SINGAPORE (THE BUSINESS TIMES) – Societe Generale (SocGen) is extending a single exceptional payment as a “goodwill gesture” to investors of the 5x Short Singapore Airlines (SIA) daily leverage certificates (DLCs), after some of them protested against what they saw as the lack of timely disclosure and unfair pricing by the investment bank.
The Singapore Exchange has said that it has commenced investigations into the matter.
SocGen, the issuer of the certificates, announced on Tuesday (May 12) that it will pay 30 cents per certificate. The payment will be made to registered holders of the certificates as of May 11. Mechanics for the payment are being confirmed and registered holders will be notified in due course.
SocGen said: “We emphasise that the goodwill payment amount is not intended to compensate investors for all losses, given the risks investors assumed in purchasing these structured products.”
But it added that the payment shows its “recognition of the ongoing importance of making prompt notifications to investors of adjustments and similar important events”.
The payment is not linked to the pricing of the mandatory convertible bond (MCBs) issue by SIA, SocGen said.
Traders of the certificates had complained last week after SocGen adjusted the pricing of SIA securities lower than what they had expected, by taking into account both SIA’s rights issue and mandatory convertible bond issue.
DLCs are high-risk financial products for sophisticated retail investors that offer the possibility of enhanced returns in a short period of time but with the risk of substantial losses. They give a leveraged return based on the daily performance of an underlying asset. The leverage amplifies the movement of the reference instrument, thus giving the investor outsized returns – or losses. DLCs may be either “long” or “short”, allowing bets on both the rises and falls of the underlying asset.
A 5x Short DLC will move inversely to the underlying asset price by a factor of five, so a 20 per cent increase in SIA’s share price would produce a 100 per cent loss on the 5x Short SIA DLC.
SocGen’s move was seen to have sped up the surge in SIA shares on May 6, triggering an “airbag mechanism” which suspended trading in the DLCs. Traders therefore cried foul, saying they would have had more time to react if the higher price was used or if SocGen had made its position clear sooner.
SocGen said on Tuesday that it considers itself to have acted “appropriately and reasonably” in what were, and remain, “complex and exceptional” circumstances.
On Tuesday night, SGX said in a statement: “In respect of the adjustment announcement, our regulatory focus is centred on ensuring timely disclosure. We require that adjustments be announced once it is determined, but in no event later than the market day prior to the effective date. We have commenced investigations into the circumstances leading to SocGen adjustment announcement.”
