4 banks' ELDs 12 trillion won in sales, offering an annual rate of 10% but at an annual rate of 2%
4The ELDs sold by banks last year totaled 12 trillion won. A sharp rise in stock prices triggered numerous knockouts, causing the actual returns on products advertised with an annual rate of 10% to fall to the minimum guaranteed annual rate of 2%. The Financial Supervisory Service warned of the possibility of mis-selling.
4The volume of equity index-linked ELDs sold by banks last year was 12 trillion won, according to compiled data. At the time of sale, some products were marketed as offering returns of up to 10% annually. The recent continued surge in stock markets has led to a large number of knockouts in these products.
When a knockout occurs, the product terminates early and investors receive the minimum guaranteed return. According to the article, the actual payout on some products was confirmed to be at the minimum guaranteed rate of 2% annually. An additional fee is charged if the product is terminated early.
The Financial Supervisory Service warned of the possibility of mis-selling in this case. The agency said it would check whether the product structure and the conditions under which gains and losses arise had been adequately explained during the sales process. The banks explained that the products are financial instruments with structured principal-guarantee and return conditions.
The recent stock market boom is cited as a factor behind the knockouts. Banks have sold large volumes of equity index-linked products, increasing outstanding sales balances. As a result, returns have diverged more widely depending on when a knockout occurs.
An ELD is a structured product whose profit or loss is determined by whether specific index conditions are met. A knockout is a clause under which a product ends before its scheduled date when the product conditions are met. The key point is that the maximum return presented at the time of sale may differ from the return actually paid.
Banks are reportedly organizing sales records and materials explaining the products to investors in response to warnings from financial authorities. Investors should check the product terms and conditions and the fees for early termination. The results of additional reviews and follow-up measures will be announced by the supervisory service.
Sources: 매일경제 경제
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