Published September 24, 2008
Move to help Lehman 'victims' gathers pace
MAS asks banks to see what can be done for Minibond, High Notes investors
By SIOW LI SEN
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(SINGAPORE) Efforts are underway to see if anything can be done to help angry investors, who claim that they were misled into buying the now worthless Lehman structured products.
Picking up the pieces: MAS says it is 'in close contact with financial institutions that sold or issued structured products linked to Lehman, and has asked them to expedite their assessments of how investors will be affected'
The Monetary Authority of Singapore (MAS) is believed also to be involved in heavy-duty discussions with the financial institutions (FI) that were involved in selling the Minibonds and High Notes arranged by Lehman Brothers, which went bankrupt last week.
'MAS is in close contact with the FIs that sold or issued structured products which are linked to Lehman Brothers, and has asked them to expedite their assessments of how investors will be affected,' an MAS spokeswoman said last night.
As a regulator, MAS can punish FIs if there is evidence of a breach in regulations though it cannot force them to pay compensation.
Meanwhile, banks worried about their liability have begun consulting lawyers. A number of law firms including Wong Partnership, Drew & Napier and KhattarWong are acting for the nine banks, brokers and Hong Leong Finance, which had sold the structured products.
Over half-a-billion dollars worth of these products were sold over the last two years. But investors may find it more difficult to get legal recourse as they would have signed iron- clad contracts.
In Hong Kong, a lawmaker is leading the charge on behalf of investors there who too have lost HK$12.7 billion (S$2.3 billion) in Lehman Minibonds. Albert Ho, chairman of the Democratic Party and a lawyer, told the media that investors will meet Hong Kong's Consumer Council tomorrow to see if they can get legal and financial assistance to try and recoup their losses.
Meanwhile, in Singapore, Tan Kin Lian, former NTUC Income chief executive, is trying to arrange a meeting with aggrieved investors to discuss taking collective action.
'I've not decided what to do for them yet,' he said last night.
There are several aspects to consider. 'It'll be pretty messy because the products were bought from different people. How to pull it off?' said Martin Lee, who had bought $10,000 worth of Minibonds.
'Banks are going to say 'look at the contracts',' said Subhas Anandan, president of the Association of Criminal Lawyers of Singapore. 'If a lot of investors came forward and there is some sort of pattern - despite the contract - it may help,' said Mr Anandan.
Lawyers say investors can band together and collect fees from everyone to take representative action - similar to the Raffles Town Club case, where 5,000 members each paid $300 to sue for compensation.
But that involves a lot of work, said Alan Lee, who spent more than four years getting members together to fight the Raffles Town Club case.
MAS has said investors can bring their complaints to the Financial Industry Disputes Resolution Centre. From 2005 to 2007, out of 130 cases which were adjudicated, 25 monetary awards were in favour of consumers.
Some banks told BT they are working hard to help investors.
DBS spokeswoman Karen Ngui said the bank 'has devoted additional resources to deal with customer concerns and we are treating this matter with the priority and importance it deserves'.
Wednesday, 24 September 2008
Published September 24, 2008
COMMENTARY
SGX short-selling measures fall short
Regulator hasn't addressed the heart of the short-selling equation: the quantities and names of scrip lent to short-sellers
By RSIVANITHY
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AFTER resisting for years suggestions made in this newspaper to improve transparency relating to short-selling and the buying-in market (BT, Nov 16, 2004, 'Revive cash market to run in tandem with buying-in'; April 24, 2007, 'Time for exchange to relook buying-in process'; and June 18, 2007, 'Being fairer to investors'), the Singapore Exchange (SGX) on Monday finally caved in - not to calls from the media but presumably to pressure from the public to accompany other exchanges that have banned 'naked' short-selling.
Thankfully, SGX has at least stayed true to its long-time position that no outright ban is needed as long as the deterrents are sufficient. And news that there will be daily disclosure of outstanding short positions and the buying-in list is welcome.
However, in trying to demonstrate solidarity with its peers around the globe, SGX has acted too hastily, in imposing a minimum $1,000 fine on failed trades which have to be bought-in later.
Worse, it appears from buying-in figures released under the new measures that naked short-selling is not a problem in the local market - which in turn means that the focus should really have been on disclosure of covered positions. Unfortunately, this was not addressed.
Let's consider, first, the official reluctance to outlaw shorting. This is a controversial stand given that other countries are in effect making shorting temporarily illegal.
