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Hong Kong SFC to Step Up Investor Protection Measures

Hong Kong’s securities regulator boosted protection for retail buyers of so-called structured products, after losses on notes guaranteed by failed Lehman Brothers Holdings Inc. led to a HK$6.3 billion ($813 million) settlement between banks and investors.

Issuers of structured products will be required to give buyers a “cooling off” period of five days after the sale and allow them to unwind the investments, Martin Wheatley, chief executive officer of the Securities and Futures Commission, told reporters at a briefing today.

“We believe the changes we’re planning are practical and sensible,” Wheatley said. “We try to avoid over-reacting as banks still need to do business after all.”

Hong Kong is seeking to strengthen regulations after thousands of individual investors lost money on notes guaranteed by Lehman, which went bankrupt in 2008. Hong Kong banks in July offered to pay at least 60 cents on the dollar to investors in the Lehman-backed products, hoping to end a yearlong dispute that sparked street protests across the city.

The refund will apply to structured products with maturities of one year or longer. The SFC also plans to ban the giveaway of “inappropriate gifts,” such as supermarket coupons and electronic appliances, as incentives, Wheatley said.

Some of the measures could be implemented as early as July, Wheatley said.

Derivative Products

Last week the Hong Kong Monetary Authority told retail banks to give some investors at least two days before selling them non-listed derivative products they want to buy.

People aged 65 or older and first-time buyers who purchase a derivative product worth more than 20 percent of their assets are covered by the HKMA cooling-off period.

An estimated $1.8 billion of minibonds were sold to more than 40,000 investors, the SFC has said. The notes were guaranteed by Lehman and linked to debt of Hong Kong companies including Hutchison Whampoa Ltd. and Sun Hung Kai Properties Ltd. Among buyers were elderly and poorly educated people as well as mentally ill individuals.

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