SRP Index Report 2021 by SRP & FOW

SRPReports @SRP_Insider

INDEXING AND STRUCTURED PRODUCTS

Contents Executive Summary: Underlying issues

Industry view: The benefit of increased transparency

Expert View: QIS as a complement of the structured product payoff

A Global View: The Big Four

Asia Pacific perspective: Multi-asset, QIS gain momentum

Rising Stars: Speed to market and customisation

New Entrants: A niche approach

Buy-side view: Understanding risk is key

Specialist players: OCC cleared v OTC

Case study: Building an ESG index

Analysis: The merits of equal weighting indices

Index sectors by issuance and sales

Index sectors – evolution

Market Capitalisation Indices

Industry Sector Indices

Strategy & Factor Indices

ESG Indices

Decrement Indices

Thematic Indices

Proprietary & Custom Indices

INDEX PROVIDERS - Profiles

INVESTMENT BANKS – Profiles

Editorial: Pablo Conde, Amelie Labbé, Marc Wolterink, Summer Wang, Lavanya Nair, Suzanna Moni If you are interested in having a similar bespoke report produced for your organisation, please contact Reihaneh Fakhari at +44 (0)20 7779 8220 or email Reihaneh@structuredretailproducts.com

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PERMITTED USE: The Client is permitted to distribute the Report to its buy-side clients only subject in each case to providing advance notification to Euromoney in writing of the identity of such clients and providing such other information as Euromoney may reasonably request. The Client shall not be entitled to distribute the Report to any person who Euromoney reasonably considers not to be a buyside client. Disclaimer: The investment bank section only covers indices branded by investment banks and does not include all the custom indices for which investment banks have exclusive rights – investment banks have exclusive agreements on a number of sponsored indices from different index providers including Stoxx, FTSE Russell, Nasdaq, KRX, SGX, Solactive, Euronext, S&P DJI and MSCI on market access indices, risk premia and smart beta, climate and thematic indices. There is also some overlapping with some custom with other sectors. This section includes all indices from each investment bank on SRP’s database, and the tables are not based on a specific period of time.

Executive Summary: Underlying issues Index providers are major players in the structured products market. The shift from active to passive management over the last 10 years and a buoyant structured products market continue to drive demand for index products. Smart beta, risk premia, decrement or incomefocused custom indices are some of the most sophisticated creations in the structured products market. But as investors’ demands increase, customised indices are becoming highly specific and some would argue increasingly complex. In this report we aim to shed some light on the makeup of the indexing space when it comes to the structured products market by looking at five years of public distribution data covering all single index structures delivered via non-flow products.

Scope We will be looking at the main top 10 indices by sector, and the main providers of indices to the structured products market including investment banks and index providers, with outstanding volumes linked to indices in the structured products markets across the world. The report also includes the expert view of experienced market specialists and new entrants, feedback from the buy-side as well as opinions from senior industry executives about usage, new trends, challenges and market outlook. For the sake of simplicity, baskets of indices were not included hence the issuance and volumes shown only apply to a fraction of the market. However, SRP data shows that including baskets of indices, the size of the index-linked segment amounted to more than US$1 trillion from almost 215,000 products (excluding flow and leverage) between 2016-2020 which shows the magnitude of the index footprint in the structured products market.

Self-indexing The need for customisation has made off-the-shelf products and one-size-fits-all solutions too rigid.

This in turn has forced investment managers to look at direct indexing so they can make their own benchmarks and save the money they pay index providers. As a structured note packages equities and other assets into a single product accessible to investors at a low cost, direct indexing replicates an index by owning the individual securities instead of in a packaged instrument. “The industry approach has always been topdown, meaning the big asset manager or investment bank decides what is good to invest into, creates a product to invest and sends their army of salesmen to pitch the new product trying to raise money and interest,” says Antonio de Negri, chief executive at Cirdan Capital. “Well this is exactly the opposite!” The direct indexing phenomenon is accelerating because clients can gain exposure to new thematics by becoming creators of the content that goes into their investment. “It all comes down to technology and platforms in which clients can select and create their own index exposure and baskets for sure with a click of a button,” says de Negri. “They could also list on an exchange where other people can buy and sell it. The social distribution of ideas stems from the innovations taking place in the market.” To complicate things, a recent report from the University of Virginia* suggested that index providers should be categorised as investment advisors to avoid conflict of interest. The report raised an interesting point related to those engaged in self-indexing in that it questions if the boards of the index provider and the boards of mutual funds and ETFs are independent, according to Rick Redding, managing director at the Index Industry Association (IIA). “There’s some confusion on what an investment

*University of Virginia School of Law, Law and Economics Paper Series 2021-01, January 2021 (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3767087)

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“Thematic indices have become one of the drivers of product development in the structured products market across Europe” Arnaud Heckenroth, head of equities structuring, Emea, Barclays

advisor does in the US as compared to what an index provider does,” he says. “The conflict of interests can come in a couple places when the product provider is also the index provider or when the index provider is also the one trading the underlying component securities to make prices. “There should be independence between the index provider and the product provider. But saying that an index provider would be an investment adviser doesn’t make a lot of sense, because the client of a truly independent index provider is actually the asset manager. They don’t know what the situation of the end investor really is. That is the job of an investment adviser to advise on the suitability of any investment.” If index providers were to be made investment advisers this would mean that the client has two investment advisors in the chain, according to Redding. “At that point, that would be creating a new conflict of interest,” he argues. “There is a lot more than they need to look at and make sure that they’re not creating new unattended consequences.” Despite this and other disruptive efforts to crack the index oligopoly, the reality is that the number of indices being brought globally to the market by the big four index providers – Stoxx, FTSE Russell, S&P DJI and MSCI, continues to increase, with structured ETFs and structured products driving significant activity around new underlying strategies.

Thematic 2020 was the year of thematics and megatrends in the structured products market - technology, workfrom-home, ageing population, robotics, you name it! Market cap indices continued their dominance. However, technology developments accelerated trends in 2020 and drove the market recovery tech stocks took centre stage but other investment themes investors relate to were also on high demand. ESG has now taken the lead as the sector at the

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forefront of developments from an underlying standpoint with new indices and issuers entering the space on a regular basis over the last two years. In early March 2021, Barclays got a exclusive licence to use the Solactive Climate Change Europe BTI Index as the underlying of new structured products. “Thematic indices have become one of the drivers of product development in the structured products market across Europe,” says Arnaud Heckenroth, head of equities structuring, Emea at Barclays. “ESG has been a major catalyst of activity and one of the main building blocks for structured solutions.” According to Stephane Mattatia, head of thematic indexes at MSCI, 2020 acted as a trigger for structured product investors in that their thematic preferences shifted almost instantly. “ESG was the most interesting theme to develop new indices – there were pure ESG thematics like clean technology, circular economy, and future mobility, but no matter what thematic there was always a layer or an ESG feature to add to it,” he says. “We saw an explosive interest in fintech as the digital economy accelerated during the crisis, and a lot of interest in society as well as some biotech genomic themes.” MSCI launched in late 2019 five thematic indices tracking the performance of long-term megatrends which are widely expected to impact society and the economy in the future. The timing was almost perfect as these are the kind of trends gaining momentum since the beginning of the pandemic. This thematic series is targeted at investors seeking to access global trends around the rise of smart cities, the digital economy, future mobility, disruptive technology and millennials.

Custom The overwhelming majority of structured products continue to be issued using price return indices as

the underlying, while traditional market cap indices continue to dominate issuance and sales, however, indexing has moved to a new level of sophistication that involves customisation and optimisation.

By region, the appetite also varies with Europe leading most of the activity. There are only 44 decrement index-linked products listed in Asia, mostly in South Korea, according to SRP data.

The ability to integrate third party data from experts has also been a driver of innovation by adding to the existing methodologies and data, features such as high div / low vol, decrement and risk controls, which can help to address the challenges resulting from the low rate and high vol world, and allow distributors to have a wider choice to achieve the outcomes end investors seek.

The most recent addition to the growing family of decrement indices in Asia came courtesy of Hang Seng indices which launched its new HSCEI Futures KRW Hedged 3.4% Decrement Index (TR) at the end of February 2021. The index provider’s second decrement index following the launch of HSCEI NTR KRW-converted Daily Reset 3.25% Decrement ER Index in August 2019.

“Market cap will continue to dominate but we have seen an evolution in the structured products market in that traditionally these products were linked to very simple indices and the sophistication was with the product payoff itself,” says Mattatia. “Now we are in a different situation as we can see relatively simple payoffs while the IP and the sophistication goes into the underlying. That has forced index providers to improve the data they use and their customisation capabilities to build new indices and tap into new thematics driving investment activity.”

On the decrement front, however, the US is somehow behind other markets with a more sporadic pattern. UBS reported recently the use the synthetic dividend feature as part of its offering on phoenix autocallables in the US market.

Decrement or synthetic dividend indices have become a popular feature in underlying indices developed for structured products in the current economic environment and their use alongside ESG filters have helped them to gain visibility and become a powerful feature for many investors wanting to take an ethical stance whilst also trying to reduce volatility within their portfolios. “[Decrement indices] are more sophisticated than market cap indices, [but] they have a rationale and a narrative easily understood by investors as it focuses on the high dividend yield in the market,” says Mattatia. SRP data shows that in 2019 there were 550 products linked to decrement/ESG underlyings with an estimated value of US$6.9 billion compared to 660 products worth US$7.1 billion in 2020.

QIS Quantitative investment strategies (QIS which include smart beta, risk premia and actively managed certificates (AMCs), have also been an area of focus in the structured products market with significant developments across markets over the last five years. Product issuers are increasingly working with asset managers and index providers to develop QIS. This has resulted in new indices designed for the structured products market being introduced to investors almost non-stop over the last year or so. In January 2021, Leonteq launched the first tracker certificate linked to the Swissquote Global Inverse Index, a strategy wrapped as an AMC which was constructed by using various derivatives from nine inverse ETFs to profit from a fall in the value of an underlying benchmark. The product which is aimed at investors looking for positive returns if markets go South offers an easy to understand concept for retail clients seeking

“When markets get a bit shaky there is demand for such strategies” Manuel Duerr, head of public solutions, Leonteq

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“These kind of index helps bridging the gap between hedge funds and the structured product world” Clément Florentin, head Investment solutions structuring, Asia ex-Japan, Credit Suisse

to bet on the short-term market uncertainty, according to Manuel Duerr, head of public solutions at Leonteq. “We have seen in the past that when markets get a bit shaky there is demand for such strategies. During the first coronavirus lockdown we saw significant inflows into this kind of product from investors looking to capitalise on market dislocations,” he says. Also in January, Credit Suisse launched the Credit Suisse Man AHL TargetRisk Core Custom 5% VolControl Index and Credit Suisse Man AHL TargetRisk Core Custom 10% VolControl Index, the latest addition to the bank’s QIS index family and licensed the Credit Suisse Momentum Index to be used as the underlying of a fixed index annuity (FIA) in the US market. “This proposition has already attracted sizeable seeding investment from Asia,” says Clément Florentin, head Investment solutions structuring, Asia ex-Japan at Credit Suisse. In Asia Pacific, where clients separate allocations into hedge funds, discretionary mandates and quantitative strategy indices, these kind of index helps bridging the gap between hedge funds and the structured product world. The Swiss bank began to trade swaps on the index in Q4 20 with a standard maturity or open-ended like Delta-1 certificates, while options are available up to 10 years. According to SRP data, there are 24 products linked to the CS Tactical Multi Asset Index 2-year p2p spread index in the US annuities database. The SRP database has recorded up to 58 of the bank’s custom indices used in the structured products market, the most popular of which is the Credit Suisse GEM 10% Risk Control Index (82 products/US$89m). In the US, BNP Paribas reached an agreement with Credit Suisse Asset Management QIS in February

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2021 to act as the allocation agent for the CSAM QIS Dynamic Multi-Factor Diversified Strategy (DMD7) index, a quantitative strategy seeking to provide diversified exposures across a range of systematic investment indices offered by the French bank via structured products. Spain’s BBVA is also building up its offering since it first launched its QIS business in Q4 2020 with the Solactive BBVA ixS Global Inclusive Growth Index and Solactive BBVA ixG Global Governance & Board Diversity Index. “Clients demand a more transparent and accountable investment process,” says Juan Ramon Dominguez, European head of equity structured products sales at BBVA. “QIS perfectly fits this requirement by encapsulating the investment strategies into rules-based investable indices providing a fully transparent investment process. The index methodology is established during the manufacturing process and remains stable throughout the strategies´ life.” Another top provider of QIS indices, Société Générale has a number of smart beta underlyings in the retail structured products market, with some featuring across several uncapped call, protected tracker, and cliquet structures. The French bank has just introduced to the market the Global Sentiment Index as the underlying of the Asset Shield FIA, following the launch of the latest addition to its proprietary index suite - the SG Macro Compass Index, a multi-asset index designed to identify changes in the economic cycle and rotate asset class allocations to perform in varying market environments. Other recent launches in the US indexed annuity market include the BofA Destinations Index, developed by Bank of America in collaboration with American Equity, as well as the Credit Suisse Tech Edge Index which combines bio tech ETF asset classes with fixed income components, and a ‘fully funded put-write strategy for qualified wealth

management clients, offered as a unique alternative with features that adjust market exposure for various market stress scenarios,’ developed by UBS’s QIS team. UBS which also has a number of QIS indices linked to structured products. The Swiss bank sees QIS and ESG as an integral part of the investment bank’s product offering which can be delivered via different outlets, according to Spyros Mesomeris (pictured), global head QIS structuring and global head of quantitative and global investment solutions (GIS) research at UBS. “As we revamp our equity product suite, one of the areas we are delving deeply into is new factorbased and systematic strategies which can combine equities but also credit,” he says. As new underlyings for structured products are developed, there are a number of parameters to consider the right products end up in the

although it is important to offer choice and develop a comprehensive offering you have to be careful not to over engineer underlyings which could result in over allocating or over exposing yourself inadvertently or by design to particular risks.” “The challenge overall is that we have to ask ourselves if we have too many indices on offer for clients,” says Ian Merrill, global head of equities structuring at Barclays. “Are we making it difficult for clients to choose one over the other? I would say that is something that we should keep an eye on as an industry.”

Target outcome Target Outcome Indices are designed to help investors minimise risk and target returns and are delivered via structured ETFs. Cboe Vest introduced target outcome indices to the market in 2015: these are options-based strategy benchmarks designed to provide targeted returns relative to a referenced US domestic stock market index, and in the case of buffer protect strategies, to limit downside risk. These indices measure the performance of a hypothetical portfolio of FLexible EXchange (FLEX) Options, which are customisable contracts that allow users to specify key contract terms, including strike prices, exercise styles and expiration dates.

“Clients demand a more transparent and accountable investment process” Juan Ramon Dominguez, European head of equity structured products sales, BBVA

hands of the right investor, says Ahmad Chaudry, executive director, markets structuring, ESG at UBS Investment Bank. “You need to take into account not only the thematic side of things but other intricacies such as hedging, tradability as well as the volatility and dividend parameters,” he says. “Our view is that

“The series were developed in response to customer demand for more options-based strategies that provide a combination of growth potential and downside risk mitigation,” says Bruce Traan head of Cboe Global Indices. Cboe’s current line-up of Target Outcome Indices, includes more than 115 indices. In November 2020, Cboe expanded its family of Target outcome indices with the addition of two series of indices tied to the Russell 2000 Index. The hypothetical portfolio aims to provide exposure to the Russell 2000 Index, where the downside protection, upside growth potential and outcome period are all pre-determined. Disclaimer: The investment bank section only covers indices branded by investment banks and does not include all the custom indices for which investment banks have exclusive rights – investment banks have exclusive agreements on a number of sponsored indices from different index providers including Stoxx, FTSE Russell, Nasdaq, KRX, SGX, Solactive, Euronext, S&P DJI and MSCI on market access indices, risk premia and smart beta, climate and thematic indices.

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“QIS and ESG are an integral part of the investment bank’s product offering” Spyros Mesomeris, global head of quantitative and global investment solutions (GIS) research, UBS

Digital assets The cryptocurrency and digital assets space has also been at the forefront of developments in indexing although the visibility of these indices in the retail structured products market has had a limited impact on issuance and sales so far. Earlier this year, MV Index Solutions (MVIS), and Intelligence Unit (IU) partnered with Nomura Research Institute (NRI) to launch the NRI/ IU Crypto-Asset Index for financial institutions. The first investable crypto-asset benchmark for institutional investors in Japan leverages the crypto-asset index platforms provided by MVIS and CryptoCompare. The first index to reach the structured products market was the result of a partnership between MV Index Solutions (MVIS) and Swiss ETP provider Amun to launch the Amun Crypto Basket Index, a digital assets index designed to track the top five cryptocurrencies in 2018. Another crypto index

recorded in the structured products market was launched in Switzerland by Seba Bank also in partnership with MVIS in December 2019. The Seba Crypto Asset Select Index (Sebax) was deployed via a tracker certificate MVIS has also teamed up with ITI Funds to launch the ITI Funds Crypto Index is based on selected cryptocurrencies from the top 30 list; and Crescent Crypto Asset Management to launch the Crescent Crypto Market Index which tracks the performance of the largest and most liquid cryptocurrencies that have secure cold storage capabilities. Other recent crypto indices launched to the market include the Invstr Crypto Index (made up of 18 constituents which is a range of digital currencies such as bitcoin as well as blockchain platforms like Ethereum); Nasdaq’s Bitcoin Liquid Index (BLX) and the Ethereum Liquid Index (ELX); and the Bloomberg Galaxy Crypto Index (BGCI) which was designed to track the performance of the largest, most liquid portion of the cryptocurrency market.

