Questions and answers about the Resolution Scheme offered by DBS (Hong Kong) Limited in relation to Lehman-related Constellation Notes

1. What is the Lehman-related Constellation Notes Resolution Scheme?

The Resolution Scheme is part of the agreement between the SFC, the HKMA, and DBSHK to resolve the regulatory concerns of the SFC. Under the resolution, DBSHK agrees to:

  • offer resolution payments to customers designated as level 1, 2, or 3 investors under DBSHK's investment profiling system in relation to the their investment in the Lehman-related Constellation Notes
  • offer top up payments to the level 1, 2, 3 customers who have previously settled with DBSHK in relation to the Lehman-related Constellation Notes
  • review the complaints of customers designated as level 4 or 5 investors in relation to their Lehman-related Constellation Notes under the enhanced complaint handling procedures
  • review the customer complaints in relation to the distribution of unlisted structured products other than the Lehman-related Constellation Notes sold prior to 14 July 2010 under the enhanced complaint handling procedures

2. Are all series of Constellation Notes covered in this Resolution Scheme?

No, only the series of the Constellation Notes of which Lehman Brothers Holdings Inc. was one of the credit reference entities are covered. The relevant series included series 34-37, 43-46, 55-58, 59-62, 63-66, 67-70, 71-74 and 78-81 ("Lehman-related Constellation Notes").

3. Are all investors who invested in Lehman-related Constellation Notes covered by the Resolution Scheme?

No, only investors who acquired or invested in the Lehman-related Constellation Notes through DBSHK are covered by the Resolution Scheme.

4. Is every customer covered guaranteed a return of their investment principal?

No, a Resolution Payment will be only offered to customers who:

(a) acquired the Lehman-related Constellation Notes from or through DBSHK;

(b) were classified by DBSHK by its investment profile questionnaire as either a level 1 (conservative), level 2 (moderate) or level 3 (balanced) investor at the time when they acquired the relevant series of the Lehman-related Constellation Notes ("Low Risk Customers"); and

(c) remained a holder of the relevant series of Lehman-related Constellation Notes as of 19 September 2008 (the date on which the credit event notice in relation to the bankruptcy of Lehman Brothers Holdings Inc. was issued).

5. How much is the Resolution Payment?

The Resolution Payment is the investment principal plus the interest that would have been earned on the investment principal from a fixed term deposit less the coupon payments from the Lehman-related Constellation Notes.

6. How is the interest earned from fixed term deposit calculated?

The interest payment is calculated using the 12 month fixed term deposit interest rates for deposits over HKD5 million or their equivalent in USD. The interest period will be calculated from the date of issue of the relevant series of the Lehman-related Constellation Notes up to 14 July 2010.

7. Does a Low Risk Customer have to complain before receiving DBSHK's offer of the Resolution Payment?

No.

8. How about customers who had previously settled with DBSHK in relation to the Lehman-related Constellation Notes?

A Top Up Payment will be offered to customers who had previously reached settlement with DBSHK in relation to the Lehman-related Constellation Notes, to the extent that such payments are needed to ensure those customers are treated in the same way as other Low Risk Customers.

In other words, DBS will pay whatever additional amount may be needed to settled customers as if the offer contained in today's agreement had been made to them on the date of their settlement agreement.

9. What about the customers who have invested in Lehman-related Constellation Notes through DBSHK but are not Low Risk Customers?

For customers who invested in Lehman-related Constellation Notes and were given a risk profile of either level 4 (growth) or level 5 (aggressive) ("High Risk Customers"), their complaints (including complaints filed within 6 months of today's date) will be reviewed on a case by case basis using the enhanced complaint handling procedures.

Customers may file complaints with DBSHK in respect of the sale of Lehman-related Constellation Notes or any other unlisted structured product purchased through DBSHK. Complaints filed within 6 months of today's date (i.e. up to 14 January 2011) will be assessed under the enhanced complaint handling procedures.

If DBSHK finds any breach of the applicable legal or regulatory requirement or upholds the customer complaint, DBSHK will consider offering financial redress to the customer in view of his/her loss or damage suffered.

10. What about customers who have invested in non-Lehman-related Constellation Notes or other structured products through DBSHK?

DBSHK has also agreed to review customer complaints in relation to the distribution of unlisted structured products to its customers before 14 July 2010 under the enhanced complaint handling procedures.

Customers may file complaints with DBSHK in respect of the sale of Lehman-related Constellation Notes or any other unlisted structured product purchased through DBSHK. Complaints filed within 6 months of today's date (i.e. up to 14 January 2011) will be assessed under the enhanced complaint handling procedures.

11. What are the enhanced complaint handling procedures?

The enhanced complaint handling procedures are a process to ensure that the relevant investment transactions are intensively reviewed in order to have the complaints resolved in a fair and reasonable manner. This enhanced process is the same as that implemented by the banks which entered into the Minibonds Agreement.

12. On what terms can the Resolution Payment be accepted?

In short, customers accepting the offer of the Resolution Payment or the Top Up Payment will have to give up all civil claims against DBSHK (including its employees) and withdraw complaints lodged with DBSHK, the SFC, the HKMA, and the Consumer Council and discontinue legal proceedings in relation to the Lehman-related Constellation Notes.

13. What about investment transactions involving joint account holders?

For joint account holders, if any of them was a Low Risk Customer at the time of the relevant purchase of Lehman-related Constellation Notes, the relevant investment transaction will be taken as conducted by a Low Risk Customer.

