Index bonds - Examination of written information to purchasers

Generally speaking, the examination shows that the information fails to fulfill this requirement. The information is presented repeatedly in a manner that could create an impression that the potential to achieve a high return is better than is actually the case. The main reasons for this are as follows:

• Examples of return figures are presented on an accumulated basis over time and before commission.
• Complex calculations are used to show the return, without explaining the consequences of the selected method to the savers. For example, there are examples of the average closing price being used for calculations of the index trend.

Information about the risks associated with an investment in index bonds is inadequate
in many cases, and occasionally misleading.

Since the price of the index bond is not determined in the ma rket and cannot simply be compared with other index bonds, the purchaser is subject to greater demands to be able to evaluate whether the anticipated return is sufficient to offset the risks. Such an evaluation is inhibited by the fact that the return depends on more components and is associated with a number of risks – credit risk, market risk, liquidity risk and pricing risk.

Due to these circumstances, the information material should satisfy stringent requirements. In its report, Finansinspektionen clarifies certain aspects of the type of information required in order for the information material to be considered to satisfy the statutory provisions. These mainly entail presenting the potential return in a fair and distinct manner, and highlighting the risks associated with the investment.

In the opinion of Finansinspektionen, there is currently no need for a further adjustment of the regulations. However, if the clarifications presented in the report prove to be insufficient, the need for new regulations cannot be disregarded.

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