But, on balance, it is the correct approach since in a free market, there should be minimal regulatory interference to bias prices in any particular direction. Still, recognising that the sale of something not owned can raise moral and ethical issues, the exchange has always had in place a set of rules aimed at deterring the activity via punitive buying-in costs.
That this system is actually working well in discouraging naked shorts can be seen from the list of bought-in stocks yesterday that was published on SGX's website. These were for positions left uncovered (or naked) on Wednesday, Sept 17, when the Straits Times Index plunged 42 points to 2,419 and when $1.4 billion was traded.
Yesterday's buying-in, however, involved only 45 counters excluding warrants, with the smallest buying-in quantity being 320 shares of M1 and the largest being 138,147 shares of China Hongxing Sports. Can such small quantities be reasonably said to have aggravated the drop that day? Also, buying-in on Monday, which was for naked shorts on Tuesday, Sept 16 - when the STI dropped 25 points and the market traded $1.6 billion - amounted to only $7.4 million, of which $4.2 million came from one stock (China Hongxing Sports).
In other words, naked shorts accounted for less than 0.5 per cent of turnover that day - again, insignificant.
Unnecessary move
This means that buying-in details released by SGX so far confirm that naked short-selling cannot be a major factor in aggravating the market's declines and that the exchange's deterrent mechanism is functioning properly.
(Of course, intra-day shorting could aggravate a downward slide but these sellers have to buy before 5pm, and in so doing provide support before the end of the day.)
The final proof came yesterday when, despite the new measures, the STI plunged 67 points or 2.7 per cent to 2,476.
All of this suggests that the latest move to fine naked shorts at least 5 per cent of their trades subject to a $1,000 minimum is clearly an overreaction and not necessary. None of the figures above suggests an intent to systematically engineer a collapse, so the parties that will end up being penalised will most probably be inadvertent, innocent retail investors.
Moreover, SGX has not addressed the heart of the short-selling equation: the quantities and names of scrip that have been lent to those seeking to short the market.
Known as 'covered' shorts, information relating to these positions would be just as useful to the public as releasing the list of stocks to be bought-in every day.
Hong Kong recognises this and, twice a day, its exchange releases a report summarising the stocks which have been borrowed and the quantities lent.
Here, SGX and several other houses offer scrip borrowing and lending (SBL). The exchange should compile data on outstanding positions from all SBL providers and publish this information as soon as possible after the market closes every day.
This was not addressed in the Monday announcement; instead, all energies were aimed at the insignificant naked shorts.
You'd have to say that insofar as the intention was to enhance disclosure and help investors' decision- making, SGX's Monday move to fine naked shorts has not only missed the mark, it has also fallen short.
COMMENTARY
SGX short-selling measures fall short
Regulator hasn't addressed the heart of the short-selling equation: the quantities and names of scrip lent to short-sellers
By RSIVANITHY
Email this article
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Feedback
AFTER resisting for years suggestions made in this newspaper to improve transparency relating to short-selling and the buying-in market (BT, Nov 16, 2004, 'Revive cash market to run in tandem with buying-in'; April 24, 2007, 'Time for exchange to relook buying-in process'; and June 18, 2007, 'Being fairer to investors'), the Singapore Exchange (SGX) on Monday finally caved in - not to calls from the media but presumably to pressure from the public to accompany other exchanges that have banned 'naked' short-selling.
Thankfully, SGX has at least stayed true to its long-time position that no outright ban is needed as long as the deterrents are sufficient. And news that there will be daily disclosure of outstanding short positions and the buying-in list is welcome.
However, in trying to demonstrate solidarity with its peers around the globe, SGX has acted too hastily, in imposing a minimum $1,000 fine on failed trades which have to be bought-in later.
Worse, it appears from buying-in figures released under the new measures that naked short-selling is not a problem in the local market - which in turn means that the focus should really have been on disclosure of covered positions. Unfortunately, this was not addressed.
Let's consider, first, the official reluctance to outlaw shorting. This is a controversial stand given that other countries are in effect making shorting temporarily illegal.
But, on balance, it is the correct approach since in a free market, there should be minimal regulatory interference to bias prices in any particular direction. Still, recognising that the sale of something not owned can raise moral and ethical issues, the exchange has always had in place a set of rules aimed at deterring the activity via punitive buying-in costs.
That this system is actually working well in discouraging naked shorts can be seen from the list of bought-in stocks yesterday that was published on SGX's website. These were for positions left uncovered (or naked) on Wednesday, Sept 17, when the Straits Times Index plunged 42 points to 2,419 and when $1.4 billion was traded.
