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China Calls For Probe Into Oil-Linked Product That Burned Tons Of Investors

The financial industry regulator of China has asked one of the largest lenders in the country, Bank of China, to investigate problems of its structured products linked to oil benchmarks that burnt many Chinese investors in last week’s market carnage.  

China Banking and Insurance Regulatory Commission (CBIRC) told Reuters on Thursday that it had asked Bank of China to look into its crude futures-linked product. The regulator has also called on banks to carefully assess risk when offering and structuring products linked to crude oil price swings, CBIRC told Reuters.

The commission has also told banks to suspend new sales of wealth management products that can amass unlimited losses for the investor.

The consequences of last week’s negative WTI Crude prices went far and wide, burning even retail Chinese investors who aren’t allowed to invest in the international crude oil futures markets directly.

Chinese retail investors cannot directly trade WTI Crude or Brent Crude, but Chinese state-held lenders offer structured products with exposure to the price swings of the two most active international crude benchmarks.

For example, Bank of China has a paper investment structured product for retail investors linked to international futures contracts, including WTI Crude and Brent Crude. The bank sells this product, Yuan You Bao, to individual clients. Other banks such as Agricultural Bank of China (ABC), Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB), and Bank of Communications (BoComm) also have similar crude-linked products.

Last week, following the turmoil in international oil markets, Bank of China suspended the opening of new positions in its product. 

Investors started complaining that they weren’t adequately informed of the actual risks of betting on crude oil price swings. 

Sources with knowledge of the matter told Caixin Global that Bank of China’s Yuan You Bao product alone burnt more than 60,000 Chinese retail investors with a total of US$1.4 billion (10 billion yuan). 

By Tsvetana Paraskova for Oilprice.com

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  • Black Rod on May 01 2020 said:
    Most of the retail investors in China are very unsophisticated, the country bans retail option trading on stocks for example, and people in general are not exposed to knowledge of futures and options that common names for investor in this country.

    The most popular investment vehicles by far are: Real Estates and Bonds. And most who bought BOC paper oil products had no idea whatsoever, including the basic ABCs of it, before jumping onboard.
  • Israel Elisha on May 01 2020 said:
    Are you freaking serious?

    Ok if the public wasn't introduced to the idea of stop loss, then i'll understand why they are crying out.
    But i do believe that if you are investing, this should be one of the basic things to be aware about. If you are buying products linked to actual delivery contracts, then you should know when the contract expires, and take the responsibility to protect your investment.

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