14. Is it advisable to accept DBSHK's offer of the Resolution Payment or Top Up Payment?

Customers receiving DBSHK's offer should carefully consider the terms of the offer, the conditions for acceptance, and their personal circumstances before deciding whether to accept the resolution payment offer. If necessary, they should consider seeking independent professional advice before accepting DBSHK's offer.

15. When will DBSHK issue the resolution offers?

Customers will receive their resolution offers before 18 August 2010.

16. How does a customer accept or reject DBSHK's resolution offer?

The steps for accepting or rejecting DBSHK's resolution offer are set out in DBSHK's offer letter. Acceptance Forms and Rejection Forms will be enclosed with the offer letters.

A customer has 60 days to return the Acceptance Form or the Rejection Form to DBSHK. If no Acceptance Form or Rejection Form is received by DSBHK by the due date, the customer is deemed to have rejected the resolution offer.

Customers may return the Acceptance Form or the Rejection Form to DBSHK via the mail or deposit the forms with any DBSHK branch office.

17. What is the deadline for a customer to accept or reject DBSHK's resolution offer?

The customers have 60 days from the date of the offer letter to consider DBSHK's resolution offer.

18. Will High Risk Customers be notified?

High Risk Customers will also be notified that no resolution offer is extended to them.

High Risk Customers may file complaints with DBSHK in respect to the sale of Lehman-related Constellation Notes or any other unlisted structured product purchased through DBSHK. Complaints filed within 6 months of today's date will be assessed under the enhanced complaint handling procedures.

19. What if the due date for accepting DBSHK's resolution offer is missed?

If the customer decides to accept DBSHK's resolution offer, they should do so within the 60 day period. Otherwise the resolution payment offer will lapse except for customers who can provide a valid explanation as to why he/she was prevented from accepting the offer within 60 days from the date of the offer letter.

If the customer can offer a valid explanation acceptable to DBSHK after the 60 days, DBSHK will treat the resolution payment offer as being open for acceptance for another 30 days. If the customer again fails to accept the resolution payment offer with the 30 day period, the resolution payment offer will lapse automatically.

20. Are there any remedies, if a customer considers the resolution offer not acceptable?

Customers who consider that DBSHK's resolution offer is not acceptable may file a complaint under the enhanced complaint handling procedures.

21. What about the complaints about the purchase of structured products other than non-Lehman-related Constellation Notes through DBSHK?

Customers complaining about their purchase of other unlisted structured products, such as non-Lehman-related Constellation Notes, should direct their complaints to DBSHK. DBSHK will handle the complaints under the enhanced complaint handling procedures.

22. What if a customer whose complaint has been handled under the enhanced complaint handling procedures thinks that his/her complaint has not been resolved in a fair and reasonable manner?

Customers who are aggrieved with the outcome of the enhanced complaint handling procedures may complain to the HKMA, take legal action against DBSHK, or seek mediation or arbitration.

23. What about investors who had purchased the Constellation Notes from distributors other than DBSHK?

Investors who invested in Constellation Notes through any of the 16 banks which reached an agreement with the SFC and the HKMA regarding Minibonds should raise their queries with the respective bank.

Under the Minibonds Agreement, the 16 banks have agreed to resolve all complaints about unlisted structured products, including Constellation Notes, through the enhanced complaint handling procedures.

If an investor considers that his/her complaint has not been resolved in a fair or reasonable manner, he/she may complain to the HKMA, take legal action against the relevant bank, or seek mediation or arbitration.

24. Will the HKMA continue to investigate into complaints relating to the distribution of Lehman-related Constellation Notes by DBSHK?

Unless dishonesty, fraud or other criminal elements are involved, the HKMA does not intend to continue its investigation into the case of any Low Risk Customer who accepts the offer of Resolution Payment or Top Up Payment made by DBSHK. The HKMA will, however, continue its investigation into those cases involving customers who do not accept, or are not eligible for, the offer of Resolution Payment or Top Up Payment. In determining whether to take any enforcement or disciplinary action, the HKMA will take account of the fact that DBSHK has entered into the agreement under section 201 of the Securities and Futures Ordinance and the measures taken, and any enhancements made, by it pursuant to the agreement.

25. When will the customers receive the Resolution Payment or Top Up Payment after they accept DBSHK's resolution offer?

DBSHK has agreed to make the payments within 30 days from the day DBSHK receives a valid Acceptance Form from a customer and the payment will be paid into the customer's account with DBSHK or, in the case of persons who do not maintain an account with DBSHK, will be paid by cheque.

26. What is the currency of payment?

The payment will be made in Hong Kong Dollars except for those series of Constellation Notes denominated in US Dollars; DBSHK will make those payments in US Dollars.

27. How does a customer contact DBSHK in relation the Resolution Scheme?

If a customer who purchased the Lehman-related Constellation Notes through DBSHK has any queries about the Resolution Scheme (including his/her eligibility or the terms of the resolution offer) or any complaint about the way the Resolution Scheme is administered, he/she should contact DBSHK through:

Hotline: 2290 8123
Fax: 2806 5308
E-mail: feedback.pqm.hk@dbs.com

28.Can the acceptance contained in the Acceptance Form be qualified?

No, any qualifications made in relation to the Acceptance Form will be treated as a rejection of the resolution offer.

29. Can a customer accept DBSHK's resolution offer in relation to some but not all of the series of Lehman-related Constellation Notes invested?

No, the customer cannot accept the resolution offer in respect of some but not all of the relevant series of Lehman-related Constellation Notes. Any acceptance of the Resolution Offer or the Top Up Offer in respect of some but not all of the relevant series of Lehman-related Constellation Notes will be treated as a rejection.

 

Securities and Futures Commission
Hong Kong Monetary Authority
14 July 2010

Last revision date : 01 August 2011