal ends with a whimper

[Article from Asia Sentinel]

Hong Kong's Lehman mini-bonds saga, in which outraged investors lost millions with the collapse of what was once thought to be an impregnable American financial institution, appears to be finally coming to an end, potentially drawing the curtain on a 10-month nightmare for both investors and regulators, given what the Securities and Futures Commission reportedly described as a 'good compromise."

But before crediting the SFC for putting an end to the misery of the 30,000 beleaguered investors, or before the regulator champions itself for its masterstrokes, be forewarned that the impact of the Lehman mini-bonds saga could have been minimized, if not prevented, if the SFC had acted decisively three years ago in a similar case involving Clerical Medical Insurance, a unit of Halifax Bank of Scotland. But from its inception, the SFC has been a largely toothless watchdog, occasionally gumming on some luckless small offenders and largely leaving the heavyweights alone.

Under the terms of the Lehman settlement, announced July 23, 16 banks agreed to return US$807 million - about 60 cents on the dollar -- to investors, with BOC Hong Kong Holdings agreeing to stump up nearly half of that, at US$401 million. The 16 banks sold an estimated US$1.8 billion of the so-called mini-bonds, which fell sharply in value after the US investment bank Lehman Brothers Holdings was forced into bankruptcy last September.

Just as with Lehman, the CMI case involved gross mis-selling of financial investment products - larger in scale in dollar terms but less well known.


The SFC could have punished the wrongdoers to send out the right message, restructured the regulatory landscape to prevent any similar episodes and seized the opportunity to demonstrate its seriousness in dealing with misconduct of financial institutions.

No, thank you. The SFC did none of the above. What it eventually did - investigate the case but take no action - was to splash out television advertisements to forewarn investors to be alert and ask the right questions when making investment decisions, without tackling the core of the problem. The timing was critical: had the SFC taken the right measures then, it would have been between 2005-2006 when the Lehman minibonds were flowing into the Hong Kong market.

Obviously those splashy TV ads didn't work but the SFC has once again resorted to an even larger scale commercial campaign to accompany its new television advertisements following the Lehman case.

The earlier case refers to a product generally known as "offshore with-profits" (OWP) funds, sold in Hong Kong via several carriers but largely through market leader Clerical Medical Insurance (CMI) which alone has reportedly over 7,000 wealthy investors, mostly expatriates, with what many said amounted to some billions of US dollars invested - CMI was part of HBOS (Halifax Bank of Scotland), the largest mortgage and savings provider in the United Kingdom, which was bought by Lloyd's early this year and subsequently bailed out by the British government.

The OWP products were never sold directly by CMI but through many independent financial advisers , or IFAs, acting as intermediaries. Potential investors were encouraged to gear up to three times their own investment to maximize gains, given the supposedly good track records of these funds. These investors later said their advisers, motivated by extra commissions, only emphasized the upside but never forewarned them of the potential downside risks involved with gearing. The IFAs in turn claimed the marketing materials they used originated from CMI - whose products were approved by the SFC - though the company denied it ever promoted gearing.

The investors who geared up not only lost most of their principal but had to repay part of their loans when the value of their fund holdings pledged as collateral fell sharply, after the OWP funds performed badly following market shocks in the aftermath of the September 11 attacks in 2001, when CMI found itself on the wrong sides of the equation in the investment markets.

While not all investors were geared, all who tried to get out of the funds were subject to exit penalties, known as "market value adjusters" (MVAs), which reached more than 25 percent at some stage - neither did CMI nor the IFAs explain much about these MVAs or mentioned how high the MVA rates would reach in their sales pitch, according to many angry investors.

Either way, these investors found themselves stuck with huge losses and some are still pursuing lawsuits today to fight their cause.

Much like the Lehman mini-bonds case, the CMI matter was one of gross mis-selling to potential and unwary investors - in the latter, mostly highly educated professionals. Just like the Lehman case, the CMI products were approved by the SFC.

And like the Lehman case, the CMI products were sold through a retail distribution channel with frontline sales staff carrying approved brochures. More importantly, both cases featured gross mis-selling with commission-driven sales staff allegedly more eager to secure signatures than to explain in detail the complexity of the financial products, if they understood them at all, on the table.

