Dear Mr. Tan,
This is the first time I visited your blog and find that they are very useful and informative. I have experience in stock market, but not in the bond market of structure product and hence fall into th plight of the recent turmoil.
I would like to post the following in your blog to draw attention from the public about the above product. It is normally ties to a single company. For example for company X which is trading at $2.00. The bank could offer you 96% ($1.92) bid price at 12%pa for a period of 4 weeks. Here is how it work, if at maturity, the stock price is at or above $1.92 you get the interest of about 1%. Should the price of the stock fall below it, you will receive the stock which will be sold to you at the bid price ($1.92) even though the price of the stock is only at $1 trading at SGX - another example of limited earning and limitless loss.
HS
Thanks for covering this topic. I've read a little about it in the papers with all that is going on in the U.S. now. I am trying to understand it much better.
ReplyDeleteyepp, this is a very good example of the retail investors, the public being "seduced" into underwriting financial options..
ReplyDeletefixed return/premium vs potential unlimited loss/claims.. this similar to becoming insurance companies or even SingaporePools (the working-man will surely understand how SPools works)..
should the public take on risks similar to an insurance company/SingaporePools??.. NO..
i put it to MAS that they let this slip out of their pencil-pushing hands..