MAS Sets Out Resolution Process and Timeline for Investors ofStructured Products
Singapore, 10 October 2008...MAS today released more details on the resolution process and timeline for investors in structured products linked to Lehman Brothers.
Lehman Minibond Programme Resolution Timeline
2 HSBC Institutional Trust Services Singapore (the trustee) has informed MAS that it has not received firm proposals from potential new swap counterparties to replace Lehman Brothers for the Minibond programme as of today. However, a few financial institutions (FIs) are assessing the commercial viability of taking on this role. MAS understands that the trustee does not anticipate commencing the sale of the underlying securities for Series 5 and 6 of the Minibond programme for at least two weeks. If a firm agreement is reached for a replacement swap before the trustee commences sale of the underlying securities, it will work with the parties involved to prepare analyses and documentation and call for an Extraordinary General Meeting (EGM) for noteholders to vote on the proposal. While the notice period for convening an EGM is 21 days, sufficient time should be given to the parties involved to ensure that the proposal is properly explained in the offer documentation and to ensure that all legal and procedural issues have been addressed.
3 In this scenario, MAS will appoint an independent financial advisor to assist noteholders in assessing their options and making a well-informed decision. The replacement swap proposal would require positive votes of at least 75% of the votes cast at the EGM, and court approval may be necessary to confirm the proposal.
4 If a firm agreement is not reached within the above timeframe, the trustee is likely to commence the enforcement process for Series 5 and 6 which will ultimately entail selling the underlying securities in an orderly fashion and using the proceeds to pay the noteholders after deducting any other liabilities which are payable. MAS will work with the trustee to ensure that it acts in noteholders’ interest in disposing of the underlying securities. Noteholders of other series will be updated in due course.
Affected Investors and Complaints Handling Process
5 The total issue size of the Minibond programme was S$508 million, of which S$375 million was sold to about 8,000 retail investors through nine distributors. For the Merrill Lynch Jubilee Series 3, S$23 million of the total S$28 million notes issued were sold to about 350 investors through six stockbroking firms. Over 80% of the Minibond Programme and Merrill Lynch Jubilee Series 3 noteholders invested up to S$50,000, with 28% having bought S$10,000 or less. In the case of DBS High Notes 5, over 1,400 investors bought S$103 million worth of notes. More than half of them invested S$50,000 or less.
6 As of 10 October 2008, the ten distributors of the Minibond programme, Merrill Lynch Jubilee Series 3, and the DBS High Notes 5 have received 680 formal complaints from investors of the three products along with many more general inquiries from noteholders to the FIs and their relationship managers. MAS is following up closely with the independent parties appointed to oversee the complaints handling process of these FIs to ensure that affected investors’ complaints are attended to. MAS has required the FIs to commit to the following complaints handling standards:
(a) To acknowledge receipt of a customer’s complaint within two working days;
(b) To have an interview with each customer who files a complaint within two weeks;
(c) To complete the review of a customer’s complaint and update the customer within four weeks of the interview.
7 In reviewing complaints, FIs should consider, among other factors, the FIs’ own internal processes for the sale of these products, the investor’s profile, and how the sale was conducted, including whether any fact-find was done. Investors who are not satisfied with the outcome of the FIs’ review may choose to have the complaint referred to Financial Industry Dispute Resolution Centre (FIDReC) for mediation or adjudication. The final resolution of each complaint will also depend on the outcome of the trustee process.
8 MAS has stressed to the FIs that they should devote all resources necessary to deal with affected investors and should ensure that their processes are independent, fair and transparent. The independent parties are actively reviewing the FIs’ complaints handling processes to determine whether they meet MAS’ expectations. MAS has also asked the FIs and the independent parties to provide us with regular updates on the status of the complaints handling process. MAS will take firm and appropriate regulatory action where there are breaches of law or regulations by the FIs or their representatives.
9 MAS will continue to keep investors updated on the resolution process.