With such parallels, and perhaps sadly on hindsight, one may be tempted to blame the SFC for not doing enough to protect the interest of the public.

One may also argue that the SFC did the right thing in both the Lehman and CMI cases: that investors took their risk, informed or ill-informed, calculated or speculative, even though the products were approved and by that token the SFC can only resort to public education via commercial advertisements.

Granted, but the reality is the public placed trust in the regulators to have the house in order with little or hopefully no room for any propensity to mislead potential investors, rich or poor alike. The regulators of today's ever increasingly complex financial markets are also expected to have an iron grip on the conduct of its players and act swiftly to correct any disequilibrium.

But in the Hong Kong context, there is much more the SFC could have done over the years to build a more efficient and better regulated financial market to protect the public - and thus prevent the resulting bad press from the Lehman mini-bonds saga.

For starters, one may question if the frontline sales staff of financial products, including professional independent financial advisers, are properly qualified. After all, much like doctors and surgeons whom we count upon for life or death, the men on the street rely on these financial intermediaries for their financial well-being - the Lehman case in particular has thrown this issue into the spotlight given the highly complex financial instruments involved.

Regulators and related supervisory trade bodies in Hong Kong will be quick to point out the Continuing Professional Development (CPD) program, found in several professional industries as a well managed way to update its members and also renew licenses.

Sounds good? But what good can there be if the IFAs (with a considerable number of non-Chinese speaking Western expatriates) cannot understand a word in some of these Cantonese-only classes? This was the situation faced by some insurance professionals and IFAs, according to sources, and all they need is to find ways to kill time and mark their attendance at the end of the courses to gain the necessary credits.

"They do not even check if you are fluent in the language in which the course is given," said a practicing insurance broker. "Most attendants just sit in the venue for 2 hours playing games on their mobile phones, or by catching up with sleep. The quality of the speakers, most of the time staff of law firms eager to advertise their firm's name and they work free of charge, as I understand, is poor to very poor."

Certainly not the best way to update on the latest financial literature.

With the blurring of lines in the modern financial sectors, cross-selling has become commonplace, thus we find insurance companies selling investment-type products and banks selling insurance-related products. Consequently, insurance professionals and IFAs need the appropriate licenses to sell complex financial investment products. In Hong Kong, insurance professionals with the appropriate license from any of the two respective insurance brokers associations earned the license to sell while those who gained a license from the SFC, being the IFAs, have the license to advise on investment-type products, industry sources say.

The implications may not be obvious to casual observers, according to some market professionals. A person with only a license to sell means he cannot offer any advice on the products he tried to push to his potential client. Consider the client may (inevitably) ask questions about the products. What can the financial intermediary say? "Sorry, I can only sell you these and not licensed to offer advice. So just pick one and sign"?

Sorry, that is not how the real world works.

Perhaps the regulators should get rid of the license to sell and offer just the license to advise requirement so as to better protect the public interest?

The one other troubling issue that remains: commissions. In both the Lehman and CMI cases, the financial intermediaries were allegedly motivated by commissions earned from the sales transacted. How else do you suppose salesmen work - thus we cannot possibly remove commissions out of the equation, can we?

Hence, the SFC took the right stance that investors take their own risks given the best information they can gather - ie, market risk. However, if the financial markets are not properly regulated, giving way to mis-selling, investors are exposed to further (non-market) risks.

Sadly, Hong Kong investors have short memories, especially when faced with lucrative offers. With the Lehman mini-bonds saga soon to be behind us, one can only hope that the SFC took cues and promptly put things in order before another similar episode surfaces.

From Asia Sentinel: "http://asiasentinel.com/index.php?option=com_content&task=view&id=1984&Itemid=224

轉載安永報告的迷債示意圖

1。 迷債系列10－36之結構。 為甚麼迷債章程跟銀行的解釋完全沒有 合成CDO (层) 這一層解釋呢？


安永報告指出：SPV PIFL把迷債資金投資於合成CDO， 該合成CDO”是由不同的SPV發行的。而迷債中的兩類掉期 （即“迷債層次的FTD掉期”和“合成CDO 層次的掉期）是為向雷曼賣信貸保險而設計的。合成CDO was backed by the collateral which is the Lehman USD Liquidity Fund. 因此，迷債只有一個資產（即：雷曼貨幣基金），和許多負債（liability）(即兩個層次的信貸掉期）”。迷債層次的FTD掉期幾乎不為迷債持有者帶來收入，所有CDO層次（包括雷曼貨幣基金的利息）的收入均歸於雷曼。

