HKMA warns on structured products

HKMA warns on structured products
By Chen Weijie

china daily

Hong Kong Monetary Authority (HKMA) cautioned on Wednesday that structured investment products such as stock accumulators entail tremendous investment risks despite attractive returns.

Stock accumulators allow investors to buy an agreed number of stocks at a “discount” to the strike price on a regular basis at the date of the contact. The heavy global market sell-off provoked by the collapse of the US investment bank Lehman Brothers in 2008 inflicted serious investment losses in stock accumulator or decumulator investments in Hong Kong. It was estimated that the losses were around HK$600 billion and affected 5000 to 6000 local investors.

HKMA Executive Director (Banking Conduct) Meena Datwani urged investors on Wednesday to study these investment products carefully.

“The share purchase discount price in the stock accumulator contact in fact comes from the premium the investor receives from selling the options to the counterparty of the accumulator contract and as a result, the investors are obliged to purchase the agreed amount of shares at the strike price. Though the investors obtain a price discount the risks also rise accordingly for them,” Datwani said in an article.

Datwani warned that the downside risk of the stock accumulator contracts may be magnified if these contracts include multiplier effects or investors purchasing these products on margin financing.

oswald@chinadailyhk.com