If you are thinking of investing in wholesale bonds, you could be giving up the right to some regulatory protection. Find out what this means before you invest.
- Issuers making offers in denominations of at least $200,000 are exempted from registering a prospectus with MAS.
- If you invest in such an offer, you will not enjoy certain regulatory protection.
- You may still enjoy safeguards under the FAA if the financial institution gave you financial advice before investing.
- If you decide to declare as an accredited investor, the financial institution is not required to provide you with any advice or disclosure.
Rules for offers in large denominations
Wholesale bonds refer to bonds that are offered only to institutional and accredited investors or in large denominations of at least $200,000.
Issuers making such offers (including those of perpetual securities) are exempted from the requirement to register a prospectus with MAS.
Accordingly, the regulatory safeguards for the protection of retail investors, such as criminal and civil liabilities under sections 253 and 254 of the Securities and Futures Act, do not apply to such exempted offers.
If you are a retail investor considering an investment of at least $200,000 in such an issuance, even if you are not provided with a prospectus, the financial institution you deal with would still be required to provide you with clear and adequate information so that you can make an informed decision. If you still have doubts or are unclear about the information provided by the financial institution, you should enquire further.
The provision of information on its own does not constitute advice, in which case the safeguards under the Financial Advisers Act (FAA) will not apply to you.
Note: If the issuer offers the bonds in denominations of less than $200,000 to retail investors, the prospectus requirements would apply.
When do consumer safeguards apply?
Whether the consumer safeguards under FAA applies to you depends on whether financial advice has been provided.
Buying with advice
In practice, financial institutions will typically offer to conduct a financial needs analysis, which could lead to financial advice and product recommendations. In such a case, if you purchase the wholesale bond on the recommendation of the financial institution, you will be protected under the FAA.
Buying without advice
If you choose to purchase an investment product on an execution-only basis (i.e. without receiving any financial advice), you will forgo the protection under the FAA.
NoteThe provision of information on its own does not constitute advice. If you were only given information and not advice, the safeguards under FAA will not apply to you.
If you declare as an accredited investor
Accredited investors are those with at least S$2 million of net personal assets, or who earned at least S$300,000 in the previous 12 months.
If you have declared yourself to be an accredited investor:
- The financial institution you deal with is not required to provide you with any advice or disclosure.
- The FAA also does not provide any safeguards for accredited investors.
It is important that you conduct your own due diligence and ensure that the product you are considering is suitable for your investment objectives and own financial situation.
In the case of exempted offers, the type of documentation and information provided to you may differ from institution to institution. Do make sure that you receive sufficient information in order for you to make an informed decision.