media release (14-020MR)

ASIC updates hybrid information for investors

Published

ASIC has updated information on its consumer finance website, MoneySmart, to help investors understand the risks and complexities of hybrid securities.

ASIC has also developed a quiz for investors to help them comprehend the terms of these offers and encourage them to be fully informed before they invest.

ASIC’s focus on these complex products follow a rise in their popularity – in the 18 months to July last year, around $18 billion was raised through ASX-listed hybrid securities.

Using everyday language, the updated information on ASIC’s MoneySmart:

  • explains the differences between hybrids issued by banks and hybrids offered by other companies

  • highlights the features and risks of these securities and includes information on the new ‘non-viability’ clauses found in recent bank hybrids

  • compares the typical features of two forms of hybrid security - a capital note issued by a bank and a subordinated note issued by a company - to shares, corporate bonds and bank term deposits, to identify the additional risks investors may be taking on; and

  • breaks down the common terms found in hybrid prospectuses, so readers can understand what ‘interest deferral’ or ‘loss absorption’ could really mean for them. Case studies are used to demonstrate how these terms operate in practice.

ASIC Commissioner John Price said, ‘ASIC is committed to addressing the concerns that these complex products present.

‘Investor education is critical in this work. Investors must think hard about whether hybrids are suitable for them, weigh up the risks, and spread the risk by diversifying.’

View the information on ASIC’s MoneySmart website

Watch ASIC Commissioner John Price’s warning to investors on hybrids (on YouTube)

Background

In August 2013, ASIC published Report 365 Hybrid securities (REP 365) which discussed recent offers of hybrids in Australia and ASIC’s work in response (refer: 13-220MR).

Following earlier work on improving prospectus disclosure, and the new investor education resources, ASIC will continue to focus on possible misleading conduct in the sale of hybrids. This includes inappropriate labeling of hybrids, misleading advertisements, and unwarranted comparison of hybrids to different, less risky products e.g. covered bonds or senior debt.

ASIC has previously warned investors about risks and complexities of hybrids (refer: 11-270MR, 12-207MR and 13-220MR).