Saturday, April 11, 2009

Survey: eFiling of income tax

Do you find it easy to e-file your income tax for this year? Survey.

Here are the survey results.

Equity Linked Notes - are the terms fair?

I was given the Security Purchase Contract Note for an Equity Linked Note. The contract note is very difficult to read, even for an expert like me. The Note was issued by bank X and distributed by bank Y to a Chinese educated elderly person (who does not understand English). 

After reading the contract note, I was able to analyse the terms as follows:
a)  The note is linked to two shares, A and B
b)  Interest is payable at an annual rate of 12% for each day that both shares stay above the trigger price (which is 85% of the reference price). If any share fall below the trigger price, interest is not payable for that day
c) At the end of each observation period (about two months), if both shares are above the trigger price, the Note is redeemed at par, plus accrued interest.
d) On the maturity date (18 months), if any share falls below 70% of the reference price, the investor is given the shares and has to bear the capital loss (of more than 30%).
e) The Notes are principal protected at maturity (provided the Knock-in event has not occurred). There is no mention of the party providing the guarantee, but a statement as follows: "the notebolder is exposed to the credit risk of the issuer or the third party guarantor".

I find this product to be unsatisfactory in the following respects:
1) The "interest payment" is not really "interest". It is actually a risk premium given for providing the insurance against a 30% drop in any of the shares in the basket.
2) It is impossible for the investor to know if the risk premium is fair, given the unknown extent of the risk?
3) The contract is designed by bank X, which stands to gain from the margin between the true cost of the risk and the so called "interest" payable to the noteholder. This can be to the disadvantage of the retail investor, and can in an extreme case, be considered as "cheating" the investor.

There are laws against creating gambling contracts, without approval of the authority. Does this type of equity linked note fall within the definition of a gambling contract? This law was written to prevent the public from being cheated.

Outcome: The issuing bank X went bankrupt. The investor lost the entire principal, amounting to several hundred thousand dollars. The distributing bank Y was negligent in exposing the investor to a large risk - without proper diversification.

If you are in a similar situation, with a similar product, you can write to me at

Friday, April 10, 2009

Build MRT internechange stations closer together

At Dhoby Ghaut MRT station, there is a long walk to change from the NS Line to the NE Line, and vice versa.

The NE Line was built many years after the NS Line was operational. It was not possible to build the new station closer to the old station, as it might cause engineering and safety problems.

is there a solution? Give your views here.

Thursday, April 09, 2009

Bus stops as landmarks

I have a proposal to use bus stop as landmarks to get to a destination. Read the following. Details.

Wednesday, April 08, 2009

Fear and consequence of retrenchment

If you held a steady job for many years, and you hear that your company has to downsize, what do you do? If you are retrenched, how are you going to find a similar job in a difficult job market? How are you going to pay your bills?

If you have some savings to draw down for a few months or longer, you may be able to tide over the interim period before you find a new job. What if you do not have any savings?

You can pray that you will be spared. But what about your colleagues who are axed?

It is time for us to consider the need for unemployment insurance. If 10% of the workforce has to be axed, an unemployment insurance scheme should pay them, say, 50% of the previous earnings for a period of up to 12 or 24 months. The cost of the unemployment benefit should be paid by those who have jobs. It should cost about 2% to 3% of the payroll. It is a cost that is worth paying to spread the burden.

An alternative to unemployment insurance is a relief loan to pay the above sum to the retrenched workers. As this is a loan, it should be repaid in the future. Interest should be allowed to accumulate with the loan at the same rate paid by the Central Provident Fund.

I hope that an unemployment insurance or relief loan will be introduced by the Government soon, before more people face financial distress due to retrenchment.

Tan Kin Lian

AFP:Hong Kong watchdog slams brokerage in minibond scandal

5 Apr 2009
Hong Kong's securities watchdog has reprimanded a major brokerage for misselling controversial financial products backed by failed US giant Lehman Brothers, a spokesman said Sunday.

KGI Asia Ltd, which has more than 40,000 clients in Hong Kong, has agreed to repay 1.4 million Hong Kong dollars (180,000 US) to five people wrongly sold so-called "minibonds", the Securities and Futures Commission (SFC) said in a statement.

The minibonds have been at the centre of major scandal in the city, after they were sold to investors -- including many vulnerable retirees -- before their value collapsed when the US bank went bankrupt last September.

Following an investigation, the SFC found that KGI Asia had not adequately assessed the risk of the minibonds and that sales staff had not fully understood the products they were selling.

KGI Asia has agreed to fully refund the five clients, none of them professional investors, the SFC statement said. The brokerage has not admitted any liability.