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Index Industry Association: the benefit of increased transparency Rick Redding, CEO of the Index Industry Association (IIA), discusses the efforts made by the industry to observe high quality standards and how the cost of compliance could kill innovation.

The industry has worked to increase transparency and decrease conflicts of interest around selfindexers. If the index provider is following the IIA Best Practices or the losco sPrinciples for Financial Benchmarks, they should be making their methodologies public and transparent. Most of them do it by putting them on their website. The IIA rules and the losco Principles have forced some of the players to be more transparent. We welcome that effort and think the methodology should be publicly available.

Q: Has the Benchmark Regulation had a positive impact in the industry? On balance it has impacted the industry positively, but it is probably the losco principles that have done more for that because those are global standards. Outside of the EU, a lot of other regulators that have passed any benchmark regulation tend to look for losco compliance, not the approach that the EU has taken.

Q: Should index providers offering their own IP stop calculating indices for other players? A lot of that is coming from institutional investors creating their own index and providing the product on it. A standard due diligence question is whether someone administering the index is not a related company. You don’t necessarily see that on every product on the retail side yet, but you see it a lot more in the institutional structured products world. There needs to be an independent set of eyes making sure that the methodology is being adhered to the way it is. That has been a very positive step promoted by the losco Principles and we don’t want to see anything done that would harm that.

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“Some of the products that get sold can be very complicated” Q: Do investment banks and asset managers need a framework to develop new indexing ideas? That’s the fundamental issue of what an investment bank or an asset manager does and why setting up an independent set of eyes on the process makes sense. The bank and the asset manager know what their clients want so having another party do the administration on the indices they develop makes for a best practice. Since the 2008 crash a lot of the banks have stopped the index provision business as it is not a core business, and many banks have sold their index business. They may talk with clients and come up with ideas of what their clients want but structuring and administering indexes daily is not what they get paid for nor is this their expertise.

Q: Are index providers more limited to innovation because of regulatory constraints? We’ve seen some smaller index providers out there that tend to be nimbler and come up with some innovative ideas. We think this is positive for the industry because it does allow some innovative ideas to come to market and sometimes with less

money, but there needs to be a balance to expertise, reliability and speed the market. Investment banks and asset managers have that choice to make, and that’s one of the things that the IIA fed back to the European Union - if the cost of compliance of the benchmark regulation becomes too expensive, it may kill some of that innovation and competition. That’s not good for asset managers, nor is it ultimately good for investors.

saved roughly US$15 billion a year directly from using index products. And if you take the indirect effects of transaction costs and forcing fees down lower across all forms of management, it is probably US$50 billion a year.

Q: What is the danger of smaller index providers not adhering to best practice?

We have been engaged in many discussions across the globe involving the quality of the input data because when you go into ESG issues it is not necessarily something you can see on balance sheets, which is the traditional way indexes are put together.

That’s why the IIA got formed originally. People were concerned that the least-best providers in the space may damage the industry and the reputation of providers. One of the first things we did was to create a set of Best Practices and make them publicly available. A recent example is Finvex in Europe which failed, leaving the asset managers scrambling to figure out how to price and calculate some of their own proprietary indices. There is a trade-off between education, reliability and sometimes speed the market. That is a lesson a lot of people forget until you have something like Finvex.

Q: Where is the growth coming from for the indexing industry? Our annual survey shows that the growth is coming in two areas. The biggest one is ESG indices, which grew by 40% - we have never seen anything like this in the first four years we have conducted the survey. The other area is in fixed income where a lot of resources have been utilised. ESG seems to be the area where you’re going to see plenty of efforts continue to be made in the next several years. It is a growing area but also more complex than traditional market cap indices - you are relying on input data from corporations and then usually from third parties that is evaluating the scores of these companies. The better the information comes from the corporates that need to be reporting this, the better the indices will be and then down the road the better the investment products will be for investors. Going back to innovation, 10 or 15 years ago, the asset classes for all investors were much more limited. Now, everyone has access to emerging markets and commodities and assets that typically only institutions had access to. With an index, investors get the added transparency. The Centre for Economic Development did a study on this in the summer of 2019. They estimated that investors

Q: What is the role of the association in creating standards around ESG and QIS indexes?

We try to encourage the accounting boards and regulators that are working on this to have some standards. The struggles that people have are mostly on the S and G side because even though a lot of companies report emissions differently, people can get over how those are reported and come up with common standards. The problem with the S and G part is that the data is not as robust. It will be challenging to find a global standard in those areas because some regional or cultural issues are very different, which makes it difficult to come up with one standard. For example, in some countries there is just not many women on board of directors yet and some countries don’t even capture that data. We are advocating for more data to be made public so that better indexes can be put together.

Q: Is there a danger of overengineering indices as providers slice and dice the market? One of the areas where we make an effort is on telling investors to make sure they understand the methodology of the underlying index in the products they invest in. Product and fund names can be very similar, and it is important to market investment products appropriately. Understanding the methodology is one of the most important things. For example, investors need to understand what high yield means, are the returns coming from fixed income or high dividend stocks, but they also need to be aware what are the industries underlying the index and how well they will react of the rates going up, and so on. Some of the products that get sold can be very complicated. Sometimes you must take a step back and ask what the economic intuition is and why this product would work and what goals will achieve for you as an investor.

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Expert View: QIS as a complement to the structured product payoff

By Walter Cegarra, chief executive, FNZ Q-Hub*

Origins of QIS and types of strategies There are four main strands which led to what we call QIS today. One is the evolution of traditional indexing. Indices have been around since the late 19th century, and have become widely accepted and used instruments for benchmarking performance or as an underlying for investment products. Academic research on traditional market capitalisation-weighted indices concluded that the way they are constructed (weighting scheme) may not be optimal or ideal. Fama and French published their three-factor model in the early 90s confirming that other factors can be used to describe single stocks and therefore used as an enhanced weighting scheme for the components of an index. Their research led to the development and use of alternative schemes for equity indices construction, expected to be more beneficial for investors compared to market cap indices, either from a performance and/or from a risk perspective. Fama, French and other academic research became the basis for the first strand which is known as smart beta. These QIS indices still aim at giving investors a broad market exposure, typically in the equity asset class - although there are also smart beta indices in the fixed income and commodity asset classes - but with a different weighting scheme. Smart beta indices tend to be directional – even though not 1, those indices tend to have a positive beta to the market, confirming a certain directionality. The second strand comes from hedge fund replication strategies, accelerating after the global financial crisis. While institutional investors continued to have appetite for hedge fund and alternative strategies given their potential benefit

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as part of the strategic asset allocation of their portfolios, they were keen to address well identified issues at this point in time: high cost, lack of liquidity and lack of transparency of traditional offshore hedge funds. This triggered new research from academics, investment banks and asset managers to find solutions to deliver similar risk/return profiles than a diversified hedge fund portfolio, in particular in terms of correlation properties versus traditional asset classes, but only using liquid and transparent instruments. This sub-category became more sophisticated and complex over time and moved away from a broadly diversified multi-strategy/ multi-asset strategies towards granular single asset/ single strategy propositions.

“QIS indices still aim at giving investors a broad market exposure” The third strand was driven by trading strategies developed by investment banks, at the time when proprietary trading was allowed, which were offered to institutional investors as some form of so-called co-investment. Wrapping those strategies into indices greatly facilitated the delivery and trading of such proprietary strategies. These last two sub-categories have become what we know today as risk premia or alternative risk premia (ARP). Some people also refer to them as systematic alpha or dynamic beta. However, beyond the label, the most useful way to refer to them is to describe what should actually be expected of the strategy in a portfolio context – they are not meant to be directional and are designed to provide some diversification compared to traditional market beta, in particular in times of non-supportive or stressed markets.

The fourth and final strand is less about market exposure or absolute return but more about operational facilitation, which comes in the form of actively managed certificates and actively managed indices, commonly known as AMCs. AMCs were designed as a tool to deliver managed investment strategies in a way which is more time and cost efficient than traditional market vehicles such as UCITs funds, while providing more flexibility and customisation in the way to access such strategy. Taking a step back, funds were originally created as a vehicle to allow asset managers to deliver their portfolio construction and portfolio management expertise in a way that is scalable by facilitating access to a wide number of investors with a single portfolio and vehicle. Some 20 or 30 years ago, when technology and operational processes were less advanced, a fund format made a lot of sense for both asset managers and investors. However, as technology and operational capabilities evolved, as specialist fintech providers emerged to provide solutions in a robust and cost-efficient manner, one can question the use of fund wrappers as the default investment option. This led to the fast expansion of the AMC solution.

QIS applications The four strands can be used as direct investment. Considering a simplified example, an investor looking to get exposure to US small cap equities can either invest through an ETF, a mutual fund or buy a certificate linked to a smart beta index focused on US small cap equities. Similarly, a certificate linked to a portfolio of risk premia strategies can be used as a complement to a hedge fund portfolio, within the alternative allocation of an investor, or can constitute such alternative allocation on its own. The second use case is to deploy these strategies as underlyings to structured products. QIS strategies are very well suited as underlyings to structured products since they can be designed not only to deliver a particular investment thesis, but also to include features in their design which make them particularly complementary to the payoff they are combined with.

One example can be a structured product with an underlying which is funded and doesn’t have a liquid volatility hedging market, such as a mutual fund. To facilitate the risk management and pricing for the issuer, one can design a mutual fund-based index which embeds a vol target and, potentially as well, a synthetic dividend. In a low rates environment, where the cost of the optionality is key to making the overall product relevant to the end investor, this approach has enabled HNWIs, as well as private banking and retail investors to access new strategies in a way they couldn’t have done otherwise.

Hedging strategies When considering the ARP space, most investment bank providers tend to have a similar matrix, by asset class and style. Styles typically include the standard factors (value, quality, momentum etc) as well as hedging, or some similar label. Indeed, hedging has been a popular use case for ARP strategies, when those strategies are specifically designed to have a negative beta to the market, in times of downturn and/or dislocation. Within the hedging style, one can find a broad and diverse set of strategies. At one end of the spectrum are the trend following, CTA-like strategies: expected to deliver small positive return in benign times and expected to perform particularly well thanks to their convexity in times of stress. At the other end of the spectrum, one can find insurancetype hedging programmes where the expectation should be to have a small negative performance in normal times (similar to an insurance premium, which those are in effect) in exchange for expecting a significant return at times of market disruption. Those are referred to as tail risk hedging strategies, and like of the rest of the ARP space, have benefited from some of the recent innovations from investment banks, including using intra-day signals and rebalancing.

AMC acceleration We believe and see the market moving into a new phase where AMCs are becoming an integral part of any structured products business or platform.

“AMCs are becoming an integral part of any structured products business or platform” www.structuredretailproducts.com

“Investment banks are increasingly partnering with asset managers to leverage their content expertise” We have started to see AMCs move beyond the private banking space where they were first used at scale and become more mainstream. Indeed, AMCs are now a tool used not only for direct investments, but also for structured products and long-term savings solutions. Additionally, over the last couple of years, purely rules-based strategies from investment banks have had their ups and downs and investment banks are increasingly partnering with asset managers to leverage their content expertise and define new strategies. This approach to deliver indices makes sense for both investment banks and the asset managers since this allows them to deliver more robust and flexible structured solutions to the investors. Win, win and win. There are two factors that have accelerated the development of AMCs as a more visible strategy within QIS and the structured products market. One is the interest rates and volatility environment – one of the appeals of structured products linked to traditional indices is that their pricing is efficient given the liquidity of the underlying, its unfunded nature and the possibility to hedge most greeks efficiently. On the other hand, products linked to mutual funds benefit from the expertise of the asset manager. Unfortunately, in a low interest / high vol environment, the pricing of those products is more challenged – in particular given the balance sheet impact of funded underlyings (at the time where balance sheet has become a more scarce resource of investment banks). Structured solutions linked to AMCs came to the market as solution to that exact situation – trying

to engineer some form of best of both worlds solution. The AMC can be actively managed by the asset manager, benefiting from its portfolio construction and portfolio management expertise. The instruments in the AMCs can focus on unfunded assets (for example futures, TRS) to minimise the balance sheet impact for the hedge provider, and the overall AMC can embed other features such as risk control/vol target, synthetic dividends to further improve the pricing of the optionality. The result is a very compelling solution for investors. The second factor which continues to accelerate the expansion of AMCs as structured investment tools relates to technology and operational facilitation. The operational considerations have until recently limited the expansion of AMCs in the market. AMCs are based on individualisation and customisation, and require frequent and granular rebalancing, execution and hedging. Most traditional product manufacturers don’t have the right platforms to manage these products at scale, and were reluctant to stretch their existing platforms given the hurdle to internal IT development and the focus on limiting any form of operational risk. A few investment banks already have a significant presence in the AMC market, mostly those with captive private banks, given the significant demand from private banking clients. On the other hand, quite a few of the other product manufacturers don’t have the IT resources to develop and offer such flexible solutions at scale. The capabilities and track record of specialist technology and operational providers have allowed those manufacturers to accelerate their offering of AMCs in a time, cost and operational effective way.

Prior to joining FNZ Q-Hub, Walter Cegarra was global head of Quantitative Investment Strategies structuring at Credit Suisse’s investment banking global markets solutions business with global responsibilities for QIS cross-asset dynamic investment strategies, including fund derivatives (ex. commodities).

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HELPING PEOPLE ACHIEVE THEIR FINANCIAL GOALS We develop long-term partnerships with our customers to enable them to get to market quickly with a market-leading digital proposition. It means they can provide multi-channel, multi device wealth management services that span the entire wealth management value chain. With FNZ Q-Hub, we provide technology and operational facilitation for Structured Investments: Long Term Savings, QIS/AMC and Leverage Finance. Our unique track record delivering multiple individualised structured platforms is also what sets us apart.

CONTACT: INFO@FNZ-QHUB.COM 2

The big four: a broader slice of the market Stoxx/Qontigo, S&P Dow Jones Indices, MSCI and FTSE Russell have dominated the structured products market for years. SRP talked to senior executives from the main four suppliers of indices for structured products market to find out their views about index innovation and their product development plans to serve the market.

Ricardo Manrique, director, strategy, FTSE Russell

In terms of our footprint in the structured products market as one of the largest and widely used index providers across multiple asset classes, we’re one of the most diversified index provider by asset class across both equities and fixed income with a relatively sizable footprint in the structured products market as well. I would characterise that across three segments. One is within our core index franchise which is widely used on a global scale. For example, Russell 2000 continues to be widely used in the US. And the US small cap equity market has a significant run in performance, relative to broader US equities, so Russell 2000 has especially been interesting over the last year. The other area I would mention is sustainable investments. We’re doing a ton of work in that space both within our core equity and fixed income index franchises as well as with structured products index based issuance specifically. The other area is equity risk factors which is of interest in the market, such as small cap factors, yield factors etc. So that’s another area of focus for us and we work closely with investors in the structured products market.

What themes have gained the most traction over the last 12 months? I would say that in terms of where we really see the strongest interest, sustainable investment emerges

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on top. In line with my view that what you see in the structured products market tends to reflect the trends in the broader market. This then becomes available in the structured products market in a more customised fashion through different wrappers which are accessible to different client segments. High-level interest in sustainable investments has been increasing in the asset management space and retail structured products market.

What trends do you see in the market going forward? I think it’s a combination of the long-term investment allocation trends with the shortterm market opportunities. That’s where at the intersection you tend to see product markets evolve and an increased demand from clients of structured products, as well as exchange traded funds or mutual funds. Right now, I think China is certainly a theme. As the Chinese capital markets continue to open, there is increasing investor demand for China equity exposure. We see that significantly on our side. We have a long history working with the Singapore exchange on the development of the FTSE China A 50 index futures which trade nearly 100 million contracts per year, the largest offshore China ‘A’ derivative product in the international markets. There is also growing interest in getting exposure to China rates products and government bonds. I think thematics is also another opportunity for investors, index providers, and product manufacturers. I think we do see some of that already in the market which is an area of interest for us as well in terms of helping investors establish the lens through which they define what that investment opportunity is set is for certain thematic types of investments.

