Tan Kin Lian's Blog: Regulation by the Dubai International Financial Center

Saturday, September 27, 2008

Regulation by the Dubai International Financial Center

I met my Singapore friend who now works in Dubai. He wanted to create a new product and get the approval of the Dubai International Financial Center (DIFC) to market the product to retail investors.

The DIFC asked many questions. They are hesitant about allowing the product to be sold to the retail investors, as the investors may not understand the risk. My friend decided to withdraw the application.

I believe that the DIFC approach is correct. It is difficult for retail investors to understand complex products that are designed by "financial enginners" with the aim to make profit for the financial institutions. The retail investors are likely to be "taken for a ride" by these "financial engineers".

This is a different approach from that taken by the Monetary Authority of Singapore.

9 comments:

nhyone said...: How do we know MAS didn't ask tough questions?

We just don't know as we were not involved.; September 27, 2008 6:23 PM
Anonymous said...: Who do not want to bear resp. for one's action? We also do not want to be look stupid.
But these new instruments are just too complicated, and on the surface, they look safe & good.
All the while I thought those minibond,etc are fixed income instruments (invest in bonds to spread the risks).
Only when I visited Mr. Tan's blog recently, then I realise they are structured products created by financial engineers.
Too late, sad!; September 27, 2008 6:30 PM
Tan Kin Lian said...: hi nyhone

If MAS asked questions, the product creator will surely withdraw the applications for the credit linked securities.; September 27, 2008 6:36 PM
nhyone said...: This is now.

Before the sub-prime blew up, CDO and CLS were packaged like bonds and worked as such. (From the investor's point of view.); September 27, 2008 7:07 PM
Anonymous said...: MAS has made a blunder definitely. Why allow a product where Lehman brothers is issuer, arranger and swap counterpary?

Why not call the product Mini-derivatives? See if anyone dares to buy? I won't.

Do you all notice that these products are not CPF approved? Something fishy right?

Next time, government must pass legislation to check if the prospectus and pricing statement are written in everyday-language. MAS must be in charge to enforce it!

And also an age and income-legislation like watching movie show. People above 50 cannot buy. People with income less than $xxxx a month, cannot buy.; September 28, 2008 8:08 AM
Anonymous said...: There are some good & safe investments like DBS pref shares which pay more than 5% per year, but are not open to public. (So 4-5% should not be considered "High" returns).
OTH, there are many "lousy" financial products that flood the market for the retail investors. It is so risky and unfair, and very hard for them to understand, differentiate and choose.
Furthermore, good advices like those from Mr. Tan are hard to come-by, and usually not aware by retail investors.
So is it fair to use the term "buyer beware" to penalise the small investors?; September 28, 2008 11:03 AM
nhyone said...: Don't you say it. The preference shares could be another time bomb if,

1. dividends are not given out
2. share price goes down due to higher interest
3. shares are not called

Impossible? Don't bet on it. (0.01% doesn't mean 0%.); September 28, 2008 5:53 PM
Anonymous said...: Isn't it evident by now that you, the investors, is being regarded as sharks' feed? You are the bait for all these financial institutions to set up shops here. In the quest to be the financial hub of the region, someone has got to provide the food and fuel. You are IT!; September 28, 2008 8:59 PM
Unknown said...: "There are some good & safe investments like DBS pref shares which pay more than 5% per year."

Pref Shares are not safe. You get you high rates but principal is not secured. To get it back you need to sell to the market which is a totally different price from what you bought it from. :( It's not like bonds where you get the principal upon maturity date as long as there's no default. You can get away with poor market prices when you have the patience.; September 29, 2008 12:23 PM