There were differing views about the vetting of investment products within the Securities and Futures Commission but they were usually settled in internal discussions, its chief executive Martin Wheatley told lawmakers investigating the Lehman Brothers minibonds fiasco.
Wheatley said he believed discussions about the differences took place as early as 2001, four years before he joined the commission. Minibonds were handled by the corporate finance department, which only required that product information be disclosed.
The investment products department also looked at whether the various parties involved in the product were suitably qualified and authorised. The structure of the product determined which department vetted it, he said.
Wheatley was questioned by lawmakers for the seventh time as part of a Legislative Council inquiry into the minibonds debacle.
"Obviously there had been different views at different times in the evolution of the products that are launched under the Companies Ordinance. And, as in any organisation, those views get resolved through discussion within the organisation and at the board," Wheatley said.
Details of the vetting process were provided two weeks ago by Harold Ko Ping-chung, a former senior manager with the commission. Ko believed the minibonds mess could have been avoided had the commission imposed the regulatory measures needed to properly vet their sale and suitability to investors.
Hong Kong investors, many of whom are not very experienced, lost billions of dollars on minibonds guaranteed by Lehman Brothers, which went bankrupt in September 2008. Minibonds are not corporate bonds but high-risk, credit-linked derivatives. They are marketed as a proxy investment in well-known companies.
Asked by Civic Party leader Audrey Eu Yuet-mee whether the commission was legally able to limit the distribution of complex products like minibonds to experienced or professional investors, Wheatley said products approved by the commission were cleared for public distribution.
"When a document is approved for public distribution, it's approved for public distribution. There's not segments of the public for which it's approved," Wheatley said.
"An ordinance allows us to approve a product for public distribution. The code says what segment of the public a product should be sold to. So it is a combination of both of those ... We set the rules but, in some instances, we don't enforce the rules."
Author:
Dennis Eng; SCMP
10th February 2010
Read article: Vetting issues get settled in-house, SFC chief says