S'pore investors turn to riskier bonds

[weijian]

From the article, “It can be a moral hazard. Do we need to do that to attract investors?” said Raymond Chia, Singapore-based head of credit research for Asia excluding Japan at Schroder Investment Management

--> We definitely don't need commissions to the broker to attract investors, but we need commissions to the broker to attract brokers.

Bonuses paid to Singapore banks for selling risky debt under scrutiny

SINGAPORE (Aug 25): Singapore’s private banks are coming under scrutiny for earning bonuses by selling risky debt, as the city sees an unprecedented wave of defaults. The central bank says an industry group is reviewing the practice.

Bond issuers offer banks rebates of as much as 1% as incentive to sell unrated securities, according to a Bloomberg News analysis of figures from bond-sale arrangers and compiled by analysts. The payments, which often aren’t explained to the banks’ clients, have stoked concerns of a conflict of interest, and Fidelity International has called for the practice to be abolished. At least half the $875 million of bonds that have failed since November were sold by private banks earning rebates.

http://www.theedgemarkets.com.sg/sg/arti...r-scrutiny

[brattzz]

"Singapore’s private banks are coming under scrutiny for earning bonuses by selling risky debt"

and the top pte banks are.....

[specuvestor]

From the article, “It can be a moral hazard. Do we need to do that to attract investors?” said Raymond Chia, Singapore-based head of credit research for Asia excluding Japan at Schroder Investment Management

--> We definitely don't need commissions to the broker to attract investors, but we need commissions to the broker to attract brokers.

Bonuses paid to Singapore banks for selling risky debt under scrutiny

SINGAPORE (Aug 25): Singapore’s private banks are coming under scrutiny for earning bonuses by selling risky debt, as the city sees an unprecedented wave of defaults. The central bank says an industry group is reviewing the practice.

Bond issuers offer banks rebates of as much as 1% as incentive to sell unrated securities, according to a Bloomberg News analysis of figures from bond-sale arrangers and compiled by analysts. The payments, which often aren’t explained to the banks’ clients, have stoked concerns of a conflict of interest, and Fidelity International has called for the practice to be abolished. At least half the $875 million of bonds that have failed since November were sold by private banks earning rebates.

http://www.theedgemarkets.com.sg/sg/arti...r-scrutiny

There has to be an incentive for brokers to arrange a deal. In fact one of my biggest worry is what happens when the bond market turns this time round. In the past we have market makers. But post GFC banks have decimated the market making function. In an OTC market, liquidity is very important. I think the regulators have thrown the baby out with the bath water.

The issue here is transparency. They should declare like in our stock transaction, how much is the commission, not through some under-table rebate system. And they serve as our agent ie has a fiduciary duty owed. Those who take a spread like market makers take principal risk so it shouldn't matter it they make say 5% spread on a willing buyer willing seller basis. However there is a case in US now that the market maker misrepresented that he is not getting a spread doing the trade. Again issue is transparency. If he is a principal the client has no right to demand to know what is his cost price or how much he is making. It's just green eye monster at work.