SFC's Response to Accumulators

In response to media enquiries, and to resolve certain misconceptions, the SFC would like to make the following clarifications regarding the regulation of structured products, including Accumulators.

• Accumulators are a form of structured product. Under the Securities and Futures Ordinance (SFO), offering documents and marketing materials of structured products which are offered to retail clients are approved by the SFC.

• The Accumulators which have been sold through private banks and licensed corporations to professional investors, including those who have a portfolio of HK$ 8 million or above, do not require their offering documents and marketing materials to be approved by the SFC.

• Regardless of who the client is, the sale process for all securities and futures products - by both banks and SFC licensees - is governed by the Code of Conduct for Licensed and Registered Persons. This requires intermediaries to explain to the clients the products and the risks involved.

• Where allegations of mis-selling are received, the SFC will properly assess the complaints. So far, only a few complaints have been lodged with the SFC.

• Where any breach of regulatory requirements related to the sales process by SFC registered persons is identified, the SFC will take appropriate action, working together with the Hong Kong Monetary Authority (HKMA) where appropriate.

• In the absence of such a breach and where the Accumulator contracts have been properly entered into, any dispute which subsequently arises is a contractual issue between the client and the intermediary. It is not appropriate for regulators to intervene.

• Many structured products, especially leveraged products, are high risk. They offer the possibility of attractive returns but also carry the risk of significant losses. Many investors in Accumulators were able to make a good return when the market was enjoying a bull run. However, investors who enter into high risk investments need to take responsibility for their own decisions when the market moves against them.

• There is no definitive amount for the outstanding value of Accumulators since they are OTC contracts. However, based on data collected by financial regulators, our estimate of the notional value of outstanding Accumulator contracts, excluding the leveraging effect in some contracts, is approximately US$ 23 billion. There is no evidence to suggest that the unwinding of Accumulator contracts has had any significant impact on market stability.

The SFC is aware of the concern over this product. To this end, we have been working closely with the HKMA and market participants and will continue to do so.

ENDS