SFC, HKMA and StanChart reach agreement on Lehman Brothers notes

The SFC and the HKMA has reached an agreement with Standard Chartered Bank in relation to the bank's distribution of equity linked structured notes.

The notes are issued and guaranteed by Lehman Brothers.

Without admitting liability, Standard Chartered has agreed to make a repurchase offer to eligible customers holding an outstanding LB ELN distributed by Standard Chartered.  The total value of the repurchase offer is estimated to be approximately HK$1.48 billion and will cover over 95 per cent of the outstanding transactions in Lehman Brothers equity linked structured notes or LB ELN by Standard Chartered customers.

Following an investigation by the Securities and Futures Commission and the Hong Kong Monetary Authority, both regulators were concerned that Standard Chartered may have exposed LB ELN customers to higher levels of risk than were suitable for them by not adequately considering concentration risk when assessing the suitability of LB ELNs for customers.  

"Intermediaries have an obligation to ensure suitability when making a recommendation or advising on securities.  Assessing the right level of concentration is a necessary part of the suitability assessment," said the SFC's Chief Executive Officer, Mr Martin Wheatley.

"For example, a person who invests most of his assets in a single investment runs the risk of losing nearly all his money if the investment fails.  If the investment is already high risk, this degree of exposure may well be unsuitable," he explained.

"Regulated persons must adopt an appropriate approach to give careful consideration to a customer's concentration risk as well as a number of other factors specific to the customer when assessing customer suitability," said the HKMA's Deputy Chief Executive, Mr Arthur Yuen.

Under the repurchase scheme, Standard Chartered has agreed to make the repurchase offer at a price equal to the total value of each eligible customer's investment in outstanding not principal protected LB ELNs less 5 per cent, or less 10 per cent in the case of customers holding principal protected LB ELNs, of each customer's total assets held at or with Standard Chartered at the end of the month immediately preceding the date of the purchase of the outstanding LB ELNs or, the amount invested in LB ELNs, whichever is higher.