“The structured products market tends to reflect the trends in the broader market” Ricardo Manrique, director, strategy, FTSE Russell

What is your take on digital assets and how does this translate to activity at FTSE? We do get a sense that the interest in digital assets is slowly starting to go a bit more mainstream and on our side we recently launched a digital asset reference pricing service in partnership with Digital Asset Research. This creates a market standard reference across the landscape of digital assets and digital asset exchanges which are very fragmented. That has generated a large amount of interest from institutional clients that are increasingly looking to or considering digital crypto as part of the broader asset allocation framework. If you establish what the reference data is and the asset class, then the question is how does one make that asset class more investable? Either by having a benchmark to actively manage your performance against, or to passively track. So, I think we are expecting to launch our digital asset indexes later this year, but I would say that’s a frontier area where we expect interest to keep growing.

Stephan Flaegel, global head of indices and benchmarks, Qontigo

Structured products give investors efficient access to unique investing strategies; index providers are a driving force behind the innovation, by providing efficient means and creative solutions for structured products issuers to express their unique ideas. One index we would like to point out is the iStoxx Europe ESG Climate Awareness Select 50 Index. It tracks the corporate leaders following ESG principles. The index’s composition methodology then filters for stocks with high dividend yield and low volatility, factors that traditionally result in better risk-adjusted

returns. This strategy is particularly attractive for issuers of structured products, as the high dividend yield/low volatility of the underlying lowers the price of the option used to construct the product. The lower the option price, the higher the participation of the structured product buyer in the underlying’s return. This pricing optimisation has made a success of the Stoxx Select suite of indices among issuers of structured products. A good example for standard benchmarks is the Stoxx Global 1800 Index, which has been used by Cirdan Capital Management and SmartETN to issue a euro-denominated tracker certificate, the first investment product linked to the global benchmark.

What would you highlight from your product offering? In addition to ESG, we are experiencing a big surge in demand for thematic indices. Just recently, we licensed the iStoxx Global Transformation Select 30 Index to Citi to underlie a structured product that provides access to returns from firms engaged in shaping the transformations happening right now. Eligible companies are also screened to select leaders in ESG criteria and to exclude those involved in undesirable activities. ESG and sustainability aspects are becoming increasingly important in the structured products space in particular, and in the investment market in general. Qontigo is a global market leader in the structured products market. We work very closely with our clients, and always come up with innovative and bespoke solutions for our clients, combining this with a very efficient time to market. This allows our clients, and the investors, to invest in new ideas and growing trends early.

What trends do you see driving activity going forward? What kind of indices are structured products providers requesting/licensing? Structured products issuance grew by 20 % in 2020. We see an increasing demand for ESG and

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sustainability solutions, as well as thematic indices. Our comprehensive Sustainable Investing Ecosystem offers a wide range of index solutions, which help increase liquidity and lower the cost of trading.

Stephane Mattatia, managing director, head of thematic indices, MSCI

Is the structured products market driving innovation in indexing? We see a real interest and appetite for innovation in the structured products market, and we’re discussing new ideas around risk avoiding strategies with private banks which are trying to differentiate their offering. In the structured products market, we see three pillars of innovation which are thematics, factors and ESG. There is also a fourth layer of innovation which is based on the combination of those three pillars with an optimisation for the purpose of structured products. These include low vol and high dividend yield indices in general. Thematic investing is about secular trends and is 100% forward looking, which has a real impact when we talk about structured products. The experience shows that if you add an ESG layer, you usually improve all the investment characteristics. I would say that the most important thing is that the final and ultimate product gathers all the right characteristics. Quite often, when we look at trends around thematics, most of them are driven by technology, but no matter what thematic you have chosen, you may decide to add a layer or an ESG feature on top of it.

What are the differentiators in such a crowded space? We have a very strong thematic offering with 20 different themes and nearly one hundred sub-themes. Our ability to combine the different pillars has also helped us to establish ourselves as a relevant partner for structured products providers. We are able to address the needs of investors in many ways and across different themes as well as adding features so

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clients can choose from our off-the-shelf offering, but also to develop new tailor-made themes. With custom thematic indexes, our clients have discovered that they could have an impact on the design of their index. Today, a lot of clients come to us and say they want to capture not only a thematic, but a moment of society. Typically, post pandemic societies are a good example because clients want to combine digital economy, biotech and a clean world, because for them, that will be the post-pandemic world. This is something that would not have been very easy 10 years ago, but is easier today with all the technology that we have to create indices. Data and technological evolutions in indexing will also have an impact on the industry, through introduction of new themes and new ways to capture or select them.

Are market cap indices losing relevance? Can custom strategies increase their market share? Market cap continues to dominate, but we have seen an evolution in the structured products market in that traditionally these products were linked to very simple indices and the sophistication was with the product payoff itself. That has allowed index providers to develop their data and customization capabilities to build new indices and tap into new thematics driving investment activity. On the other hand, there is increased appetite to extract value from new trends such as digitalisation and ESG. We have seen these trends gaining momentum over the last few years - most of the conversations focused on market cap indices a few years ago have now incorporated an ESG or thematic element. We have a very comprehensive catalogue of market cap indices with our flagship MSCI World being a widely used index in structured products and other index-linked products. We have also developed new ESG indices that are better positioned to enable investors to capture better returns.

Are index providers bringing unnecessary complexity to the market? We are very careful to avoid over-engineering the indices we build, as indices are meant to help facilitate greater transparency, effectiveness and efficiency in the investment process. Our index construction methodology is fully transparent, rulesbased and publicly available.

Aye Soe, global head of product management, S&P DJI

When we look at our history of collaboration with our clients and product issuers, the S&P 500 index ecosystem and the core equity business make up the bulk of indices that issuers use to build financial products and strategies. A big part of our core equity index business serves the structured product space, and we see our work there evolving, innovating, and capturing certain trends. To that extent, we’ve also grown up with the industry and we have been around to meet the demands and have been working collaboratively with the product issuers. I would say that whatever the trend is in the market, we’ve been there to capture it or provide indexbased solutions on that, whether it’s thematic, ESG factors, risk control indices or risk control overlaid on a number of different types of indices. I really see the roles of S&P DJI as an index provider, and product issuers evolving and working closely together. Obviously, indices are not directly investable, but they can serve as a rules-based systematic way to measure a particular segment or strategy. You have product issuers that are trying to solve a particular outcome or need for their end clients and are developing index-based approaches.

Was 2020 a turning point in terms of index innovation? Yes, it was and the innovation is only going to continue. As far as I can see, we note two big structural trends emerging. The first being a greater demand to incorporate ESG, for strategies

incorporating ESG or sustainability elements, into a portfolio. The second is thematics and we are seeing major demand which was made even stronger in 2020. Covid-19 really set the stage for many of these developments, and none benefited more than thematics that deal with disruptive technologies and digital transformation, especially as everyone began working from home. 2020 was a big turning point and was also the year when interest in ESG really hit critical mass. There was always interest in ESG, particularly in Europe, but we see the interest increasing in the US as well and I think the events of last summer had a lot to do with that. We see a lot of interest in clean energy in terms of thematics with sustainability elements. We also have a product line which uses AI to capture trends in the disruptive technology and digital transformation space. Our S&P Kensho indices touch upon those areas and reflect the market’s evolution.

What trends do you see driving activity going forward in 2021? Last year was dominated by growth, mega cap and by the shift to working from home economy. In 2021, I think there will be a reversion, meaning that there will be a renewed interest probably in smaller sized companies (small cap to mid) and a shift away from growth. Value could see a renewed interest and is one factor that still dominates the structured products issuance landscape. I do see a continuing interest in ESG, climate and sustainability. I don’t see that going away or abating anytime soon, in fact, I think it will get even stronger.

In terms of any differentiated strategies and your offerings, either by region or investor type, could you go into more depth? In the US and particularly in Europe, there is a very strong demand for ESG (although not as prominent in the US). There is also a demand for factor-based and multi-asset strategies. In Asia, we’re seeing an equal mix of core and multi-asset and a little bit of thematics.

“2020 was the year when interest in ESG really hit critical mass ” Aye Soe, global head of product management, S&P DJI www.structuredretailproducts.com

Apac perspective: multi-asset, QIS gain weight to meet appetite for yield The Singapore Stock Exchange (SGX) scaled up its index business in 2020 with the acquisition of Scientific Beta and a long-term strategic partnership with FTSE Russell while increasing its visibility in the structured products market via its range of iEdge sponsored indices deployed by Natixis.

Simon Karaban, head of index services, SGX

Our iEdge business was built from a foundation of providing bespoke index solutions for many indices across both Asia and Europe. This naturally led us down the path of providing calculation services for banks who trust us as a source of reliable and independent calculations, which is one important layer of validation for the pricing of structured products. The SGX Sponsored iEdge indices have demonstrated success with private banks in Asia, illustrated in our work with DBS to develop a series of global thematic indices that were linked to the successful launch of Out-performance warrants by DBS. We have also tied up with Natixis in France to develop a series of decrement indices across markets and ESG themes which have been launched very recently

What would you highlight from your offerings during the past year and the added value for end investors? The Dynamic Defensive offering by Scientific Beta is something that we are currently promoting to structured product manufacturers and distributors. This defensive equity solution can work very well for wealth management clients who would like to manage the risks associated with their multi-asset exposure. You would be very aware of some of the investor anxiety relating to equity valuations, inflation

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and interest rate risk, which has certainly posed significant problems for a traditional 60/40 portfolio. We observe today that many private clients wish to have a low-risk allocation but know that on the fixed-income side, the returns are too low unless one goes towards high yield, very long duration and currency risk. Our proposed solution to address this problem is through our “Dynamic Defensive” Equity Index. Through this index, an investor can increase their exposure to equity for a given level of risk by protecting investors from market volatility, allowing them to participate in the upside in a more defensive manner

“There is a very strong appetite to manage some of the looming inflation and interest rate risks” How do you see the role of ESG indices in the structured products market? Is there a danger of misleading investors? There is an obvious appetite for ESG by wealth management clients and some of the more recent successful product launches by issuers has been in index format. We are less concerned about the over-engineering, and more concerned about the misrepresentation of ESG products. Some providers of ESG data and research believe that ESG delivers alpha even though this has

not been reliably validated or proven in a robust manner. This is unfortunately promoted as fact to prospective investors. We observe that any alpha from ESG products is effectively resulting from chance due to a confluence of sector and factor dynamics. When investors purchase ESG products because of a promise that has not been reliably validated then this is of most concern.

the market now, not just in Europe but across Asia also. In addition to this, investors are continuing to demonstrate a very strong appetite for yield even though this appetite is being tested somewhat by the recent volatility in interest rates.

What’s your outlook around innovation in Asia? What has SGX done to capture the growth?

From Scientific Beta we are focusing on launching an exciting new global climate offering known as Climate Impact Consistent Indices that will be offered primarily through to institutional investors. In addition to this, Scientific Beta will be bringing their academic expertise and quant capability to work on themes that will resonate with the investment bank, private bank and ETF segments. The iEdge business will also collaborate with Scientific Beta to offer innovative solutions that are tailored for the Asian market that would be of appeal across multiple customer segments.

The nature of the current market environment is flush with opportunities for QIS indices. There is a very strong appetite to manage some of the looming inflation and interest rate risks that are already confronting investors. SGX, with its iEdge custom solutions business is very well positioned to respond to the evolving needs of investors. There is no doubt that ESG is being heavily demanded in

What are the plans in 2021 by investor types and regional segments?

SGX Sponsored Indices - Exclusive Partnership with Natixis

INDEX NAME

BLOOMBERG TICKER

LAUNCH DATE

SGXNKY1 SGXNKY2 SGXNKY3 SGXNKY4 SGXNKY5

Jan 2018

SPONSORS/ CALCULATION AGENT

INVESTMENT & REFERENCE UNIVERSE

WEIGHTING METHOD

SYNTHETIC DIVIDEND

RETURN

CURRENCY

Japan 225 priceweighted stocks

Priceweighted

Price Return

JPY

EURO60

4 Nov 2019

Eurozone 60 biggest market capitilisation stocks

Equally weighted

40 points p.a.

Price Return

EUR

FRANCE50

25 Sept 2019

France 50 biggest Frence market capitilisation stocks

Equally weighted

40 points p.a.

Price Return

EUR

FRETEWDO

8 Jun 2020

France 17 stocks present since the creation of the CAC Index

Equally weighted

Fixed amount of stock

Price Return

EUR

MARKET ACCESS INDEX

SGX® NKY Index Series

iEdge Eurozone 60 EW NTR Decrement Index

iEdge France 50 EW NTR Decrement Index

iEdge Eternals France 2020

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S&P DJI licensed the S&P ESG Global Macro Index, its first ESG index for structured products in Asia, to J.P. Morgan Hong Kong in 2020.

Tianyin Cheng, senior director, strategy indices, S&P DJI

What trends have you seen in the demand for indices during the past year? There was dramatic sell-off in the first quarter of 2020 followed by a strong market recovery, especially in the US market. Since then, we’ve seen the trend of ‘coming back to core’ as many products come out worldwide to track or trade US core equity indices. Few segments have showed significant outperformance last year, including technology, and biotech, and other macro-trend themes that have benefited from the Covid-19 response and recovery. South Korea features a huge autocallable structured product market where most of the indices used are the headlines. The market became a bit quiet from in the second half of 2019 due to some regulatory sensitivity, but it’s come back gradually as the headline indices including S&P 500 performed well. As a result, we see more versions of quanto hedge in the new flows into the autocallable market that focuses on core.

“Asian investors remain keen on multi-asset QIS solutions, especially for long-dated products” In addition, ESG investing moved from its tipping point to turning point last year. It was the market sell-off and what subsequently happened during the pandemic that put ESG investing into the spotlight. The pandemic has caused some serious issues in public health, society and economics, the consequences of which are not shared equally. This puts a spotlight on important ESG issues, such as income inequality, diversity and inclusion, social injustice, employee welfare and climate change. The steady growth throughout the past decade is evident by the number of signatories of institutional investors to the United Nation PRI (principles for

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responsible investment). And Asia is finally picking up as we receive more demand for ESG index from local desks. Besides core ESG index, there is thematic ESG index where people look at specific ESG themes. Clean energy as one of the key themes within biodiversity has captured a lot of inflow.

How’s the growth of ESG elements reflected in the investment products? The year of 2020 saw 18 ETFs tracking S&P core ESG indices launched with the asset under management tripped to US$22.8 billion from that in 2019, according to the data from S&P DJI and Morningstar. In the structured product space, we licensed our first ESG index for an investment-linked policy in Asia - S&P ESG Global Macro Index - to J.P. Morgan. Most recently, the S&P 500 ESG has been used for several equity-linked securities (ELS) in South Korea.

What index strategy would you highlight? Multi-asset index is also gaining popularity as a few multi-asset offerings sit under the QIS team at banks. 2020 was overall a difficult year for multi-asset indices in terms of their performance because many of them are trend or risk-based and the signal was not fast enough to capture the rapid market drawdown and sudden rebound. But Asian investors remain keen on multi-asset QIS solutions, especially for long-dated products, and innovation on QIS indices is being brought specifically to address the delayed response of trend signal or market volatility signal. One example is S&P risk-casting indices that adopt forward-looking signals based on the volatility curve implied by S&P option prices to predict market stress events. This is something new and may help some of the signal to respond faster to what is happening in the market.

What do you think of the use of decrement indices in Asia? While decrement feature is commonly used in Europe, we’re seeing it being more and more adopted in Asia. The S&P 500 Hedged 2% Decrement Index ER is a very recent launch. The rationale for having a decrement feature is clear from a bank perspective because it’s very challenging to structure an attractive product with high participation and good downside protection in the low interest rate environment. Also, the bank needs to hedge a dividend risk, which could be problematic when companies simultaneously cut dividend unexpectedly. Decrement feature aims to resolves the two issues.

Barclays Quantitative Investment Strategies Shiller Barclays CAPE® ESG 60 Index

The new Shiller Barclays CAPE® ESG 60 Index offers an alternative to market capitalization-weighted indices by attempting to systematically allocate to undervalued US-listed stocks, large-cap equities using Professor Robert Shiller’s CAPE® ratio, while also screening for ESG risk rating scores and attempting to avoid value traps. For more information visit: indices.barclays/shilleresg60

Barclays Trailblazer Sectors 5 Index

The Barclays Trailblazer Sectors 5 Index aims to track a diversified portolfio of assets with the highest return potential for a given level of risk. Additionally, Trailblazer is designed to have the ability to change its portfolio as often as daily to adapt to shifting market conditions. For more information visit: indices.barclays/trailblazer5

Barclays Risk Balanced 10 Index

The new Barclays Risk Balanced Index aims to provide stable returns across different market environments by focusing on low volatility stocks and by systematically adjusting its asset allocation on a monthly basis using techniques from Modern Portfolio Theory. To further control risk, the Index aims to limit its annual volatility to a 10% target using a procedure called volatility control. For more information visit: indices.barclays/rb10

Morningstar Wide MOAT Barclays VC Index The Morningstar Wide Moat Barclays VC Index creates a diversified portfolio by combining U.S. stocks selected based on the Economic Moat investment philosophy with a portfolio of four Barclays US Treasury futures indices. The Index seeks to enhance return and manage risk exposure by adjusting the portfolio’s asset allocation on a monthly basis. For more information visit: indices.barclays/moat

To learn more about the range of products Barclays has to offer visit: www.indices.barclays US retail investor

For informational purposes only. Please refer to the index specific risk factors and disclaimers provided on each index webpage (links provided above). Barclays offers investment banking products and services to its clients through Barclays Bank PLC. Barclays Bank PLC is authorised in the United Kingdom by the UK Prudential Regulation Authority and regulated by the UK Financial Conduct Authority and the UK Prudential Regulation Authority and is registered in England No. 1026167. Registered Office: 1 Churchill Place, London E14 5HP, United Kingdom. Barclays undertakes its US securities and investment banking business in the name of its wholly-owned subsidiary Barclays Capital Inc., an SIPC and FINRA member. ©2021 Barclays. All rights reserved. Barclays is a registered trademark of Barclays PLC, used under license.