2。安永報告明確指出：在合成CDO層次的SPV是賣由97－194個相關主體組成的一攬子信貸保險。如果一攬子掛鈎相關主體裡發生了足夠的信貸事件的話，就會造成合成CDO本金損失，從而觸發迷債層次的“underlying securities破產事件”，最終造成迷債的利息及本金損失。

這好像也是在描述發行商健在的“精明債券”？

為甚麼在幾年的迷債銷售期間，從迷債章程和證監會審批人員，到金管局和銀行，
從 系列10 到 系列36 的幾年之間，
－ 都從不知道 合成CDO究竟為何物？
－ 銀行，證監會是否都認為 合成CDO 不屬於重大風險的信息？
－ 也從未試圖瞭解過 合成CDO ？ 2004年5月發行 系列10 的時候可能不瞭解成CDO具體組成，之後也從沒有去瞭解過？
直至2008年9月之後／或者安永報告出來才瞭解？
－ 2004年5月－2008年8月， 銀行從沒有跟雷曼要求過抵押品文件？銷售迷債是抵押品文件可能還沒有出籠，在迷債抵押品購買之後是一定有的啊。
迷債抵押品是跟迷債相關的重大風險。迷債抵押品信息可是跟迷債風險相關的充分信息啊。
－ 都沒有人跟客戶解釋過這些？
－ 為甚麼沒有一個發行章程都寫一些類似的內容的？

3. 安永報告的一些定義（對照示意圖）.
(a) FTD Swap: First To Default Swap. In a FTD Swap, the protection seller (ie.. PIFL) will take the loss caused by the first default to occur among a poool of up to 8 reference obligations. Upon occurrence of the first default within the reference pool, the settlment amount for the FTD Swap is dependent on the credit event of the FTD Swap reference obligations and the value of the underlying Synhtetic cDO for Series 10-36.


(b) CSO = Collateralized Swap Obligations. The CSO represents a swap arangement between the Synthetic CDO-level PSVs and LBSF in which the SPVs sell credit protection on a basket of between 97-194 underlying reference entities and surrender the total return of the Colalteral in exchange for periodic interest payment from LBSF. The CSO offers higher yield as the periodic interest payments are passed through the SPVs. However, the SPVs can be at risk of losing their initial investmtns if serveral credit events occcur in the reference portfolio.CSO

SFC Coverup for Minibond prospectuses?

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”.

Does SFC consider the Issuer Prospectuses & Program Prospectuses meet the above “全面市場披露” requirement? Does SFC consider the Issue Prospectuses meet SFC's claimed "clear, non-leading, adequate disclosure" standard ? (SFC may use Series #19 (2005) or #27 (2006) or #35 or #36 (2007) as examples).

From SFC CEO's testimony in Oct.13, 2008 Legco Meeting, (http://www.legco.gov.hk/yr08-09/chinese/hc/minutes/hc20081013.pdf).

SFC CEO 韋奕禮先生 seemed to be fooled by misleading statements in Minibond Issue Prospectuses, and was fooling the public by quoting the misleading statements from the Minibond Issue Prospectus.

1. SFC CDO 韋奕禮先生 said tthat “These products were backed by triple A collaterals and the likely cumulative historical rate of failure for triple A collaterals over the past 25 years between 1981 and 2006 is 0.09 percent for the first three years.”
The SFC CEO seemed to quote the historical default probability data in the Issue Prospectus of Minibond Series #36 (page 54). Such data obviously intended to show that Minibond was backed by collateral with such default historical data. However, such data does not apply to the Minibond (synthetic) CDO collateral at all! Because the quoted 25 year data was based on the default performance of all conventional AAA-rated debt issues. The Minibond (Synthetic) CDO collateral (Series 36 and many earlier Series) were Synthetic CDO which does not even have a 10-year historic data for data/record tracking.
Was SFC CEO fooled by such misleading data and considered the Minibond was ‘backed by’ ‘triple A collateral’ that had similar characteristics (in terms of default rate) as to the triple A conventional bond/debt?
Or: Was SFC CEO trying to fool the public by quoting the above misleading data ?

