After suffering a 30 percent decline this year, the nation’s sales of structured notes will see little support in the foreseeable future if tighter Financial Supervisory Commission (FSC) regulations continue to make it difficult for domestic distributors to seek retail investors, pundits told a seminar yesterday.
“Once the public’s confidence [and risk appetite] has recovered, the regulator [the FSC] should take improved market conditions into consideration and fine-tune its regulations [on sales of structured notes] so that individual investors won’t be further discouraged to take up products, especially those that are principal-guaranteed,” Wu Chun-yi (吳圳益), secretary-general of the Trust Association of ROC, said at a forum organized by Societe Generale (SG) Corporate & Investment Banking in Taipei.
DECLINING SALES
Statistics show that sales of structured notes had dropped to NT$610 billion (US$18.7 billion) by September from a peak of NT$906.9 billion last year, he said.
Sales of principal-protected notes had seen a smaller 15 percent decline, compared with that of non principal-guaranteed notes, which fell 67 percent, he said.
Comprehensively overhauling the regulations, including the formation of a dispute-settling mechanism, would help improve the transparency of the sales of structured notes, which would in the long run help turn around both institutional and retail investors’ confidence in the products, he said.
He also urged against capping the commissions that domestic distributors receive from note issuers, saying the market mechanism should decide the rates.
In mid-July, the FSC narrowed the cap on distributors’ commissions from 1.5 percent to 0.5 percent a year. It also restricted distributors from taking up more than 5 percent in total commissions, which people in the financial sector said meant that no distributors would still be receiving commissions in 10 years.
CHANGES URGED
Mark Liu (劉光卿), head of SG’s global markets, said the FSC should consider deregulatory changes over the next three to six months.
Lin Kuo-chuan (林國全), an FSC commissioner, said, however, that the commission may review the regulations after a certain grace period.
The commission understands the difficulties distributors face in trying to fully disclose the risk of such products to individual investors, he said.
The experience of Japanese distributors showed that it takes, on average, 40 minutes for sales managers to explain all the risk, which scared away 40 percent of their potential buyers, Lin said.
Nevertheless, SG Taiwan CEO Godwin Chang (張健西) said his bank would launch its first structured note product, targeted at retail investors, in Taipei by January.
“The confidence is back and the retail market will be there,” Chang said.
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