Rising Stars: speed to market and customisation Solactive has become one of the leading independent providers of financial markets indices over the past seven years with a wide range of thematic benchmarks and a growing international footprint, while Euronext has increased its weight in the structured products market over the last decade by expanding its range of market cap indices with new ESG and decrement indices. decrement, industry, and thematic indices, according to SRP data.

Timo Pfeiffer, chief markets officer, Solactive

Structured products are at the core of the German index provider’s activities Solactive was founded in 2007, and since its launch the company has built its business on structured products desks. “The structuring, trading and sales teams are absolute home turf for Solactive,” said Timo Pfeiffer, chief markets officer. “Structured products are a key ingredient; they are in the DNA of the business.” Nowadays, the company is much more associated with the market for exchange-traded funds, with many of its indices used as underlying for ETFs. But even though ETFs as a market has much more visibility and momentum right now, structured products have always been at the core of what Solactive does, according to Pfeiffer. “We always had to differentiate ourselves through innovation and disruption - looking at new features, or new themes, and bring them to market fastest, quicker, or with an extra spin to give us an edge,” he said. Solactive offers classic benchmark indices and thematic indices. The company has been the number one provider of custom indices during the past five years, with a market share of 17%, while it also finds itself in the top three for ESG,

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“We have a comprehensive offering of benchmarks, both in equity and fixed income,” said Pfeiffer, adding that these indices are less being used in the structured products space. “Looking at thematic indices, it is all about two aspects. One is disruptive technology trends, such as cyber security, cloud technologies etc. The second big part is anything related to sustainability or E, S and G,” he said. Prime examples of the trend are Solactive BBVA ixS Global Inclusive Growth Index and Solactive BBVA ixG Global Governance & Board Diversity Index, two social and governance indices that were launched in collaboration with BBVA in March 2021, and the Solactive Climate Change Europe BTI Index, a climate strategy with Barclays, launched in February 2021. “In the thematic space, ESG is the biggest carrier, something we can differentiate ourselves in. It is the flavour of the market and there is strong demand,” said Pfeiffer. The company has developed more than 5,000 indices, some at the request of clients and others based on Solactive’s own ideas. “It can go either way,” said Pfeiffer. “In March we have launched something we call Future Trends, a research on thematic indices. That is something we have put our stamp on. Those are ideas we believe in, ideas that will shape the world, that provide investment opportunities and that are good underlyings for products, be it an ETF, structured product, or anything alike.” Likewise, there are plenty of examples where somebody comes to Pfeiffer with their own ideas, how the index should look like and what features they want.

“It really is a mix of both. I probably have more pride in the first part, because it is our idea, but the latter is just as important,” said Pfeiffer. Most of the company’s indices in the benchmark space, or the Eurostoxx 50 type of equivalents, are for broad usage while its thematic indices, such as the ones Solactive recently did with BBVA and Barclays, are exclusively licensed for the respective issuer. “For these tailored strategies that is the norm,” said Pfeiffer. Going forward, the biggest trend driving activity is ESG, however, according to Pfeiffer, structured product providers probably have not properly implemented ESG features in their offering yet.

Harrold Prins, responsible for index strategic development, Euronext The European exchange has been at the forefront of developments around ESG customised indices for structured products over the last few years.

“There are a few specific and dedicated indices like the Barclays climate index, and a few others, but it still a relatively small percentage of the overall offering.

Euronext has become a key player in the European structured products market. The exchange has played an important role in the development of customised indices such as the Cac Large 60 Ewer Index and the SBF Top 80 EW Decrement 50 Points, two of the bestselling decrement indices in the past five years, while it currently is the number one ESG index provider in Europe, according to SRP data.

“We work a lot with institutional investors, pension funds, asset owners that have dedicated ESG strategies that want to replicate the world market,” said Pfeiffer.

“We have a strong track record in providing quality, fast time to market and excellent service to our clients,” said Harrold Prins, responsible for index strategic development, Euronext.

To take a bunch of stocks, and exclude them based on global non-violations, on producers of controversial weapons etc. that standardisation, that ESG implementation, hasn’t broadly arrived in the structured products market, according to Pfeiffer.

Three of Euronext’s most prominent indices, all focus around ESG and include the Euronext Climate Objective 50 Euro EW Decrement 5% Index, the number one ESG index in Europe in 2020, selling approximately US$950m across 18 products that were issued on the paper of Natixis. Then there is the Euronext CDP Environment index family, which comprises four indices that have been used as the underlying for 45 structured products marketed

“There is more to come, ESG is the trend in financial markets at large, but there is still a way to go in structured products,” Pfeiffer said.

Solactive indices: top 10 by market share 2020 Index

Issuance

Sales US$m

Market share (%)

Solactive Canada Bank 30 AR Index

196

441.95

14.37

Solactive France 20 Equal Weight NTR 5% AR Index

274.12

8.91

Solactive France 40 Equal Weight NTR 5% AR Index

254.45

8.27

Solactive Human Capital World MV Index

179.30

5.83

Solactive Equal Weight Canada Banks 5% AR Index

167.54

5.45

Solactive Canada Insurance AR Index

165.03

5.37

Solactive US Pharma 10% Risk Control 3% Decrement Net EUR Index

131.25

4.27

Solactive Canada Bank Index

123.88

4.03

Solactive Digital Economy

120.16

3.91

Solactive Canadian Large-Cap 60 AR Index

118.88

3.86

Others

362

1,099.43

35.74

Grand Total

915

3,075.99

100.00

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in France, South Africa, Ireland and the Czech Republic, while Prins also highlights the Euronext Eurozone ESG large 80 Index. The latter selects 80 of the highest-ranking companies from their sector that support the transition to a low carbon economy and are helping to reduce climate impact, while targeting the sectorial repartition of its parent index, the Euronext Eurozone 300 Index. A Euronext futures contract has also been launched on the index to provide investors with an effective hedging tool and at the same time offering the opportunity for exposure to the Eurozone sustainable economy. “Our clients have a strong focus on ESG thematic indices, and almost all the Euronext indices developed now are ESG themed,” said Prins. “Increasingly, instead of tracking a general ESG theme, we are seeing further specialisation within ESG, with more and more indices specialising in specific ESG topics, ranging from energy transition to climate change to water and more,” he said.

“On top of this, the French structured products market is the leading market in Europe in terms of ESG adoption, and since Euronext is a strong ESG index provider, it is only natural that our indices are frequently used in France,” said Prins. However, Euronext indices are also already present in many other European countries such as Austria, Belgium, Czech Republic, Finland, Germany, Italy, Poland and Sweden. “We expect the ESG focus to increase in other European countries and Euronext Indices will certainly play a role in this. If we look outside Europe, we also see traction on Euronext ESG indices in South Africa,” said Prins. Two main trends will be driving the exchange’s activity going forward, according to Prins. The first is further development in the European structured products market of different ESG labels and regulations, for example PAB (Paris-aligned Benchmark), CTB (Climate Transition Benchmark), ISR (Investissement Socialement Responsable).

Euronext has an open model when it comes to ESG data providers. It has collaborated with many different companies, including Carbone 4 and Vigeo Eiris. “This guarantees non-biased data and enables access to a large variety of ESG metrics, which then allows us to offer the best ESG variety and data quality to our clients,” said Prins.

“Euronext already has successful PAB and Febelfin indices and we are now developing more ESG labels for the structured products market […] the second trend we see is that the universe for ESG themed indices will become more global, expanding beyond the Eurozone and Europe,” said Prins.

Euronext indices are especially popular in the French structured products market, which is due to the company’s strong presence in France, leveraging on its federal model.

“With our current position in the structured products market and the expectation that the ESG trend will continue, Euronext Indices will continue to play a leading role,” Prins concluded.

Euronext indices: top 10 by sales volume in 2021* Index

Issuance

Sales volume US$m

Euronext Euro 50 ESG EW Decrement 50 Points Index

486.17

Euronext Climate Objective 50 Euro EW Decrement 5% Index

272.37

Euronext Water and Ocean Europe 40 Equal Weight Decrement 5% Index

243.94

Euronext CDP Environment France EW Decrement 5% Index

165.79

Euronext France Germany Leaders 50 EW Decrement 5% Index

125.52

SBF Top 50 ESG EW Decrement 50 Points

99.68

Euronext Transatlantic ESG Leaders 60 EW Decrement 5%

95.33

Cac Large 60 EWER Index

90.32

Euronext Core Euro & Global Climate Change EW Decrement 5% Index

86.84

Euronext CDP Environment Eurozone EW Decrement 4% Index

82.89

Others

84.84

Total

133

1,833.70

*As of 30 June 2021

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New entrants become niche to leave their mark SRP spoke to executives of some of the newest market players in the indexing space to get their views on the areas of growth for start-ups and what are they doing to establish themselves in the market.

Vinit Srivastava, chief executive officer and co-founder of index provider MerQube

MerQube has opened its index platform for clients seeking to create their own indices to bring the cost down and make its offering is appealing.

products efficiently, because the rates were much worse in Europe than they were in the US. In the US retail space, ESG has definitely lagged behind, but really took off last year in the private wealth space although via vanilla products, because in the US people are used to getting products on traditional indices such as the S&P 500 index. This is also because adoption of structured products has been more prominent in Europe and investors are used to the structures linked to more sophisticated indices. They have more acceptability.

What other trends do you see in the market?

Indexing has shifted beyond the traditionally used underlyings by banks and asset managers into the wider fintech scope. In recent years, we have seen an increase in the use of factors which have played a big role in the wider adoption of factor-based investing.

The indexing market is moving to a new level which involves customisation and complexity. When you talk about ESG, the products require custom benchmarks. Customised benchmarks, whether in the ESG space, or in other areas will continue drive interest in direct indexing and creating customised portfolios.

Towards the later part of the decade, we saw alternative risk premia strategies come about, risk parity managed futures and big innovations such as risk-based overlays. Risk management has become an important theme along with the evolution of volatility targeting. The idea has been to essentially improve upon the traditional overlays from a pricing perspective driven by market needs.

One trend we have seen is the emergence of baskets of indices and new overlays which add a level of complexity. This is part of the evolution of indexing because of rates being low. There is a very big need to be efficient with the pricing of products - there are not many options to generate income or manage risk efficiently so, structured products are going to see more usage of customised indices.

Last year indexing was dominated by thematics such as disruptive innovation and the ESG space. Index providers have played a role in incorporating ESG into benchmarks.

What can small providers do to position themselves in the market and gain market share?

What’s your take on thematic indices such as decrement or ESG? We haven’t really seen decrement indices in the US, but they seem to be gaining popularity in Europe. Synthetic dividend indices are driven primarily by the fact that you couldn’t really price structured

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Our overall view is that indexing is growing, and it’s going to grow in order to customise underlyings in certain areas including retirement solutions. We are not focused on very simple benchmarks or multi-asset benchmarks, and risk-based products because there are a lot of strategies from traditional providers. As passive investing grows indexing is becoming more complex and is also using

technology to create and design robust indices quickly. With complexity comes challenges - you cannot have the same infrastructure to run the disparity and that’s why we’re focusing a lot on making that platform available for clients that want to create their own indices. We think that approach will bring the cost down and make our offering appealing. We feel there is a need for players that address the needs around indexing with a bottom up approach and with a focus on platforms. We wanted to focus on areas like futures and options, although we do equities as well.

Why the US fixed indexed annuities (FIA) market has become key for the introduction of new indices? Budgets in the FIA market are tightening – insurance companies have to purchase credit, which leads to a higher option budget and more participation. We’ve seen exotic payouts which are mostly capped indices, and active baskets with complex overlays. However, there has to be some value that’s coming from those overlays. We are targeting the FIA space with new indices and we are doing custom calculations for different investments. Our goal is to be wrapper agnostic - as an index provider we want to create indices within the structured product space because that’s a challenging area. And that’s an area where the real innovation helps.

Antonio DeNegri, CEO, Cirdan Capital

The non-banking issuer and index provider believes direct-indexing is the answer to address the limited innovation Do investment banks and asset managers need a framework to develop new indexing ideas? I strongly believe a framework is needed both from a technical perspective as well as from a

fundamental perspective. In the past there was quite a strong distance between the research function in an investment bank, and what actually was going on in the trading floor or between the PM function. Fear of missing out typical of the PMs, risk of getting blamed have prevailed sometimes compared to what the research department was suggesting.

“The biggest trend right now is direct indexing” Antonio DeNegri, CEO, Cirdan Capital

With the disintermediation of certain functions instead (ie opportunistic governance committee that decide on what fund to launch next etc) I believe research can permeate better in the wide net of financial services, reaching the end point consumer without getting filtered into a fund under the supervision of a PM. GS Research publishes an interesting research on inflation and stocks that would benefit from increase in inflation. The end consumer likes the idea and the thesis, it can get an investment product to fulfil this desire in a ready and simple way. Direct research to consumers: this is where I believe the future is.

What are the innovations that index providers are bringing to the market? Honestly not many as of now, risk frameworks are now market standards and thematic are always new but fundamentally the structure is not innovative per se, it’s just a collection of different stocks. What some providers are exploring though, which I found interesting, is the concept of expandable universe, essentially a programmatic set of criteria decided ex ante that allow the universe to expand and improve, ie let’s assume you have an index with several ETFs, if you fix these ETFs at inception they will remain there, but if you have an expandable universe, the index can change as soon as new ETFs come to the market. It’s a process that can be used to always look at the best product, so a sort of auto-inducted self-evolution of the index. The index learns as it develops and incorporates new components while removing others.

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What do deliver more value to investors stocks or indices? Ultimately it has been proved to a large extent that over a long period of time, a cheap passive solution outperforms over 90% of actively managed portfolios and mutual funds where the portfolio manager is supposed to pick individual stocks that should outperform the index thus fact creating alpha. But more often than not the portfolio manager simply hugs the benchmark hence not providing any real alpha. On top of this, actively managed solutions tend to be more expensive and this has an impact on the return, so even if the portfolio manager actually outperforms the benchmarks the excess fees compared to a cheap passive solution would eat into the alpha.

decide what they want again the industry is trying to force them into something, meaning, as the big AM/IB don’t know what people want, they create the largest possible amount of products/indices, hoping that they will chose from those. This has been the misfortune of a lot of ETFs which failed because there was no interest. If you do it the other way around you cannot fail, as people who are interested can build their product and invest, so you’re guaranteed to succeed.

Gareth Parker, chief index officer, Moorgate Benchmarks

What’s your take on thematic indices such as decrement or ESG? I think they are the sexiest thing in the industry now. Thematics are the way in which the industry can attract retail money to invest, because they speak an easy language, they are comprehensible and close to what and how people see the world.

What other trends do you see in the market? I think the biggest trend right now is direct indexing. I am a sincere and passionate advocate of direct indexing, I see so many pros and not many cons. Essentially it would help people invest the way they want to, something that did not exist since very recently. This is completely bottom-up, meaning I’m the investor, I create the product that I want the way I want it and then I invest into it. It’s just gigantic, it’s a total shift of paradigm in the financial industry, it’s like saying, you now have the freedom to choose how to invest your money.

The index consultancy is seeking to capitalise on its calculating capabilities and technology to open direct indexing for the masses. Should index providers offering their own IP stop calculating indices for other players? It’s not particularly a problem but quite possibly a strategic error. In general, you trust that index providers have the appropriate Chinese walls to protect the methodologies of their clients and not to derive something similar themselves, but we have seen it happen in the past.

Is there a danger of overengineering indices as providers slice and dice the market?

Index providers should decide if they want to be a calculating agent or an IP generator. I think their expertise is less in calculating indices (where they generally have creaky, old software and processes) but in designing, creating and selling index IP, often in partnership with product issuers.

No, I don’t think that’s the case. Yes there are a lot of indices because again the paradigm and the approach is wrong. Instead of letting people

That is why we believe there is space for an independent calculation service with a technological scalable solution – we can enable

“Index providers should decide if they want to be a calculating agent or an IP generator” Gareth Parker, chief index officer, Moorgate Benchmarks www.structuredretailproducts.com

index providers to focus on developing and selling the indices and index products while we look after the calculations.

