The SFC issued a circular on 17 June 2009 to issuers of credit-linked notes (CLNs) encouraging them to make continuing risk disclosures to reflect the prevailing market conditions throughout the term of a CLN. In the circular the SFC stresses the importance of timely disclosure of easy-to-understand information about risks associated with CLNs. Specifically, issuers are urged to disclose how corporate failures may affect the performance of the notes.
Issuers are encouraged to make enhanced and timely ongoing disclosures to distributors both at the time of issue and during the term of the CLN. The types of ongoing disclosures which issuers should consider include: any credit downgrade of the underlying reference entities or the collateral; any defaults by entities named in the underlying portfolio; the related loss calculations; and what is the remaining threshold before the note would be subject to mandatory early redemption.
Following the SFC's circular, the HKMA wrote to all registered institutions (RIs). RIs, rather than investors, are usually the registered holders of CLNs and hence are the recipients of any notices from issuers or trustees. The HKMA requires RIs to despatch these notices promptly to investors and to take steps to assist investors, such as providing a dedicated enquiry hotline for investors to make enquiries about the information received, ensuring that staff manning the hotline are well briefed and, where necessary, approaching the CLN issuers or trustees for further information.