2. Lost in Translation
(Image: Scene from «Lost in Translation)
Some definitions have led to uncertain interpretations and the industry risks unnecessary arbitrage risks. For example, the SFC classifies bonds with «contingent write down or loss absorption features» as complex but industry veterans question whether low single digit percentage coverage warrants a «complex» label.
In other cases, definitions are clear but lead to questionable labeling. After making considerations in the earlier rounds to include the purpose and size of derivative before determining whether a product is complex or not, the SFC decided to place a blanket label for any derivatives usage.
The regulator’s judgment of Hong Kong investor needs is in stark contrast from that of Europe which introduced new UCITS rules several years ago to provide even retail investors access to liquid alternatives.