Are index providers bringing innovation to the market? Big index providers do put out interesting indices developed by themselves, but more and more, innovation seems to be coming from product issuers, asset managers or investment banks. However, they still have a role to play in that asset managers and investment banks don’t necessarily have the right capabilities and knowledge to structure a robust index. By having standardised methodologies and access to the liquidity that surrounds their broadlyused benchmarks, index providers can deliver independently calculated indices with market wide application and monetise them.

“We have seen an emergence of baskets of indices and new overlays which add complexity” Vinit Srivastava, CEO and co-founder, MerQube

Is QIS bringing value to investors or is just another way to push products to the market? Like most people in the industry, I believe in market choice, and the more indices available the more choice for investors. With that, there should be proper methodologies supporting the indices and transparency around the mechanics of these indices, which is an obligation under the Benchmark Regulation. The problem with some of these smart beta indices is that they can become a data mining exercise to achieve outperformance. I think algorithmic strategies should be rooted in academic research. There are definitely not 200 factors out there and if you cannot explain a quantitative strategy in simple terms then you have a problem.

Do you think the complexity of some of these indices could backfire? As long as it is justified within the objective of the index, complexity sometimes is necessary. There have been issues with high costs that are hard to justify for some passive products largely because some index providers still aggressively monetise old IPs. There is nothing wrong with monetising something new. One of the problems in the index market is that there is very little competition and usually the first to market captures most of the flows. Everybody is competing for new business. I’d rather have more choice than limit complexity because you could end up with more negative consequences as people could be forced to use simplistic index methodologies which would not be an accurate representation of the theme or market you’re trying to capture.

There seems to be some noise about selfindexing and direct indexing. Is the market moving towards a more democratised way of indexing? It seems to be moving in the right direction. Investment firms are coming up with the IP and they decide to become their own index sponsor as well as owner and licensor but they don’t have all the capabilities to run an index business. Direct indexing is also very interesting. This is currently a solution for the high net worth market - they pay someone to put an index together for a particular investors, tweak to their particular desire and deal with the management side of things. This is an area that is clearly opened to fintech which could open up direct indexing for the broader market not just for the high net.

What is next for the index industry? Thematic investing will continue to be a key driver. Beyond that, direct indexing and mass customisation is coming down the line. The market wants more customisation and flexibility, and as long as clients have full information on their indices – i.e. understand the customised solution they receive and the risk profile of that solution etc – I think that’s a good thing. The other area of growth is on the fintech side of things. Every player has developed its own index software and there can only one that is the best. I think the actual index calculation job is a massive distraction and a big overhead for most index providers who are better at creating and monetising indices, and there will be opportunities to serve those wanting to outsource their index calculations.

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Buy-side view: understanding risk is key As the choice of underlyings increases we ask a wealth manager and a structured investment specialist distributor about their views about underlying innovation and if the wide variety of indices on offer is making it difficult for end investors.

Clive Moore, managing director, Investment Design & Distribution (Idad)

The number of new indices is another sign of the market being commoditised - it is difficult to see how these new indices are driven by investor interest or need. What are the considerations around product and underlying innovation when you are facing a retail end investor? My overriding concern with innovation is simplicity. There are products out there that I’m happy to sell because they are easy to understand. But there are other products I would be nervous about selling. It’s not necessarily about bringing to the market products that can incur in loses but about bringing unnecessary complexity to the market. The more complex and opaque the underlying asset or payoff shape get, the more risk there is for advisers and promoters. Some of the drive behind index innovation now is to make products optically more attractive. I completely understand and get that they are

principally designed to bring better returns for investors, but maybe if a FTSE 100-linked autocall cannot pay eight percent anymore we should be offering the same product at six percent. Otherwise the industry needs to be upfront and tell the full story – these kind of indices increase the underlying risk for investors. We see the same payoffs being used with new underlyings when the actual return of these indices could be significantly different from traditional market cap indices. A FTSE decrement product will perform differently than the FTSE 100 but some investors could think they have invested in the same index. Some of the highest fines in the UK market have been issued not because the products were too complex but because the expectations end investors had were greater than the likely return of the products. These indices are suitable for professional or self-directed investors, but retail investors are a different story.

What are the alternatives when traditional indices cannot deliver the returns investors want? We did recently a daily accrual structure to provide a protection mechanism to investors. We are more comfortable with that approach as we think advisers and investors will understand the probability of the product losing money. A lot of the value of these products is that enhanced efficiency you can embed in them. There is room for products that are much more efficient for the

“When I see one of these indices, I always ask what happened to the one I was shown 10 years ago” Clive Moore, managing director, Idad www.structuredretailproducts.com

trader which can then pass on those efficiencies to increase the chances of a better return.

have a duty to do theirs and look at the value these indices can offer.

The market has moved from very complex payoff shapes to very complex underlyings, but there is a middle ground were investors can understand the mechanics of both the payoff and the underlying.

I struggle to see any rules-based index with an algorithm driven by an investor need. You rarely come across investors asking for the 40% stocks that pay the highest dividend and among those the ones with the lowest/highest volatility - it is difficult to see how these new indices are driven by investor interest or need.

Is the market focusing too much on the headline rate of products? That is where the UK market was 20 years ago. There was a fixation about the headline rate which eventually stayed static regardless of underlying investment conditions – effectively the moving part was always the risk.

The number of new indices is another sign of the market being commoditised. There does not seem to be any cost involved or restriction in creating new indices. Ultimately, regulators will look at it and ask why are these here.

With the new Priips framework the calculation of the risk scores has proven to be flawed and they work poorly in the structured products business. However, the key conversation to have with investors is about understanding risk which is about probability and impact. We are more comfortable with products were that equation works well.

What is your view about self- and direct indexing?

Our recent daily accrual is a good example as the potential impact is quite high, but the probability of that impact is extremely low. Sometimes people don’t focus on this kind of approach enough and for investors the main risk is always the risk of losing capital.

Idad is a big investor in a firm that specialises in model portfolios – a fund of funds business which has now evolved into a different type of business and now runs portfolios for its clients who are effectively buying all the underlying funds and assets, and get charged 15bps for the portfolio management service.

Most investors don’t see risk in highly volatile underlying indices. Payoffs are driven mainly by volatility and the risk scores are driven by volatility largely as well. Most investors don’t care if an index goes up or down – they don’t want to lose money.

This approach is getting attention because investors can look into thematics and discretionary managers and stockbrokers with a mandate can manage those strategies for them. There is little demand for these strategies to be index based.

What is your view on the increasing use of thematic, custom and QIS indices in the structured products market?

Do indices have advantages over stocks for structured products?

The problem with some of the new trends is that they are rarely driven from the right place. ESG is an example of something that could have a backlash because there is no clarity and clearly a lack of standards. There is no reason to bring some of these indices to the market unless it is for marketing reasons and to make products optically more attractive and enhance the margins. This approach makes the pricing a lot easier, but if you’re trying to make your products more attractive you are then misleading investors. When I see one of these indices, I always ask what happened to the one I was shown 10 years ago. There is no track record or performance to show but a couple of years of back-testing. Investment banks are doing their job, but independent firms

If investors really want a new profile that is delivered through a new index, they can build them themselves, as well as manage and rebalance a portfolio without needing a complex rules or methodology.

As an investor, the benefit of using stocks is that the pricing can be tighter and more efficient, and from a risk-reward basis you get much better returns. However, an index never dies and that is why they are more suitable for passive and less sophisticated investors. The role of an index is to provide a broad reflection of how an economy or a sector is performing. That’s the attraction of an index. They were not designed as investing tools but as a way to give people an understanding of different markets and parts of the economy. They have played a very important role as passive investment tools as they provide broad access to markets.

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Marcel Pronk, director securities marketing – structured products, Kempen

The Dutch merchant bank has a boutique approach to structured products based on underlying simplicity Which delivers more value to investors? Structured products linked to stocks or indices? The vast majority of the products we issue are linked to indices and only a small number is linked to shares. Our internal private bank has a policy to offer only index linked structures to their clients and therefore the capabilities of our trading desk are also mainly focused on index linked structures. For our external clients we do however trade structures on shares, mainly on local Dutch shares. Our private bank is only using indices in structured products because indices offer better diversification and less company specific risks compared to shares. Clients who would like to use shares as underlying could make use of the listed option market which is highly developed in the Netherlands.

Are indices difficult to understand/explain to end investors? We are mainly using the standard blue-chip benchmark indices like the Eurostoxx 50 or the S&P 500 as underlying for our products. These indices are fairly easy to explain to end investors. It becomes a bit more difficult when more specific

indices are used, like for example the Eurostoxx Select Dividend 30 Index that has been quite popular recently and that we used as underlying for two of our products we launched this month. For these kinds of indices, it is important that investors are fully aware of the implied higher risks that comes with the higher dividend yield of the index. We try to limit the number of non-benchmark indices we are using in our products to keep it as simple as possible for our advisors and endinvestors. We therefore have not been using many of the indices that are popular in other European countries like for example the decrement indices.

Why have QIS and ESG indices become so popular over the last few years? ESG compliant investing became a very important topic in recent years. It is therefore quite logical that this is also an important topic in the structured products industry. In a period of low interest rates using QIS Indices as underlying value could still offer attractive product specifications for (partly) capital protected products where this often not possible with the regular benchmark indices. It does therefore not come as a surprise that a combination of ESG and QIS has been very popular in some markets in recent years.

Is there a danger of over-engineering indices as providers slice and dice the market? There are currently a lot of indices available in the market. Almost every investment bank is developing their own set of indices. Although these indices are often quite comparable, they normally tend to be exclusively licensed to only one investment bank. You could question if that is an ideal situation. Probably a situation where there are only a few market standards that could be used by every investment bank would be better for the adoption of the indices.

“Indices offer better diversification compared to shares” Marcel Pronk, director securities marketing – structured products, Kempen

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Specialist Provider: OCC cleared v OTC Cboe Global Markets and the VIX Index are a well-known duo, but the US exchange’s index services business has found its niche as a specialist provider in the structured ETFs space. SRP spoke to Cathy Clay, global head of data and access solutions at Cboe Global Markets, about the firm’s range and the prospect of target outcome indices becoming relevant beyond the US and Canada.

set – Flex Options - we offer extra transparency through a listed product and because it is delivered via an ETF wrapper, the end investor gets the liquidity traditionally not offered with a structured product. The indices are tradeable and trackable. Each index family is comprised of 12 monthly tranches and for each month holds a different option position to provide the targeted level of returns. At this moment in time, we offer Target Outcome on the S&P 500 and the Russell 2000 indices.

Did the performance of your indices meet investor expectations in 2020?

Is there scope for target outcome indices in other geographies?

From a perspective of risk, what happened last year is a good reminder of the need to build the ship before the storm. Clearly, we’ve experienced a 10year bull market and things like downside protection can sometimes be overlooked by certain investor demographics.

There is always going to be different investment approaches and perspectives in countries around the world. The marketplace is evolving, and investors’ goals are constantly changing. This is forcing index providers and product issuers to come up with new ways to add value to investors.

Over the last two years we’ve seen an uptick in interest and a proliferation of products tied to our benchmarks in the US. We’re applying a transparent approach in how we calculate these indices to democratise and provide access to these investment exposures for a larger investor demographic. When you consider the events of last year, we think the timing could not have been better for these indices and product sets.

How was the target outcome range originated? We started our complex of Target Outcome Indices [Buffer Protect and Enhanced Return families] in late 2015, in collaboration with Cboe Vest. By design, the indices provide a targeted level of returns on the upside while removing some of the risk on the downside. The key component for these indices is the use of Flex options in the portfolio construction, which are traded at Cboe and are centrally cleared with the OCC. The risk-return profiles are very similar to structured products but by using a listed product

“Downside protection can sometimes be overlooked by certain investor demographics” Cathy Clay, CBOE Global Indices

Our expectation is that demand for these types of indices will continue to grow as the market evolves across certain investor demographics and geographical regions. Structured products are very big in Asia and Europe, so we see a definite need to serve this kind of risk-return profile. Some investment vehicles or product wrappers are preferred more than others depending on location; however, the approach is very similar.

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Are these indices suitable for retail investors?

Do you have plans to expand your offering, look at other areas of growth?

Depending on an investor’s needs and goals, there is an investor demographic that is compelled to take on more risk in their portfolio, specifically a bit more risk taking as opposed to being risk averse because of the challenged times we’re experiencing in the low rate environment in fixed income.

We’re known for doing more complex index calculations and we work with a number of index providers and investment banks offering swaps and structured notes, so there is an opportunity for us in this market to expand our index reach and market share. Our index calculation platform and technology stack is set up for esoteric, niche and complex index calculations. Currently, our indices mainly focus on our proprietary products ie, VIX futures and index options, as well as options on the S&P 500 Index, Russell 2000 Index, MSCI EM Index, and MSCI Eafe Index.

These are the investors that are retiring. They don’t have a multi-million portfolio and they need that additional yield and income to maintain their living standards in retirement. Target outcome-like products have been traded by high net worth investors for years via structured products. Now that these exposures are being offered under different product wrappers, such as ETFs, investors are getting more comfortable and have wider access to use these products within their portfolio allocations.

What value do your indices bring to end investors? Is there a danger of adding too much complexity in investors’ portfolios? The value comes from the fact that we’re bridging the gap between simplicity and complexity to meet the needs of specific risk-return profiles. Our approach to indexing has been focused on the usage of volatility and derivatives within a strategy benchmark’s design. Complexity is going to be needed for indices to continue delivering value and providing solutions to new and changing investor goals. Options investing can be complicated but we’re providing an index via a transparent methodology to use options efficiently within a portfolio. We’re able to reimagine the traditional allocation of long equity and fixed income portfolio by applying an option within the portfolio to improve the riskreturn profile.

On a going forward basis, we are looking to expand those exposures and use options strategies within other areas such as commodities and fixed income. Looking at the different asset classes, we also see other opportunities across the volatility space and the crypto space. Our partnership with CoinRoutes is part of our plan to create a true benchmark that measures the global health of the crypto market. For Cboe Global Indices, it is about democratising access and having foresight on value. Having an investment solution or product available just when it is truly needed would be the most ideal situation. However, someone must have the vision and be brave enough to come out with that idea prior to the fact. It’s just a matter of reimagining an idea at the right time. There is a bit of marketing involved, as some of these products and ideas have been offered in different ways across multiple different wrappers throughout the years. There is also an element of investor education and making them aware of the different choices and solutions available. From a Cboe Global Indices standpoint, we try to look ahead to find, create and develop new tools and solutions for our clients to help them achieve their investment goals.

“Complexity is going to be needed for indices to continue delivering value.” Cathy Clay, CBOE Global Indices

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Case study: Building an ESG index In this article, Laurence Black, founder of The Index Standard, talks about best practice to create a sustainable underlying that can add value to end investors while addressing the importance of spotting and avoiding greenwashing when creating products with real positive impact.

When developing an ESG index… You need to have is a clear vision and understanding of what you’re trying to do. For example, the ESG space now has so many flavours and formats, it has become quite confusing for the average person to understand what is going on. Each index provider does a slightly different thing when it comes to their particular methodology. Some are using AI and natural language processing which is algorithmic and systematic. Others take a qualitative approach with an analyst ranking and evaluating companies [according to certain predetermined criteria]. When designing an ESG index, there are a multitude of construction options. At one extreme, you can either opt for an index that is all encompassing on all ESG criteria or you could have another index that just uses one ESG screen. For example, an allencompassing approach might entail incorporating UN Global Compact, Paris Agreement, Science Based Target Initiative, Physical Risk criteria and high ESG scores. On the other hand, you can simply remove a few stocks based on the worst ESG scores in an index. These two indices both carry an ESG label, but you’ve got one that’s very strict and hugely compliant and the other less so. The developer must have a clear idea of what they are trying to achieve and the client for whom they are designing the index, as there are a variety of compromises and payoffs to consider. For example, the compromise with the all-encompassing approach is that you have selected the best ESG companies so you’re probably excluded companies that can improve their stock price by incorporating ESG principles. Secondly, you may have compromised yourself on liquidity because you’ve screened out so many companies that the basket becomes harder to trade with respect to options.

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Secondly, some end clients may want the UN Global Compact screening included, because that’s important to them and included in their due diligence. If you missed that out, the index will be unacceptable to them so you really must think about who the end client is and understand their needs.

The ESG space now has so many flavours and formats The methodology as a starting point… An ESG methodology can be likened to a filtering process with several separate filters. A simple example has three filters or steps: one can select the largest 1,000 US stocks, then exclude any stocks that don’t meet the UN Global Compact criteria, and finally exclude all the stocks that have high ESG risk scores. There are a variety of other considerations, for example you could consider sector neutrality and tracking error. Some ESG indices have a skew towards technology, communications, or healthcare stocks as these typically score well in ESG criteria versus raw material industries that score less so, so evaluating and considering the sector impact is important. The other thing that you should consider is the weighting scheme. Once you’ve got your ESG stocks that you’ve filtered for the criteria that are important to you, then you could opt for a market cap weighted scheme. In this case, you would be a little closer to the benchmark and reduce your tracking error. Or you could go for an equal weighted approach with

higher tracking error, there are a lot of choices to make, and you need to have a clear roadmap in your mind of what you are trying to do.

