A client of the Development Bank of Singapore (DBS) has filed a lawsuit against the lender for closing out her positions on options that were supposed to hedge against her potential forex trading losses. This closing of positions cost her more than $6 million.
According to local media reports, businesswoman Florence Suryawan claimed that DBS bank had convinced her to buy a set of nine options as a form of insurance against the depreciation of the Australian dollar – a currency Ms Suryawan had been trading in for some time.
Options Meant to Hedge against High Risk
In these trades she used accumulators – a type of structured product offered by DBS, and the nine options, which she acquired between August and September 2011, which would have acted as protection of her margin positions, as she was told by the bank. With the accumulators, an investor can buy a certain currency below the prevailing market price over a fixed period of time. Profit comes if the currency’s price rises above a certain level, and if it falls below a certain level, the losses can be significant.
The plaintiff says she was told the options did not offer protection
After the Australian dollar did indeed fall considerably in September 2011, she was informed by the bank that she needed to respond to a margin call. Ms Suryawan is quoted by Singaporean media as saying that she told the bank about the options she had and was surprised, to put it mildly, when she was informed these options did not offer any protection against a depreciation of the Australian currency in her trading activities.
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Following this conversation, the bank closed her trading positions, and her account balance after this move fell from $6.2 million to $410,000. Currently, Ms Suryawan is suing the bank to restore her balance to its level from before the closing out of the positions.
Bank claims client was experienced trader
DBS’ legal counsel, Ang Cheng Hock, told Singaporean media that the investor had a clear understanding of how the options she had bought functioned, adding that the lender had no obligation of providing its clients with investment advice. The bank itself said Ms Suryawan was an experienced investor and in buying the options she relied on her own judgement.
Ms Suryawan’s lawyer, however, Nicholas Narayanan, said the bank had acted negligently in the advice it had provided to Ms Suryawan and that it had no right to close out her positions after the unfulfilled margin call.
A High Court hearing of the case started yesterday.