2. SFC CEO used "backed by triple A collateral" (in his speech quoted in #1 above).

"backed by" was a totally wrong or misleading descriptions here. The Minibond (money) was really INVESTED into triple A rated Synthetic CDO that sold credit protection on a basket of between 97-194 underlying reference entities to Lehman Brother. That is, the so-called "triple A collateral" was itself credit-linked to over 100 reference entities in its true nature, It was not a a conventional bond/debt by any definition,

By using 'backe by', SFC CEO was suggesting that the Minibond value was dependent on the (synthetic CDO) collateral, and effectively hinted that the synthetic CDO collateral had the similar quality as of a triple A conventional bond/debt.

Either the SFC CEO was misled by the Minibond Prospectus or was trying to mislead the public on the truth of Minibond.

In fact, If sufficient credit events occur within the Synthetic CDO basket's credit obligations, the resulting loss will be taken up by the Synthetic CDO through reduction of the Synthetic CDO principal. This leads to an "underlying securities default event" at the Minibond-level.

Was the Mr. SFC CEO aware of this?

It was the synthetic CDO that was secured by Collateral which was the Lehman USD (Money Market) Fund. The intention was probably to ensure the payment to the credit-protection buyer Lehman for the basket reference entities of 97-194 included in the Synthetic CDO.


3. [SFC CEO韋奕禮先生： Series 36. There are a number of different series. Generally, each series will have something akin to the statement in series 36, which said they are not suitable for everybody. They are suitable for people who want a fixed rate quarterly interest in US Dollars or Hong Kong Dollars and are confident that none of the seven named referred entities will be affected by a credit event and they are willing to accept the risk that our notes are not principal-protected and if a credit event happens to any one of the referred entities, you will only receive back in a credit event an early redemption amount which could be significantly less than the principal amount of our notes. That is a fairly typical disclosure of each of the documents.]

韋奕禮先生 was quoting from the Section "Who should buy our Notes? Are they suitable for everyone? ", which can be found in the Issue Prospectus (page 10, Series #27) as below:

[“Who should buy our Notes? Are they suitable for everyone?
Our Notes are not suitable for everyone. (...)
Our Notes are only suitable for investors who are:
- looking for fixed rate quarterly interest income in USD or HKD;
- confident that none of the 7 named reference entities will be affected by a credit event (that is, “Bankruptcy”, “Failure to Pay” or “Restructuring”, which include events such as a major borrowing default, bankruptcy or adverse debt restructuring) between the issue date and the second business day prior to the maturity date of our Notes and who are able to take the risk that they may lose their investment if one of these events does happen;
- willing to accept extension of the maturity date for our Tranche A Notes (...)
- willing to accept early repayment of principal (...). ]

Above statements in plain English clearly suggested (to retail clients) that, although it was not suitable for everyone, IF you were confident on the 7 reference entities, the Notes was for you! SFC CEO seemed to be content with the above misleading statement, and was fairly happy about the disclosure of ‘confident that none of the seven named reference entities will be affected by a credit event.". SFC CEO AGREED with such misleading statement, and was quoting it to defend the Minibond prospectuses.

After all, the key risks of the Minibond is the default-event with the 7 reference entities, is that right, MR. SFC CEO ?

Don’t we also need to be confident on the MANY never-mentioned & undisclosed reference-entities hidden in the Minibond CDO collateral, along with our confidence on the 7 well-known companies? Minibond CDO collateral was in fact credit-linked to many (over 100) reference entities, but not to the same 7 well-known companies. Use Series #19 as an example. Don’t we need to be confident that there would be less than 9 default event out of 125 reference entities? Because, out of 125 entities in Minibond CDO Collateral, the 9th default event would cause collateral principal loss, and the 10th default event would cause 100% collateral principal loss. Confidence on the 7 reference entities would catch us total surprise in seeing the 100% principal loss caused by the 10th default event out of the 125 reference entities which was mentioned nowhere in the prospectuses.

Was SFC CEO fooled by the Minibond prospectuses as HK retail minibond-buyers?

or: Was SFC CEO trying to fool the public in order to defend Minibond prospectuses?

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?

You are welcome to leave your comments in English or Chinese.