The role of technology The technology has evolved rapidly and some fintechs employ artificial intelligence and natural language processing in the creation of ESG scores. Other larger traditional ESG providers are beginning to adopt these approaches now. These ESG fintechs effectively run their algorithms on all public internet sources to identify early warning signals of ESG breaches. They can also precisely measure any change in ESG sentiment ahead of a traditional analyst who, through a sheer information overload, may miss something, or may not think that something is significant. Because of this tremendous volume of information, it’s a process that is better suited to AI and natural language processing.

The back-testing Typically, what you’re trying to do is develop an ESG index that will outperform or at least have similar performance characteristics to that of a benchmark. You may also expect better risk attributes as you want to identify high-quality companies that may not, at the extreme, cause major environmental harm and suffer a price drop.

You will run a significant number of back tests, and this will help inform your design. In addition, some banks will collaborate with index developers with the idea of selling the ESG index in option format. When they are doing their back testing, they’re also considering option parameters such as liquidity and the ability to delta hedge which are important to the hedging bank. For example, they don’t want to have a custom index with 1,000 constituents that may require frequent delta hedging. The back testing process can take a couple months as there are a variety of ESG configurations and one has to initially access and clean the data, incorporate various data sources, filter it, and then run a variety of back tests. Most of the time, the end retail clients are not involved with back testing. However, it can be advantageous to involve distribution clients as they can provide input as to their exact needs and they feel like that they’ve been involved into the process.

Key developments The major development that’s been very helpful for the industry is that the ESG coverage is much broader and one can backtest a larger universe. The main issue used to be that not all stocks had ESG scores and that the data would only go back to say, 2010. It is still hard to get ESG scores going back over 20 years.

Participation optics drive increased prop activity The low interest rate environment has made structured products and fixed index annuities harder to create, according to Black. “To address this issue, banks and other indexers created indices that have lower volatility using a risk control feature, he says. “This technique has been around for a few years, but now we are seeing a plethora of newer, complex strategies aimed at controlling volatility from using mean variance optimization to having dual risk control features and intra-day volatility control techniques.” Black notes that quantitative investment strategy (QIS) groups in the US now have the edge when delivering highly innovative indices. Some utilize artificial intelligence (AI) and have developed new risk control features for the US fixed index annuity market.

“Structured product investors can benefit from QIS as they can access innovative risk control features, cutting edge innovation and these can be combined with new themes or various smart beta mechanisms,” said Black. Risk control and alternative risk premia indices are going to keep on growing with low interest rates while indexers are predicted to continue encroaching in the active manager space. “They will apply a set of rules in order to mimic whatever active managers are doing and deliver this in index format. Conversely, we are also seeing a number of active managers creating indices aiming to benefit from the move to passive indices,” he said. “I think the crypto market will mature in the same way that volatility is now an accepted asset class. I would expect to see various risk control features applied to the crypto market as the next piece of index innovation.”

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The merits of equal weighting indices Chris Taylor, global head of Tempo Structured Products, shines a light on issues embedded in market capitalisation weighted indices which investors should consider, explains the merits of equal weight index methodology, and highlights that structured products can offer investable equal weight index propositions for investors.

Talk to academics focused on factor-based research and the concept and merits of equal weight indices are clearly supported by academic evidence and seem incontrovertibly logical and rational. Equal weighting is one of the most obvious, simple and compelling ways in which indices can be constructed, theoretically. Back in the real world, however, the vast majority of mainstream investable indices are market capitalisation weighted, and even amongst factor premia-based adaptations, equal weighting is rare. As we’ll explore in this article, the reason for this is that there are practical challenges that have made equal weighting difficult to implement and manage, for the mutual funds and ETF world. But the structured products sector can and does offer investable equal weight index propositions for investors, as Tempo’s product suite for professional advised investors proves.

Given a choice, why market cap? Market capitalisation weighted indices have clearly become the most common passive investment approach for many investors around the world. This article is not seeking to challenge the fact that market capitalisation weighted indices rationally and incontrovertibly reflect the market as a whole, as ‘market benchmarks’, the merits of which are widely recognised, evidenced and accepted. However, it is important to recognise that market capitalisation indices effectively, implicitly embed some features, rules, factor exposures and potential issues as ‘passive investments’, which investors need to consider. To highlight these points, it is interesting and thought provoking to imagine how market capitalisation weighted indices might be regarded,

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if presented and considered as smart beta propositions. Let us imagine that you are a professional adviser or investor who has happily been using an equal weight version of the FTSE 100 for many years: let’s say, since 1984, imagine that the FTSE 100 ndex you’ve been using since its inception was always equally weighted. FTSE Russell contact you, as a recognised expert on passive investing, and explain that they are thinking of launching a market capitalisation weighted version of FTSE 100. They provide you with detailed input and academic evidence, highlighting and explaining that market capitalisation weighting, as a rules-based index methodology, as an alternative to equal weighting, will result in some or all of the following: ⚫ Stock (and usually sector) concentration in the larger, ‘mega cap’ companies in the index (eg, in the FTSE 100, the top 10 companies may typically account for 40%-50% of the index in total), despite academia evidencing the merits of diversification. ⚫ Underweighting the smaller companies in the index (eg, in the FTSE 100, the bottom company may typically account for just 0.10.2%): despite academia identifying that these companies historically outperform, ie, the small companies effect. ⚫ Increasing the weighting in companies when their share prices rise and decreasing the weighting in companies when their share prices go down, ie, buying high and selling low, despite academia pointing to the long term merits of value investing. ⚫ … oh, and best point last, they highlight that historical analysis shows that market capitalisation weighting the FTSE 100 means that, more times than not, it underperforms the elegantly simple equal weight index.

“Market cap weighted indices are the optimal passive investment methodology” They do, however, draw attention to the efficient markets hypothesis, which loosely states that markets are efficient; everything is in the price; the only thing that can move prices is unknown information, and that consistently beating markets is impossible ... which they suggest highlights the merits of market capitalisation weighting. Patiently listening, you, however, may counter that while it is, of course, interesting to consider the principles of EMH, there is no information value to knowing everything is in the price: it does not provide or improve the ability to actually forecast anything about future performance. Arguably, EMH does not point to market capitalisation weighting, it points to the agnostic and elegant case for equal weighting. Put simply, if we started with a blank sheet of paper, and thought about the best ways to invest passively in the market, as opposed to the best benchmark for the market, we might not conclude that market cap weighted indices are the optimal passive investment methodology!

Equal weight makes sense Equal weighting is generally considered to be the most obvious and straightforward alternative to market capitalisation weighting an index. The rules and factors which are explicit in equally weighted indices effectively reverse rules, factor exposures and potential issues which are embedded implicitly in market capitalisation weighted indices, including, but not limited to the following: 1. Concentration risk at company (and potentially also sector) level is immediately exchanged for diversification, eg, in the FTSE 100, 100 x 1% weights means that the top 10 companies account for 10% in total 2. Smaller company ‘underweights’ are equalised, eg, in the FTSE 100, 100 x 1% weights means that the bottom 10 companies account for 10% in total (as per the top 10 companies). In the FTSE 100, over 70 companies may increase weighting when equally weighted. 3. Periodic rebalancing to maintain equal weighting embeds a ‘buy low/sell high’ approach, as a rule,

in contrast to market capitalisation weighting, which does the opposite. It is immediately apparent that there is logic and investment merit to equal weighting. Extensive academia highlights two factors which can contribute positively to portfolio performance, which benefit from equal weighting: size/smaller companies and value (attractive fundamentals) stocks. Let us look at each in turn. Starting with the ‘size’ factor, in simple terms equal weighting increases exposure to smaller companies in an index. Academic studies have long identified that smaller companies have historically outperformed larger companies, over the longer term (even the major stocks in the world today were smaller companies at some point in the past). The higher return premium of smaller companies is usually associated with increased risk: less information, less certainty, lack of liquidity, etc. But it is worth noting that smaller companies in the FTSE 100 are still considered large companies. The increased weighting to smaller companies in equal weight indices can also be expected to lead to higher volatility. But again, the FTSE 100 analysis highlights that this may be less than might be anticipated, given

Table 1. Year-on-year Index Performance (Total Return) FTSE 100

FTSE 100 EQ

2010

12.60%

21.30%

2011

-2.20%

-7.30%

2012

10.00%

17.90%

2013

18.70%

19.80%

2014

0.70%

4.50%

2015

-1.30%

3.00%

2016

19.10%

12.60%

2017

11.90%

13.20%

2018

-8.70%

-9.00%

2019

17.30%

23.10%

2020

-11.50%

-2.20%

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Table 2. Volatility and Drawdown Volatility

Drawdown

1YR

3YRS

5YRS

10YRS

FTSE 100

29.00%

-19.60%

13.60%

-34.20%

FTSE 100 EQ

29.80%

-21.10%

15.60%

-37.2

that the smaller capitalisation end of the FTSE 100 is still considered large capitalisation. The other key factor at work is the ‘value’ factor. In an equal weight index, re-balancing imposes a ‘buy low/sell high’ rule, which captures elements of value. Over recent years there’s plentiful evidence that value investing has been out of favour, while growth stocks have driven the performance of certain stock market indices. However, academia identifies the potential merits of value investing. I would cite a non-exhaustive list which includes Basu (1977); Rosenberg, Reid and Lanstein (1985); De Bondt and Thaler (1987); Fama and French (1992) In academic theory, therefore, an equal weight index should capture the returns premium of these two factors. But do the-real world facts bear out this academic observation? The evidence is persuasive. Focusing on the UK, Tables 1 and 2 highlight analysis of the benchmark UK index, the FTSE 100, comparing the market cap and equal weight versions. As can be seen in Table 1, at least over the time period used in the tables, we can surmise that equal weighting can produce superior returns more often than it doesn’t; in this example, using the FTSE 100, in eight years out of the last 11 years. Table 2 highlights that the superior performance was achieved with slightly higher volatility and slightly larger drawdown (which was during the Q1 2020 Covid-19 sell-off). Notably, it’s worth considering that this type of outperformance would be the making of an active fund manager aiming and claiming to offer ‘alpha’ against the market cap index benchmark.

However, this is ‘smart beta’ in practice: the same index provider, with the exact same stocks, simply implementing a different, rules based weighting methodology, as a passive proposition, i.e., alternative beta, to deliver outperformance of the benchmark index. Table 3 reminds us why the returns (and the underlying volatility) might vary: it compares the sector composition of the main benchmark market capitalisation weighted index to the equal weight version. What is obvious here is that the sector composition is noticeably different – currently, in the UK FTSE 100, equal weighting means lower exposure to resources and financial stocks, for example, and higher exposure to industrial goods and retail.

Challenges for mutual funds and etfs To be fair to mainstream index providers, they fully recognise the academic and real-world merits of equal weighting and offer both market capitalisation and equally weighted methodology options on the main indices, ie, FTSE 100, S&P 500, MSCI World, Eurostoxx 50. But given how compelling the evidence and rationale for equal weighting indices is, the question which arises is where are all the equally weighted index mutual funds and ETFs? The answer is that there are practical challenges for mutual funds and ETFs in implementing and managing investable equal weighting. The increased weighting and trading in smaller companies – especially as a result of regular rebalancing to maintain the equal weighting – can present liquidity, trading costs and tracking error challenges.

“There are practical challenges for mutual funds and ETFs in implementing and managing investable equal weighting” www.structuredretailproducts.com

In fact, in the UK, in respect of the FTSE 100, which I have used to draw attention to the merits of equal weighting, there isn’t a single mutual fund or ETF option available to investors. However, these challenges do not affect all areas of the investing universe. In particular, these challenges do not affect structured products. Structured products are based on contracts, issued by banks, with product returns based upon the level of an index, without investing directly into the stocks in the index.

Equal weight is the simplest alternative to market cap weighting

Let us unpack that last statement. In a structured product, issuing banks may arrange to hedge themselves against the legal obligations upon them to deliver the terms of the bonds which they have issued, ie, to deliver the returns they stated, but they do not necessarily replicate the index or need to do so in the way that a passive fund or ETF must.

This means that structured products can employ smart beta strategies, including equal weighting, in ways (and with risk-return profiles) which mutual funds and ETFs cannot.

Structured products do not, therefore, suffer the liquidity challenges, turnover costs or tracking error issues of mutual funds and ETFs replicating indices

In 2017, FTSE Russell launched an equal weight version of the FTSE 100, known as the FTSE 100 Fixed Dividend Equal Weight Custom Index (‘ FTSE 100 FDEW’), which was developed in collaboration with Société Générale, which has an exclusive license for the index (with Tempo, in turn, having an exclusive arrangement with Société Générale to use the FTSE 100 FDEW in structured product plans offered to UK professional advisers).

Table 3: Sector composition for FTSE 100 vs EW version FTSE 100 sector FTSE 100

SECTOR

FTSE 100 FDEW

Oil and gas

Banks

15%

Personal and household goods

12%

Pharmaceuticals

10%

Basic resources

Industrial goods and services

16%

Food and beverage

Insurance

Media

Travel and leisure

Financial services

10%

Retail

Utilities

Telecommunications

Construction and materials

Real estate

Healthcare

Technology

Chemicals

Precious metals and mining

Aerospace and defence

A case for structured products

Launched in March 2017 (with simulated data to 2001), with a starting level of 1,000, the FTSE 100 FDEW comprises the same 100 stocks as the FTSE 100, uses the same methodology regarding quarterly reviews and constituents, and adheres to the same FTSE Russell FTSE UK Index Series Ground Rules as the FTSE 100. But as its name suggests, it differs to the FTSE 100 in two important ways: ⚫ The ‘FD’: the FTSE 100 FDEW is based on a total return index, including dividends paid by the companies: however, a fixed dividend of 50 points per year is deducted companies are included in its calculation: however, a fixed dividend of 50 points per year is deducted in the calculation of its daily level. Specifically, it is this total return / fixed dividend approach of the FTSE 100 FDEW which addresses an issue which banks may encounter when structured products link to the FTSE 100, which provides the potential to improve structured product terms. When structured products are linked to the price return of the FTSE 100, issuing investment banks may seek to hedge the dividends which are not accounted for within the index, which they can do by selling dividend futures in the futures market. However, future dividend levels are unknown and

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uncertain and thus the futures market typically discounts the levels that it expects to be paid out, particularly in the longer term. In addition, dividend futures are not very liquid and the swathe of structured product-issuing investment banks selling dividend futures, in the absence of many natural buyers, creates a supply / demand imbalance. As a result, ‘implied’ dividend levels seen in the dividend futures market are often lower than ‘realised’ actual dividend levels actually paid by companies. This ‘discounting cost’, linked to the need for banks to hedge through the futures market, can negatively impact the terms of structured products linked to the FTSE 100.

However, the recovery since the drawdown low of 23 March may surprise many readers the equal weight FTSE 100 FDEW materially outperformed the market cap weighted FTSE 100 through the remainder of 2020.

In conclusion While market capitalisation weighted indices rationally reflect markets as a whole, as a benchmark, it doesn’t automatically or necessarily follow that market capitalisation weighted indices are also the best / optimal way to passively invest in markets.

The fixed dividend (FD), of the FTSE 100 FDEW is designed to address this issue, avoiding the discounting costs of the futures market, and removing the hedging uncertainty, allowing issuers to improve product terms. However, it is important to understand that the FD operates in tandem with the ‘EW’, ie, the equal weighting, in the FTSE 100 FDEW. So, without going into the minutiae of our products, how is the FTSE 100 FDEW performing, compared to the FTSE 100? Is the return profile of the index compelling, based on using equal weight methodology, modified with the fixed dividend? We have now had these products in the UK market for professionally advised investors for a number of years, and we can also point to 2020 as a particularly good year in which to observe the index, given the market sell-off following the outbreak of the Covid-19 pandemic and the environment for company dividends which followed. As already highlighted, equal weight methodology may lead to increased drawdown and elevated volatility. Focusing on 2020, Table 4 shows that this can be the case, during the Q1 market fall.

This is a subtle but important distinction and point to recognise and understand, because market capitalisation weighted indices effectively, implicitly embed rules, factor exposures and potential issues which passive investors should be considering. It’s certainly not the case that market capitalisation weighting is the only way to invest passively in markets. Advancing academic research and modern index construction capabilities offer various alternative index methodologies. Equal weight indices offer one of the simplest and most straightforward alternatives to market capitalisation weighting, with academic and real world evidence of their merits. However, the mutual funds and ETF world struggles to offer investable equal weight index-based propositions, due to implementation challenges. Structured products, however, can offer viable, investable equal weight index propositions for investors … with the added appeal of structured product features, which can optimise risk and return profiles, in ways that mutual funds and ETFs cannot.