"This outcome resolves our concerns about KGI's past sales practices in respect of Lehman Brothers minibonds, covers present losses incurred to their clients and provides assurance that these problems will not arise again in the future," said Mark Steward, the SFC's executive director of enforcement.

The move is the latest refund by a major financial firm in Hong Kong in the scandal, which has sparked multiple protests as investors claim they were sold the products on the understanding they were rock solid.

But legislators have complained that thousands of misselling cases have still not been dealt with by the regulators, and the firms that sold the products have been dragging their feet.

More than 40,000 Hong Kong investors had put a total of 15.7 billion Hong Kong dollars of their savings into minibonds and other complex products backed by the investment bank.

Former Wall Street icon Lehman Brothers collapsed in September under mountains of debt.

Thought for the day: Exploitation by the Elite

"The history of mankind is a history of the subjugation and exploitation of a great majority of people by an elite few by what has been appropriately termed the 'ruling class'. The ruling class has many manifestations. It can take the form of a religious orthodoxy, a monarchy, a dictatorship of the proletariat, outright fascism, or, in the case of the United States, corporate statism. In each instance the ruling class relies on academics, scholars and 'experts' to legitimize and provide moral authority for its hegemony over the masses." : Ed Crane

Fascism should more appropriately be called Corporatism because it is a merger of state and corporate power: Benito Mussolini

Ho Cheow Seng

Tuesday, April 07, 2009

Banks get guidelines on treating customers fairly

4 April 2009

The Editor
Forum Page
Straits Times

I refer to the article “Banks get guide on treating customers fairly” (ST 4 April).

I congratulate the Monetary Authority of Singapore for taking the appropriate steps to address this issue. However, may I raise a matter of public concern?

Does this imply that in the past, it was all right for the banks to treat customers unfairly? For example, was it all right for a bank to design a complex financial product that give a poor return for the risks embedded in the product and sell the product to an unwary public, without disclosing the relevant information that are available and known by the product issuer?

Were there already laws in place that were supposed to protect the consumers against unfair or predatory practices?

I recall that there were specific requirements under the existing section 199 and 200 of the Securities and Futures Act and under Section 27 of the Financial Adviser’s Act.

A petition was signed by 983 people who alleged that they were misled into investing in several credit-linked notes, such as the Mini-bonds, High Notes, Pinnacle Notes and Jubilee Notes. This petition was lodged with the Monetary Authority of Singapore on 8 October 2008. It requested the MAS or the Attorney General to investigate if there were breaches of relevant provisions under the existing law.

To my knowledge, there was no announcement on the outcome of the investigation, or if such an investigation had been conducted.

If the investment banks that created the products or the financial institutions that sold the products had failed in their duty under the existing law, surely it is the responsibility of the authority to charge them in court and allow the matter to be decided by the court?

If the court had found that the law was vague, then a subsequent step should be taken to clarify the law through new legislation or regulations.

Let me illustrate with this example. Someone broke into a house and took away an expensive notebook computer. The owner lodges a report to the Police. Should the Police now issue a new guide to explain what is house-breaking and theft? Surely, it is the duty of the Police to charge the culprit, with sufficient evidence, and let the court decide on the matter, based on the existing law?

Tan Kin Lian

Monday, April 06, 2009

Fat fees for speaking engagements

A reader pointed out that the leaders of the advanced democracies earn modest salary when they were in public service, but received fat fees for public speaking after their retirement from politics. There is an article in the Straits Times about the speaking fees received by a former politician.

These fees were paid by the commercial conference organizers, who were able to get the participants to pay the fees to make it viable.

They also get big corporate sponsorships It is likely that the big corporations, which made huge profits from the free market policies, now expect to assistance of the retired politicians in their lobbying. This is unsatisfactory, but is quite unfortunate.

We need a world, and leaders, that are more honorable. They should take care of the ordinary people, rather than for personal enrichment.

Honesty and rationalisation

We think of honesty in terms of financial dealings. We also need to think of honesty in terms of speaking the truth.

If we make a mistake, we should admit it. We should not try to find some angle to explain it away. We should not "rationalise" our action, which is what smart but dishonest people are quite used to do.

If we do not know the answer, we can state the fact. We can seek advice. Or just give it a try.

In an artilce in the Straits Times today stating that Franklin Roosevelt was not sure about how to bring America out of the depression in the early 1930s. He took some bold steps, but admitted that he did not know if it would work. Barrack Obama is now taking the same approach to overcome the global financial crisis 80 years later. 

There are some people who have never made a mistake in their lives, because they are able to rationalise it, and explain it away.  

Tan Kin Lian

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