Yesterday's buying-in, however, involved only 45 counters excluding warrants, with the smallest buying-in quantity being 320 shares of M1 and the largest being 138,147 shares of China Hongxing Sports. Can such small quantities be reasonably said to have aggravated the drop that day? Also, buying-in on Monday, which was for naked shorts on Tuesday, Sept 16 - when the STI dropped 25 points and the market traded $1.6 billion - amounted to only $7.4 million, of which $4.2 million came from one stock (China Hongxing Sports).
In other words, naked shorts accounted for less than 0.5 per cent of turnover that day - again, insignificant.
Unnecessary move
This means that buying-in details released by SGX so far confirm that naked short-selling cannot be a major factor in aggravating the market's declines and that the exchange's deterrent mechanism is functioning properly.
(Of course, intra-day shorting could aggravate a downward slide but these sellers have to buy before 5pm, and in so doing provide support before the end of the day.)
The final proof came yesterday when, despite the new measures, the STI plunged 67 points or 2.7 per cent to 2,476.
All of this suggests that the latest move to fine naked shorts at least 5 per cent of their trades subject to a $1,000 minimum is clearly an overreaction and not necessary. None of the figures above suggests an intent to systematically engineer a collapse, so the parties that will end up being penalised will most probably be inadvertent, innocent retail investors.
Moreover, SGX has not addressed the heart of the short-selling equation: the quantities and names of scrip that have been lent to those seeking to short the market.
Known as 'covered' shorts, information relating to these positions would be just as useful to the public as releasing the list of stocks to be bought-in every day.
Hong Kong recognises this and, twice a day, its exchange releases a report summarising the stocks which have been borrowed and the quantities lent.
Here, SGX and several other houses offer scrip borrowing and lending (SBL). The exchange should compile data on outstanding positions from all SBL providers and publish this information as soon as possible after the market closes every day.
This was not addressed in the Monday announcement; instead, all energies were aimed at the insignificant naked shorts.
You'd have to say that insofar as the intention was to enhance disclosure and help investors' decision- making, SGX's Monday move to fine naked shorts has not only missed the mark, it has also fallen short.
Published September 24, 2008
Paulson minces no words to get second 'bazooka'
US Treasury chief works to head off opposition to bailout plan in Senate testimony
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(WASHINGTON) US Treasury Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke yesterday urged Congress to act swiftly to put in place a US$700 billion financial system bailout, warning delay would put the economy at risk.
Testifying before a sometimes-sceptical Senate Banking Committee, they said financial markets were in serious stress and needed to be stabilised quickly by cleansing them of illiquid assets.
In his opening statement, Mr Paulson praised Congress for its previous actions, which gave the Treasury new powers to take over mortgage-finance companies Fannie Mae and Freddie Mac.
'To the comments made about Fannie and Freddie and a bazooka, you all can be darn glad you gave us the bazooka, because we needed it,' Mr Paulson told the panel. In July, Mr Paulson referred to the authority to take over Fannie and Freddie as having a 'bazooka' to stabilise mortgage markets.
Mr Paulson said the new powers he sought were essential for the US to deal with a housing crisis.
He wants lawmakers to approve a massive war chest, funded by taxpayers, to buy distressed debt from financial institutions to try to keep credit markets from choking up.
Lawmakers have vowed to move without delay, but also are insisting on changes. These include more protection for taxpayers and limits on compensation for executives of firms that would be offloading their bad assets onto the government.
'Action by Congress is urgently required to stabilise the situation and avert what could otherwise be very serious consequences for our financial markets and our economy,' Mr Bernanke said.
A rising tide of US home foreclosures and loan defaults has spawned the greatest financial crisis since the Great Depression and, after a series of emergency actions to bolster individual financial firms, US authorities say they must now try to save the system as a whole.
Mr Paulson said the broader economy was under threat and said it was essential to move decisively beyond the case-by-case approach followed in the government takeover of Fannie and Freddie and the bailout of insurer American International Group.
'We saw market turmoil reach a new level last week, and spill over into the rest of the economy,' Mr Paulson said. 'We must now take further, decisive action to fundamentally and comprehensively address the root cause of this turmoil.'
White House spokesman Tony Fratto, asked what would happen if the bailout plan cannot be put in place this week, replied: 'You should think of that as unthinkable.'
