Directed at issuers of all retail investment products, including retail collective investment schemes and retail structured products, the circular says marketing materials issued “must be clear, fair and present a balanced picture with adequate and prominent risk disclosure in compliance with all applicable regulations.”

“Recent events show that investors need to be presented with a clearer picture of product risks – they need to understand better how products will operate in extreme market conditions or in the face of bankruptcy,” said the SFC’s Chief Executive Officer Mr Martin Wheatley. “We are reminding issuers of retail investment products, therefore, that they must exercise their duty more diligently within the current regulatory framework to disclose risks and explain their products.”

The circular further reminds issuers to include in their marketing materials “upfront, prominent and adequate warnings” of all risks, including “new risks” emerging from prevailing market conditions. Issuers seeking authorisation from the SFC to market retail investment products also are advised to “revise their documents in light of the recent market events.”

The SFC also warned last week that it was prepared to strengthen its controls over short-selling if it became necessary. The SFC has already banned 'naked' short selling and applies an 'uptick' rule. Market statistics don't however reveal any unusual level of short-selling in the stock market.

Market nervousness over the banking sector in Hong Kong remains significant even after the Hong Kong Monetary Authority injected USD3.9bn into the banking system last week to halt the hike in interbank interest rates. HKMA chief executive Joseph Yam said: "The situation of the international market is difficult and Hong Kong will inevitably be affected. However, depositors and investors should maintain their confidence because our banking system is healthy."

Hong Kong investors had significant holdings in Lehman Brothers investment products. According to SFC statistics, Lehman Brothers issued a total of HKD12.7bn (USD1.6bn) of 'mini-bonds' to more than 10,000 local investors.

The Hong Kong Association of Banks has formed a task-force to deal with the situation and is working with Lehman's liquidators and trustees to clarify redemption arrangements for bond-holders.