MORNBFI Vol. 1 - Planters Development Bank

APP. Q-1609.12.31unless a written approval was actuallyobtained;(8) A recommendation to consult/referto a financial advisor, if the client has doubtson suitability of derivatives product; and(9) It does not omit any information, theomission of which causes a material fact tobe misleading, unclear or unfair;An FI should consider the client’sknowledge of the transaction to which agiven information relates. An FI should notassume that clients/recipients necessarilyhave an understanding of the derivativesproduct being promoted. An FI should assessits usage of terms, especially those whichare technical. If promotional or marketingmaterials are specially designed for a targetedclient base reasonably believed to haveparticular knowledge of the investment, thisshould be made clear in the materials.b. Product disclosuresAn FI must endeavor to explain thederivatives products it offers to its client toenable the latter make an informedinvestment decision. Product disclosuresshould present an adequate description ofat least (a) the nature of the derivativesproduct, including the underlying, (b) theamount of investment required and (c) therisks involved. The adequacy of descriptiondepends on the target client classificationand type of product offered. In general,disclosure should always be presented in abalanced manner where the potentialbenefits of an investment are tempered by afair indication of the risks involved.A product disclosure, which includesan illustration of past or future performanceof the derivatives product or its underlying,must comply with the following:(1) When using past performance of aderivatives instrument, or its underlying, toillustrate possible returns, the disclosureshould state that past performance is notnecessarily indicative of future performance.This should be presented in the main text ofpresentation material. Past performancemust be culled from a sufficient time frameto provide a fair and balanced indication ofperformance; and(2) When using any forecast on theeconomy, stock market, bond market andeconomic trends of markets, the disclosureshould state that such forecast is notnecessarily indicative of the likely or futureperformance of the instruments; and(3) Illustrations of returns shouldinclude worst case scenarios (i.e., not justthe likely or best scenarios). Benefits shownin headline rates (pro-forma returnshighlighted) should be realistic andachievable, and not based on unreasonablyoptimistic view of events;Product disclosures for derivativesproducts with some form of guarantee orprotection must highlight which benefits areguaranteed/protected and those which arenot. In case of structured deposit products,an FI must ensure that any representationor claim of the Philippine Deposit InsuranceCorporation (“PDIC”) guarantee shouldhave been pre-cleared with the PDIC. Ininstances where the guarantee or protectioninvolves a cost to the client, the FI mustdisclose the fee or charge for the same. AnFI should also disclose the counterparty(e.g., issuer/guarantor) risk involved toclients so that they are not misled about thecapital security/principal protection. An FI,when applicable, should state if theguaranteed or protected amount is payableonly at the end of the term.Product disclosures for leveragedproducts/transactions 1 should emphasizethat while these types of products/strategiesamplify the potential gain from aninvestment, they also increase the potentialloss thereof. A client who intends to engagein margin buying, a means of applyingleverage in investing, must be cautioned onpossible loss exceeding the margin or initialcash outlay.1Leverage or gearing can be employed in a structured product to be able to offer high yields.Q RegulationsAppendix Q-16 - Page 4Manual of Regulations for Non-Bank Financial Institutions