Analysts said it appeared Mr Paulson and Mr Bernanke were trying to head off opposition to the bailout plan in Congress by stressing the dire consequences of failing to move quickly.
'The policy war on the financial crisis is as much about the psychological impact as about real intervention. It's no surprise, therefore, that the engineers behind the bank remedy plan are calling for fast implementation,' said Lena Komileva, G7 market economist at Tullet Prebon in London.
Mr Paulson said there was 'bipartisan consensus' for a quick legislative solution to the crisis and he urged Congress to 'avoid slowing it down with other provisions that are unrelated or don't have broad support'. However, he and Mr Bernanke provided few clues as to how they view separate add-on provisions suggested by lawmakers.
In addition to curbing executive pay and adding more safeguards for taxpayers, congressional Democrats also want to add assistance for homeowners facing foreclosure.
Mr Bernanke said financial market stress was worsening and said that heightened the urgency of a bailout plan. 'If financial conditions fail to improve for a protracted period, the implications for the broader economy could be quite adverse,' he said. 'At this juncture, in light of the fast-moving developments, it is essential to deal with the crisis at hand.' - Reuters, Bloomberg
Paulson minces no words to get second 'bazooka'
US Treasury chief works to head off opposition to bailout plan in Senate testimony
Email this article
Print article
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(WASHINGTON) US Treasury Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke yesterday urged Congress to act swiftly to put in place a US$700 billion financial system bailout, warning delay would put the economy at risk.
Testifying before a sometimes-sceptical Senate Banking Committee, they said financial markets were in serious stress and needed to be stabilised quickly by cleansing them of illiquid assets.
In his opening statement, Mr Paulson praised Congress for its previous actions, which gave the Treasury new powers to take over mortgage-finance companies Fannie Mae and Freddie Mac.
'To the comments made about Fannie and Freddie and a bazooka, you all can be darn glad you gave us the bazooka, because we needed it,' Mr Paulson told the panel. In July, Mr Paulson referred to the authority to take over Fannie and Freddie as having a 'bazooka' to stabilise mortgage markets.
Mr Paulson said the new powers he sought were essential for the US to deal with a housing crisis.
He wants lawmakers to approve a massive war chest, funded by taxpayers, to buy distressed debt from financial institutions to try to keep credit markets from choking up.
Lawmakers have vowed to move without delay, but also are insisting on changes. These include more protection for taxpayers and limits on compensation for executives of firms that would be offloading their bad assets onto the government.
'Action by Congress is urgently required to stabilise the situation and avert what could otherwise be very serious consequences for our financial markets and our economy,' Mr Bernanke said.
A rising tide of US home foreclosures and loan defaults has spawned the greatest financial crisis since the Great Depression and, after a series of emergency actions to bolster individual financial firms, US authorities say they must now try to save the system as a whole.
Mr Paulson said the broader economy was under threat and said it was essential to move decisively beyond the case-by-case approach followed in the government takeover of Fannie and Freddie and the bailout of insurer American International Group.
'We saw market turmoil reach a new level last week, and spill over into the rest of the economy,' Mr Paulson said. 'We must now take further, decisive action to fundamentally and comprehensively address the root cause of this turmoil.'
White House spokesman Tony Fratto, asked what would happen if the bailout plan cannot be put in place this week, replied: 'You should think of that as unthinkable.'
Analysts said it appeared Mr Paulson and Mr Bernanke were trying to head off opposition to the bailout plan in Congress by stressing the dire consequences of failing to move quickly.
'The policy war on the financial crisis is as much about the psychological impact as about real intervention. It's no surprise, therefore, that the engineers behind the bank remedy plan are calling for fast implementation,' said Lena Komileva, G7 market economist at Tullet Prebon in London.
Mr Paulson said there was 'bipartisan consensus' for a quick legislative solution to the crisis and he urged Congress to 'avoid slowing it down with other provisions that are unrelated or don't have broad support'. However, he and Mr Bernanke provided few clues as to how they view separate add-on provisions suggested by lawmakers.
In addition to curbing executive pay and adding more safeguards for taxpayers, congressional Democrats also want to add assistance for homeowners facing foreclosure.
Mr Bernanke said financial market stress was worsening and said that heightened the urgency of a bailout plan. 'If financial conditions fail to improve for a protracted period, the implications for the broader economy could be quite adverse,' he said. 'At this juncture, in light of the fast-moving developments, it is essential to deal with the crisis at hand.' - Reuters, Bloomberg
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