Table 4. 2020 Index Performance Drawdown

Volatility

Sharpe Ratio

2020

17 January-23/03/2021

FTSE 100

-15.04%

-34.93%

29.55%

-0.51%

FTSE 100 FDEW

-8.37%

-37.63%

30.23%

-0.28%

Recovery 3-Months Since Low

6-Months Since Low

Since Low to 31 Dec

FTSE 100

26.56%

18.13%

29.37%

FTSE 100 FDEW

32.11%

28.28%

47.05%

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Allindex: replicating direct indexing through structured products The Swiss tech provider sees AMCs as the perfect vehicle for replicating direct indexing in a client portfolio. Allindex, the Swiss fintech that provides technology and services to the asset management industry, has developed a mobile application were investors can use their phone to invest in customised indices. Ahead of the official launch in September, SRP caught up with the company’s chief executive officer Christian Kronseder (pictured), who talked us through the opportunities presented by direct indexing, how to replicate it in a client’s portfolio, and why actively managed certificates (AMCs) play an important role in this process.

indexing has become more relevant too. The company recently had a long discussion with an Asian ETF provider which was interested in knowing how they can integrate direct indexing into their ETF business model.

“The idea of direct indexing is that you directly physically replicate an index for a portfolio that is an index, or an index form,” said Kronseder.

“The established players, which are smaller, don’t command this massive equity flow and transaction flow that the big asset managers have. They must innovate to survive and still stay relevant.

According to Kronseder, there are several interesting ideas that are connected to direct indexing, starting with the fact that from a technological point of view, managing individualised portfolios suddenly becomes quite easy. “There are certain jurisdictions, the US being one of them, where investors can ‘tax harvest,’ which means if they have losses in assets or particular securities, they can make them tax deductible and offset the tax bill on the gains they might make or have made. Direct indexing makes this easy to do,” said Kronseder. Investors also increasingly demand to have tailormade indices or investment strategies according to their needs, as people like to invest based on their views, and are less driven by financial indicators. “The term here is ESG and sustainability,” said Kronseder, adding that investors can create their own universe of sustainable finance and do not have to follow an ETF or range of ETFs. All this has led to the rise of direct indexing. Outside of Europe, in the US and Asia, direct

“In the US, the market is very keen on either funding or buying companies that have direct indexing capabilities or a direct indexing offering. Blackrock closed a transaction in February when they bought Aperio, which has direct indexing capabilities,” said Kronseder. Then there is the element of costs. This is highlighted by the emergence of an increasing number of zero costs ETFs, especially from the bigger providers like Vanguard and Blackrock.

“Offering direct indexing takes away all those cost you have with an ETF wrapper, or any other wrapper. It takes away most of the compliance costs. It is an opportunity to stay relevant in the asset management arena with an innovative idea of a super tailor-made offering, that is specifically for you as my client, and I manage this for you,” said Kronseder.

Direct indexing in a portfolio Christian Kronseder: If I have enough money, it is very easy to physically replicate. For these clients it is not a big deal to buy a Fang stock, a Facebook, Apple, Netflix or Google. For somebody who does not have a disposable income of several million per month it becomes a bit more interesting to do. There are two routes. One is via brokers that offer fractional shares, which is a big thing in the US and a couple of Asian countries. The advantages of the fractional shares are that you can also address the longer tail of the investment community. Someone who can only afford US$100 per month can with fractional shares build a portfolio through an index, which right now is not possible.

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The other, more the European route is through structured products or equity-linked notes. There are AMCs, they act as vessels where you can put in all sorts of strategies and asset classes. AMCs have always been a bit of a thing here in Switzerland. They allowed external asset managers – smaller asset management entities with two to 10 people – to offer their clients very specialised structured products. Even more specialised than having your own strike, your own underlying and your own time to maturity. That makes for an interesting trading strategy, which you can wrap into a structured product and you don’t need that many assets under management to make it profitable. The interesting thing is that over the last eight months or so, AMCs have begun to appear in other parts of Europe too. We hear from Spanish banks, from German and Austrian banks, and from time to time from French banks that are interested in offering AMCs in connection with direct indexing. The reason is that it allows them – at least for the private banking/HNWI segment – an interesting way to show tailormade investment strategies, whether that is in index format, or portfolio format, which you can invest in from US$500,000 plus. That is why AMCs are springing up. Also, AMCs are not as tightly regulated as ETFs or structured products. They are easier and faster to set up and you need smaller amounts to make them profitable.

Top themes Christian Kronseder: In Asia Pacific we see that Japanese insurance companies are very interested in ESG. Around 18 months ago, a large Japanese life insurance firm put out a tender for US$110 billion for ESG investments. We also hear from participants outside Japan that ESG is growing. They are pushing ESG in China. The Chinese government is very science driven, hence ESG makes sense from their point of view. We also see this in Hong Kong SAR and other countries too. In Europe, France was the tip of the spear for ESG but it is now also gaining traction in Germany and Switzerland. ESG is less popular in the US. There they have a very

strong discussion about diversity and inclusion more identity politics driven then environmentally driven, but ESG is growing. We have observed a development towards more sophistication from the investors point of view. Whilst in the beginning everyone was happy if you put an ESG overlay on an existing index, and do an exclusion based on an ESG score, investors now want to understand how these scores are created. What are the frameworks behind it? What are the benefits? Why this framework and not another one? They also have a sudden preference and for example only want to invest in socially responsible companies, so ESG as such is too broad. They only want to invest in E or S or G.

Innovation in indices Christian Kronseder: It is a bit of a mixed bag. Most of the innovation comes from the asset management community and the asset owner community. Many asset owners suddenly have a request that indices should reflect the liability side more than regular equity indices do. The liability side is one of the key components for an asset owner if they pay out pensions. They have outflow, and together with the demographic change, this outflow will increase and the inflow is not getting as high as it should be, so they want to have a more accurate picture of the performance of this pension fund by also considering the liability side of their investments, their balance sheet so to say. This is where we see requests, questions, getting to the index providers and some of them are quite slow to react to this. Hence, others try to fill this gap like the large asset managers, which have mandates to manage those pension funds, or smaller companies like us. There is also a discussion on whether the current regime of market cap weighted indices makes still sense. You have companies like Apple and Tesla dominating your index because they are so valuable. There is talk of Apple being worth US$2 trillion in the future. These company’s dwarf everything else in the index, so the question is if it still makes sense to have everything based on market cap. It distorts the performance of the index.

Direct indexing takes away all those cost you have with wrappers www.structuredretailproducts.com

Index Classification

Index sectors by issuance and sales 2016/2021 Index sectors - Issuance* Sector

2016

2017

2018

2019

2020

1H 2021

Market Cap

13,061

14,254

17,922

14,356

13,796

5,816

Strategy & factor

343

360

808

1,525

1,675

1,525

Decrement

163

312

674

603

792

1,359

ESG

101

195

436

792

890

Industry

308

491

730

665

780

409

Proprietary & custom

157

348

645

795

382

Thematic

104

248

149

102

14,343

15,909

21,010

18,512

18,115

10,174

Total

*Based on the biggest sectors in 2020, as of 30 June 2021

Breakdown by sector 2016-2021: issuance* 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2016

2017

Market Cap

Strategy & factor

2018 Decrement

2019 ESG

Industry

2020 Proprietary & custom

1H 2021 Thematic

*Based on the biggest sectors in 2020, as of 30 June 2021

Index sectors - Sales US$m* Sector

2016

2017

2018

2019

2020

1H 2021

Market Cap

88,472.62

73,633.27

96,697.69

89,693.98

77,186.29

29,649.17

Decrement

3,549.24

6,602.32

8,366.34

8,038.22

8,668.74

7,225.38

Strategy & factor

3,372.10

4,224.42

5,344.06

6,937.90

7,439.59

4,056.08

ESG

1,424.63

1,394.37

1,275.50

6,564.72

6,606.17

4,588.61

Industry

1,963.29

2,275.62

3,018.06

3,318.68

4,476.53

1,832.24

Thematic

876.41

512.98

1,339.57

1,396.75

1,161.25

530.00

Proprietary & custom

283.49

943.52

1,024.02

1,525.73

631.07

150.94

100,536.93

89,871.10

116,752.21

116,745.75

102,343.17

48,032.42

Total

*Based on the biggest sectors in 2020, as of 30 June 2021

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Breakdown by sector 2016-2021: issuance* 25,000

20,000

15,000

10,000

5,000

0 2016

2017

Market Cap

Strategy & factor

2018 Decrement

2019 ESG

Industry

2020 Proprietary & custom

1H 2021 Thematic

*Based on the biggest sectors in 2020, as of 30 June 2021

Breakdown by sector 2016-2021: sales US$m* 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

2016 Market Cap

2017 Strategy & factor

2018 Decrement

2019 ESG

Industry

2020 Proprietary & custom

1H 2021 Thematic

*Based on the biggest sectors in 2020, as of 30 June 2021

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Index sectors - excluding market cap Issuance Sector

2016

2017

2018

2019

2020

Factor

343

360

808

1,525

1,675

Industry

308

491

730

665

780

Decrement

163

312

665

592

656

ESG

103

110

189

391

572

Custom

261

329

597

733

487

Thematic

104

248

149

Total

1,282

1,655

3,088

4,154

4,319

*Based on the biggest sectors in 2020, as of 30 June 2021

Breakdown by sector* 2016-2021: issuance 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

2016

2017 Strategy & factor

2018 Decrement

ESG

2019 Industry

2020

Proprietary & custom

1H 2021 Thematic

*Based on the biggest sectors in 2020, as of 30 June 2021

Sales Sector

2016

2017

2018

2019

2020

Decrement

3,576.09

6,651.74

8,373.28

7,878.08

7,442.63

Factor

3,372.10

4,224.42

5,344.06

6,937.90

7,439.59

Industry

1,963.29

2,275.62

3,018.06

3,318.68

4,476.53

ESG

1,556.06

1,471.49

1,119.67

5,815.50

3,730.86

Thematic

876.41

512.98

1,339.57

1,396.75

1,161.25

Custom

720.37

1,101.59

859.89

1,704.18

906.03

Total

12,064.32

16,237.83

20,054.52

27,051.08

25,156.88

*Based on the biggest sectors in 2020, as of 30 June 2021

www.structuredretailproducts.com

Breakdown by sector 2016-2021: issuance 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2016

2017 Strategy & factor

2018 Decrement

ESG

2019 Industry

2020

Proprietary & custom

1H 2021 Thematic

*Based on the biggest sectors in 2020, as of 30 June 2021

Breakdown by sector 2016-2021: sales US$m 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0

2016

2017 Strategy & factor

2018 Decrement

ESG

2019 Industry

2020

Proprietary & custom

1H 2021 Thematic

*Based on the biggest sectors in 2020, as of 30 June 2021

www.structuredretailproducts.com

Market cap Market cap - or market capitalisation indices are the most common form of underlying used by the structured products industry. Market cap indices under SRP’s classification follow market standards and include indices that provide exposure to the equity markets of a specific country or region and comprise securities fulfilling pre-defined market capitalisation requirements. These indices are comprised of shares of stock reflecting the total value of companies computed as the number of shares outstanding multiplied by the current price of a single share. These indices fall under the market capitalisation investing style and consists on selecting stocks based on the size of companies as opposed to their value which is more complicated and takes into account other metrics and multiples, such as price-to-earnings, price-to-sales, and return-on-equity. The market cap sector comprises 696 indices featured in the structured products market over the last five years in “not-flow” single underlying products.

Market cap indices: evolution 2016-2021 20,000

120,000

18,000 100,000

16,000 14,000

80,000

12,000 10,000

60,000

8,000 40,000

6,000 4,000

20,000

2,000 0

2016

2017

2018

2019

Sales US$m (LHS)

2020

1H 2021

Issuance (RHS)

*As of 30 June 2021

Market cap indices: top 10 by market share 2016-2021 Index

Issuance

Sales US$m

Market share (%)

Eurostoxx 50

20,518

107,477.71

23.60

S&P 500

16,715

95,532.99

20.98

CSI 300 Index

3,556

73,631.92

16.17

Kospi 200

9,039

50,432.71

11.08

Nikkei 225

1,029

30,698.87

6.74

CSI Smallcap 500

3,894

20,434.54

4.49

Russell 2000

2,755

12,539.91

2.75

FTSE 100

2,016

8,587.33

1.89

Hang Seng China Enterprises Index

578

7,623.61

1.67

S&P/TSX Composite Index Banks

1,033

5,755.54

1.26

Others

18,072

42,617.89

9.36

Total

79,205

455,333.02

100.00

*As of 30 June 2021

www.structuredretailproducts.com

Market Cap indices: top 10 index providers by market share 2016-2021 Index provider

Issuance

Sales US$m

Market share (%)

Stoxx

21,648

114,776.79

25.21

S&P DJI

20,846

110,259.33

24.22

CSI

7,450

94,066.46

20.66

KRX

9,468

50,699.63

11.13

Nikkei

940

27,525.38

6.05

FTSE-Russell

5,943

23,919.30

5.25

Hang Seng

735

10,026.67

2.20

Shanghai Stock Exchange

228

4,224.72

0.93

JPX

145

3,655.84

0.80

Euronext

214

2,757.96

0.61

Others

11,588

13,420.93

2.95

Total

79,205

455,333.02

100.00

*As of 30 June 2021

Market cap indices: evolution top 5 index providers 2021 by market share 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

2016

2017 S&P DJI

2018 CSI

2019

Stoxx

KRX

2020

Nikkei

1H 2021

Others

*Based on the five most active providers in 2020, as of 30 June 2021

Market cap indices: breakdown by region 2016-2021 Region

Issuance

Sales US$m

Market share (%)

Asia-Pacific

23,345

209,480.04

46.01

North America

26,703

135,020.24

29.65

Europe

18,341

100,778.12

22.13

Institutional

1,068

5,674.24

1.25

Latin America

8,493

3,233.54

0.71

MEA

1,255

1,146.84

0.25

Total

79,205

455,333.02

100.00

*As of 30 June 2021

www.structuredretailproducts.com

Market cap: evolution top 10 indices 2021 by market share 100%

Others

90%

FTSE 100

80%

DJ Industrial Average Index

70%

Russell 2000

60%

Hang Seng China Enterprises Index

50%

Nikkei 225

40%

Kospi 200

30%

CSI Smallcap 500

20%

CSI 300 Index

10%

Eurostoxx 50

2016

2017

2018

*Based on the top 10 indices in 2020, as of 30 June 2021

www.structuredretailproducts.com

2019

2020

1H 2021

S&P 500

Industry sector SRP’s industry sector group covers indices that provide exposure to an equity sector defined by economic activity, from agriculture to industrial, healthcare and financial services. The term industry refers to a specific group of companies that operate in a similar business sphere such as retail financial services, consumer goods & services, utilities, communication, industrials & related services, information technology & services, healthcare, commercial services, and commodities. The industry sector index group comprises 70 indices developed by index providers and investment banks featured during the last five years in the structured products market.

Industry indices: evolution 2016-2021 5,000

900

4,500

800

4,000

700

3,500

600

3,000

500

2,500

400

2,000

300

1,500

200

1,000

100

500 0

2016

2017

2018

2019

Sales US$m (LHS)

2020

1H 2021

Issuance (RHS)

*As of 30 June 2021

Industry indices: top 10 by market share 2016-2021 Index

Issuance

Sales US$m

Market share (%)

Eurostoxx Banks

1,354

6,212.08

36.79

Stoxx Europe 600 Oil & Gas Index

423

2,775.63

16.44

Eurostoxx Utilities

1,245.42

7.38

Stoxx Europe 600 Health Care

851.30

5.04

Eurostoxx Oil & Gas

727.84

4.31

Energy Select Sector Index

524.29

3.11

Solactive Equal Weight Canada Banks 5% AR Index

166

388.53

2.30

S&P Regional Banks Select Industry Index

338.72

2.01

Solactive Equal Weight Canada Banks Index

170

311.92

1.85

PHLX Housing Sector

266.19

1.58

Others

1,033

3,242.49

19.20

Total

3,383

16,884.42

100.00

*As of 30 June 2021

www.structuredretailproducts.com

Industry indices: top 10 index provider by market share 2016-2021 Index provider

Issuance

Sales US$m

Market share (%)

Stoxx

2,289

13,198.36

78.17

S&P DJI

155

1,528.42

9.05

Solactive

664

1,253.27

7.42

Philadelphia Stock Exchange

269.54

1.60

Nasdaq

136

207.13

1.23

NYSE

167.54

0.99

Hang Seng Indices

152.15

0.90

Topix

36.20

0.21

CSI

34.60

0.20

Alerian

8.74

0.05

Others

28.46

0.17

Total

3,383

16,884.42

100.00

*As of 30 June 2021

Industry indices: evolution top 5 index providers 2021 by market share 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

2016

2017 Stoxx

Solactive

2018

2019

2020

S&P DJI

Hang Seng Indices

NYSE

1H 2021 Others

*Based on the five most active providers in 2020, as of 30 June 2021

Industry indices: breakdown by region 2016-2021 Region

Issuance

Sales US$m

Market share (%)

Europe

1,725

9,931.02

58.82

North America

1,322

4,002.69

23.71

Asia-Pacific

159

2,201.03

13.04

Institutional

144

608.24

3.60

Latin America

113.74

0.67

MEA

27.70

0.16

3,383

16,884.42

100.00

Grand Total *As of 30 June 2021

www.structuredretailproducts.com

Evolution top 5 industry indices 2021 by market share 100%

Others

90%

Solactive Equal Weight Canada Banks

80%

NYSE FANG+ Index

70%

Hang Seng Tech Index

60%

Eurostoxx Oil & Gas

50%

Energy Select Sector Index

40%

Solactive Equal Weight Canada Banks 5% AR

30%

Stoxx Europe 600 Health Care

20%

Eurostoxx Utilities

10% 0%

Stoxx Europe 600 Oil & Gas

2016

2017

2018

2019

2020

2021

Eurostoxx Banks

*Based on the top 10 indices in 2020, as of 30 June 2021

www.structuredretailproducts.com

Strategy & Factor SRP’s factor index group strategy covers rules-based factor indices - also known as smart beta - that provide systematic exposure to stock properties and factor-based strategies which have historically delivered a premium over the long run. In this category, SRP’s classification includes indices embedding any of the most common market risk factors on their own or in combination with other factors as per SRP’s classification: quality, value, growth, size, dividend, momentum, volatility and multi-factor. SRP’s classification excludes risk control indices from this category as they are considered a sub-sector within the custom index sector. The analysis of the factor index group is based on 78 indices developed by index providers and investment banks featured during the last five years in the structured products market.

