The Securities and Futures Commission (SFC) today released the findings of its latest Survey on the Sale of Non-exchange Traded Investment Products (Note 1).
The aggregate transaction amount (Note 2) for investment products sold during the year ended 31 March 2018 was $508 billion, 34% higher than the figure reported in the 2016 survey (Note 3). The increase was mainly driven by Mainland-based firms, some of which have expanded their wealth management businesses significantly.
As in the previous survey, structured investment products accounted for the largest share of the aggregate transaction amount, followed by fixed income products and collective investment schemes. The survey also noted a significant increase in the sale of equity-linked products and non-investment grade corporate bonds as clients sought higher investment returns (Note 4). These included equity-linked accumulators, high-yield bonds as well as complex bonds with non-viability loss-absorption features (Note 5).
"Given higher market volatility and the deteriorating credit outlook for some bond issuers, investors should fully understand the features and risks of products before investing," said Ms Julia Leung, the SFC’s Deputy Chief Executive Officer and Executive Director of Intermediaries. "Intermediaries are also reminded to comply with the requirements governing the distribution of complex products."
Today the SFC also issued a circular to intermediaries on the distribution of complex and high-risk products.
The number of licensed corporations engaged in the sale of investment products increased to 252 from 244 two years earlier. The top ten firms, representing about 70% of the aggregate transaction amount, continued to dominate the market (Note 6).
The SFC conducted the survey to understand the industry landscape and obtain an overview of the types and value of investment products sold by licensed corporations to individual investors. This information helps the SFC supervise selling practices.
Notes:
- The survey results were based on responses to a questionnaire sent to 1,844 licensed corporations. The response rate was 100%. It covered the sale of investment products from 1 April 2017 to 31 March 2018.
- The transaction amount refers to the amount paid or payable by investors. For leveraged products, the transaction amount represents the maximum exposure of the contracts. Licensed corporations were requested to report only one side of transactions. Rollover, redemption, and close-out positions were excluded.
- The 2016 survey covered the sale of investment products from 1 April 2015 to 31 March 2016.
- Compared to the 2016 survey, the transaction amounts for equity-linked products increased by 102% to $121 billion and for non-investment grade corporate bonds by 65% to $104 billion.
- An example of bonds with non-viability loss-absorption features is contingent convertible bonds (commonly referred to as CoCos).
- Four were international financial conglomerates and four were Mainland-based brokerage groups.