Controversy over SIA DLC shorts stems from risks caused by SocGen's untimely disclosure

THE decision by major structured products issuer Societe Generale (SocGen) to make a S$0.30 "goodwill" payment to traders who lost the entire value of their holdings in the 5x Short Singapore Airlines (SIA) daily leveraged certificates (DLCs) is a fair one.

The DLCs last traded at S$0.81 before they were suspended on May 6, after their value fell rapidly to zero when the underlying SIA shares surged more than 20 per cent upon trading ex-rights. The 5x Short DLCs would fall in value by 5 per cent for every one per cent rise in SIA shares.

Traders had argued that their losses stemmed partly from SocGen's shifting of the goalposts in a football game after the match had already begun. SocGen had adopted a theoretical ex-rights price (TERP) for SIA shares that was lower than what many believed to be appropriate, disadvantaging those who were betting on a share-price fall. SocGen also announced this pricing at 8.38am on the day that SIA started trading ex-rights - breaching rules requiring adjustments to be announced at least one day prior.