Structured Product: MAS acts against 10 FIs

In today’s ST, the MAS decision to ban the 10 financial institutions from selling structured notes (via new transactions) made the headlines.

To get a quick overview of what areas these 10 FIs failed in, refer here. The full MAS investigation report can be downloaded here.

Interestingly, the POSB Invest SingGrowth Account (5-Year Structured Deposit) and UOB Principal Guaranteed Structured Deposit: Fortune Deposit (Series 7) would likely continue to be offered to customers for the time being. For info: Net Yield (in terms of compounded interest)on POSB SingGrowth is 1.55% pa, assuming no bonus payout. In case of UOB’s structured deposit, the net yield is 1.50% pa.

Based on definition of

“Structured notes”, as defined in the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 means any type of debentures or units of debentures –

(a) which are issued –

(i) pursuant to a synthetic securitisation transaction; or

(ii) by a specified financial institution; and

(b) in respect of which

(i) either or both of the principal sum and any interest are payable;

(ii) one or more of the underlying securities, equity interests, commodities and currencies are to be physically delivered; or

(iii) either or both of the principal sum and any interest are payable, and one or more of the underlying securities, equity interests, commodities and currencies are to be physically delivered,

in accordance with a formula based on one or more of the following:

(A) the performance of any type of securities, equity interest, commodity or index, or of a basket of more than one types of securities, equity interests, commodities or indices;

(B) the credit risk or performance of any entity or a basket of entities;

(C) the movement of interest rates or currency exchange rates.

Therefore, these structured deposits should fall under the category of structured notes. However, POSB and UOB are both not on the list of 10 FIs banned. <amendment>

Though structured deposits are a type of deposit (for more info on difference, see comments below), different from structured notes, it is interesting to see whether continued demand for such products will persist in light of this structured note aftermath. POSB, UOB and OCBC are still offering structured deposits to date. [UOB Kay Hian & OCBC Securities which are in the named list of banned FIs, are the securities brokerage arm of UOB & OCBC resepectively]

Investors who might otherwise be attracted by the high guaranteed interest rates (as advertised) on these 2 structured deposits (capital guaranteed by the respective Banks), would be best to do the necessary ‘homework’ before investing their hard earned monies.