Strategy & Factor indices: evolution 2016-2021* 8,000

1,800

7,000

1,600 1,400

6,000

1,200

5,000

1,000

4,000

800

3,000

600

2,000

400

1,000

200

2016

2017

2018

2019

Sales US$m (LHS)

2020

1H 2021

Issuance (RHS)

*As of 30 June 2021

Strategy & Factor indices: top 10 by market share 2016-2021* Index

Issuance

Sales US$m

Market share (%)

Eurostoxx Select Dividend 30

1,141

14,860.87

47.37

MSCI EAFE

919

3,196.61

10.19

Stoxx Global Select Dividend 100

242

2,663.77

8.49

S&P Economic Cycle Factor Rotator Index

650

1,662.15

5.30

Solactive Canada Bank 30 AR Index

596

1,244.58

3.97

DivDAX Price Index

547

869.41

2.77

Solactive Canada Insurance AR Index

357

758.47

2.42

Solactive Canada Pipelines AR Index

246

560.93

1.79

Solactive European Deep Value Select 50 Index

558.35

1.78

BMO Global Smart Volatility Index

117

413.12

1.32

Others

1,327

4,585.88

14.62

Total

6,236

31,374.15

100

*As of 30 June 2021

www.structuredretailproducts.com

Strategy & Factor indices: top 10 index provider by market share 2016-2021* Index provider

Issuance

Sales US$m

Market share (%)

Stoxx

2,048

19,004.18

60.57

Solactive

1,609

4,387.33

13.98

MSCI

942

3,298.55

10.51

S&P DJI

925

2,640.00

8.41

FTSE - Russell

194

624.50

1.99

J.P. Morgan

244

428.97

1.37

BMO

117

413.12

1.32

BNP Paribas

254.61

0.81

Morningstar

173.45

0.55

Morgan Stanley

37.42

0.12

Others

112.02

0.36

Total

6,236

31,374.15

100.00

*As of 30 June 2021

Strategy & factor indices: evolution top 5 providers 2016-2021 by market share* 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

2016

2017 Stoxx

2018 Solactive

2019

MSCI

S&P DJI

2020

FTSE - Russell

1H 2021

Others

*Based on the five most active providers in 2020, as of 30 June 2021

Strategy & Factor indices: breakdown by region 2016-2021* Region

Issuance

Sales US$m

Market share (%)

Europe

2,266

20,407.91

65.05

North America

3,723

9,650.10

30.76

Institutional

741.79

2.36

Asia-Pacific

381.80

1.22

Latin America

100

143.33

0.46

MEA

49.22

0.16

Total

6,236

31,374.15

100.00

*As of 30 June 2021

www.structuredretailproducts.com

Strategy & Factor indices: evolution top 10 indices 2016-2021 by market share* 100%

Others

90%

S&P Economic Cycle Factor Rotator KRW Hedged Index

80%

Solactive Canada Insurance AR

70%

DivDAX Price Index

60%

Russell 1000 Value

50%

BMO Global Smart Volatility Index

40%

S&P 500 Value

30%

Solactive Canada Bank 30 AR

20%

MSCI EAFE

10%

Stoxx Global Select Dividend 100

Eurostoxx Select Dividend 30

2016

2017

2018

*Based on the top 10 indices in 2020, as of 30 June 2021

www.structuredretailproducts.com

2019

2020

1H 2021

ESG SRP’s ESG index group strategy covers rules-based indices aligned with green investment objectives, renewable energy, social equality, board diversity etc. Indices in the ESG category are value-driven strategies with a focus on returns and no negative screens applied. In this category, SRP’s classification includes indices related to Environmental, Social And Governance (ESG), Decrement (ESG), Board Diversity, Renewable Energy, SRI, decrement (SRI) and Emerging Markets (ESG). The analysis of the ESG index group is based on 93 indices developed by index providers and investment banks featured during the last five years in the structured products market. SRP data shows that the number of ESG indices used in the structured products market has increased steadily over the last five years with issuers developing their own gauges or partnering with index providers to design new strategies.

ESG indices: evolution 2016-2021* 1,000

7,000

900

6,000

800

5,000

700

4,000

600 500

3,000

400 300

2,000

200

1,000 0

100 2016

2017

2018 Sales US$m (LHS)

2019

2020

1H 2021

Issuance (RHS)

*As of 30 June 2021

ESG indices: top 10 by market share 2016-2021* Index

Issuance

Sales US$m

Market share (%)

Euronext Climate Objective 50 Euro EW Decrement 5% Index

2,206.86

10.10

Stoxx Global ESG Leaders Select 50 EUR Index

165

2,091.78

9.57

Stoxx Europe ESG Leaders Select 30 EUR Index

295

1,589.59

7.27

Euronext Euro 50 ESG EW Decrement 50 Points Index

119

1,284.70

5.88

Euronext Climate Orientation Priority 50 EWER

1,073.94

4.91

SBF Top 50 ESG EW Decrement 50 Points

1,056.52

4.83

Euronext Eurozone ESG Leaders 40 EW Decrement 5% Index

864.91

3.96

iStoxx Transatlantic ESG 100 EW Decrement Index

845.12

3.87

MSCI Europe Select Green 50 5% Decrement Index

692.72

3.17

Refinitiv Eurozone ESG Select Index

604.88

2.77

Others

1,737

9,542.97

43.67

Total

2,496

21,853.99

100.00

*As of 30 June 2021

www.structuredretailproducts.com

ESG indices: top 10 index provider by market share 2016-2021* Index provider

Issuance

Sales US$m

Market share (%)

Euronext

456

8,728.82

39.94

Stoxx

678

7,819.90

35.78

MSCI

871

2,021.67

9.25

Solactive

296

1,696.81

7.76

Refinitiv

604.88

2.77

S&P DJI

108

458.44

2.10

Unicredit

184.66

0.84

Natixis

78.29

0.36

Societe Generale

76.61

0.35

BNP Paribas

46.00

0.21

Others

137.90

0.63

Total

2,496

21,853.99

100.00

*As of 30 June 2021

ESG indices: evolution top 5 index providers 2016-2021 by market share* 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

2016

2017 Euronext

2018 Stoxx

2019

MSCI

Solactive

2020 S&P DJI

1H 2021

Others

*Based on the five most active providers in 2020, as of 30 June 2021

ESG indices: breakdown by region 2016-2021* Region

Issuance

Sales US$m

Market share (%)

Europe

2,228

20,690.33

94.68

Asia-Pacific

104

713.73

3.27

Institutional

245.12

1.12

MEA

90.57

0.41

Latin America

60.78

0.28

North America

53.46

0.24

2,496

21,853.99

100.00

Total *As of 30 June 2021

www.structuredretailproducts.com

ESG indices: evolution top 10 indices 2016-2021 by market share* 100%

Others

90%

Euro iStoxx 50 Carbon Adaptation GR Decrement 5%

80%

Euronext Eurozone ESG Leaders 40 EW Decrement 5%

70%

iStoxx Europe 600 ESG-X NR Decrement 4.75%

60%

Stoxx Europe Sustainability Select 30 EUR

50%

MSCI Europe Select Green 50 5% Decrement

40%

SBF Top 50 ESG EW Decrement 50 Points

30%

Euronext Eurozone Energy Transition Leaders 50 EW Decrement 5%

20%

iStoxx Transatlantic ESG 100 EW Decrement

10%

Stoxx Global ESG Leaders Select 50 EUR

2016

2017

2018

2019

2020

1H 2021

Euronext Climate Objective 50 Euro EW Decrement 5%

*Based on the top 10 indices in 2020, as of 30 June 2021

www.structuredretailproducts.com

Decrement Decrement or synthetic dividend indices have increased their market share as underlyings for structured products across markets. More recently have piggybacked on ESG underlyings to gain visibility. The decrement sub-sector falls under the custom sector index group, and covers indices (custom, ESG, thematic etc) that include a constant performance deduction which is performed periodically in the form of a fixed synthetic dividend, a fixed index points decrement, or a an incremental index points decrement with a constant growth rate. The decrement sub-sector comprises 90 customised algorithm-driven indices developed by index providers often on behalf of or in collaboration with an investment bank or other financial institution. They often offer a different take on a benchmark incorporating methodology different to the market capitalisation rule.

Decrement indices: evolution 2016-2021* 10,000

1,600

9,000

1,400

8,000

1,200

7,000

1,000

6,000

800

5,000 4,000

600

3,000

400

2,000

200

1,000 0

2016

2017

2018

2019

Sales US$m (LHS)

2020

1H 2021

Issuance (RHS)

*As of 30 June 2021

Decrement indices: top 10 by market share 2016-2021* Index

Issuance

Sales US$m

Market share (%)

CAC Large 60 EWER Index

341

6,090.74

21.96

Euro iStoxx Equal Weight Constant 50

594

5,317.83

19.17

SBF Top 80 EW Decrement 50 Points

232

3,754.11

13.54

Euro iStoxx 70 Equal Weight Decrement 5%

2,844.57

10.26

Euronext France Germany Leaders 50 EW Decrement 5% Index

124

1,280.04

4.62

Solactive France 40 Equal Weight NTR 5% AR Index

148

1,165.24

4.20

Euro iStoxx 50 Equal Weight Decrement 5%

1,145.69

4.13

Euronext Eurozone 70 EW Decrement 5% Index

697.30

2.51

S&P Euro 50 Equal Weight Synthetic 5% Price Index

672.84

2.43

iStoxx Transatlantic 100 Equal Weight Decrement EUR

403.28

1.45

Others

747

4,363.06

15.73

Total

2,437

27,734.73

100.00

*As of 30 June 2021

www.structuredretailproducts.com

Decrement indices: top 5 index provider by market share 2016-2021* Index provider

Issuance

Sales US$m

Market share (%)

Euronext

783

12,868.36

46.40

Stoxx

964

10,849.21

39.12

Solactive

463

2,485.64

8.96

S&P DJI

108

769.48

2.77

MSCI

667.36

2.41

Others

94.67

0.34

Total

2,437

27,734.73

100.00

*As of 30 June 2021

Decrement indices: evolution top 5 index providers 2016-2021 by market share* 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2016

2017 Euronext

2018 Stoxx

2019

MSCI

Solactive

2020 S&P DJI

1H 2021

Others

*Based on the five most active providers in 2020, as of 30 June 2021

Decrement indices: breakdown by region 2016-2021* Region

Issuance

Sales US$m

Market share (%)

Europe

2,217

32,280.33

95.161

Institutional

147

1,529.78

4.510

Latin America

4.90

0.014

MEA

83.19

0.245

North America

23.61

0.070

2,388

33,921.81

100.000

Grand Total *As of 30 June 2021

www.structuredretailproducts.com

Decrement indices: evolution top 10 indices 2016-2021 by market share* 100%

Others

90%

Euro iStoxx 70 Equal Weight Decrement 5%

80%

iSTOXX Europe 600 ESG-X NR Decrement 4.75%

70%

CAC Large 60 EWER IndexEuro

60%

iStoxx Equal Weight Constant 50

50%

MSCI Europe Select Green 50 5% Decrement

40%

SBF Top 50 ESG EW Decrement 50 Points

30%

Euronext Eurozone Energy Transition Leaders 50 EW Decrement 5%

20%

iStoxx Transatlantic ESG 100 EW Decrement

10%

Euro iStoxx 50 Equal Weight Decrement 5%

2016

2017

2018

*Based on the top 10 indices in 2020, as of 30 June 2021

www.structuredretailproducts.com

2019

2020

1H 2021

Euronext Climate Objective 50 Euro EW Decrement 5%

Thematic indices Thematic indices provide exposure to broad investment themes evolving around the adoption of forwardlooking structural changes that are expected to transform social and economic affairs. Quite often these indices track constituents based in emerging markets or companies in sectors undergoing dramatic overhaul due to the emergence of innovative technologies (such as AI or cybersecurity). The index construction of thematic indices overlaps with other types of indices such as factor-based – thematic indices tend to draw eligible constituents from wider indices (usually constructed by the same index provider) and rank the companies based on historical volatility and dividend yield, as those companies scoring less on the former criteria and more on the latter tend to be favoured. Within SRP’s index classification the thematic index sector is comprised by several sub-sectors including demographics, founders, emerging markets, luxury goods and megatrends (for instance, cybersecurity, robotics, efficient energy, social trends, demographics, faith-based indices). The thematic index sector comprises 32 indices featured in the structured products market over the last five years.

Thematic indices: evolution 2016-2021* 300

1,600 1,400

250

1,200 200

1,000

150

800 600

100

400 50

200 0

2016

2017

*As of 30 June 2021

2018 Sales US$m (LHS)

2019

2020

1H 2021

Issuance (RHS)

Thematic indices: top 10 by market share 2016-2021* Index

Issuance

Sales US$m

Market share (%)

MSCI Emerging Markets

376

1,955.03

33.61

iStoxx Europe Demography 50

1,715.25

29.49

Solactive Digital Economy

566.09

9.73

Solactive Human Capital World MV Index

370.72

6.37

Global Megatrends Index

187.55

3.22

iStoxx Global Demography Select 50

179.68

3.09

Global Disruptive Opportunities Strategy Index

169.28

2.91

Solactive Megatrends RISE Index

84.74

1.46

Solactive Silver Age Index

82.70

1.42

iStoxx Global Transitions Select 30

65.92

1.13

Others

151

439.78

7.56

Total

755

5,816.74

100.00

www.structuredretailproducts.com

Thematic indices: top 5 index provider by market share 2016-2021* Index provider

Issuance

Sales US$m

Market share (%)

Stoxx

124

2,083.46

35.82

MSCI

377

1,980.71

34.05

Solactive

218

1,526.45

26.24

Unicredit

169.28

2.91

S&P DJI

43.33

0.74

Others

13.51

0.23

Grand Total

755

5,816.74

100.00

*As of 30 June 2021

Thematic indices: evolution top 5 index providers 2016-2021 by market share*

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2016

2017 Solactive

2018 Stoxx

2019

MSCI

S&P DJI

2020 Unicredit

1H 2021

Others

*Based on the five most active providers in 2020, as of 30 June 2021

Thematic indices: breakdown by region 2016-2021* Region

Issuance

Sales US$m

Market share (%)

Europe

358

3,976.26

68.36

North America

371

1,747.47

30.04

Institutional

92.87

1.60

MEA

0.14

0.00

Total

755

5,816.74

100.00

*As of 30 June 2021

www.structuredretailproducts.com

Thematic indices: evolution top 10 indices 2016-2021 by market share* 100%

Others

90%

Stoxx Emerging Markets Diversification Select 100 USD

80%

Solactive Megatrends Europe Index

70%

iStoxx Global Demography Select 50

60%

iStoxx Global Cities of Tomorrow Select 30

50%

S&P Global Infrastructure EUR PR

40%

iStoxx Global Transitions Select 30

30%

iStoxx Europe Demography 50

20%

Solactive Human Capital World MV

10%

Solactive Digital Economy

MSCI Emerging Markets

2016

2017

2018

2019

2020

1H 2021

*Based on the top 10 indices in 2020, as of 30 June 2021

www.structuredretailproducts.com

Proprietary & Custom Proprietary or custom indices refer to indices developed by banks and investment managers for trading purposes as opposed to providing a standard, universal or benchmark index. They have become popular in the structured products market over the last few years as they contribute to improve the pricing of products while providing an alternative to benchmark indices. Developed by index providers often on behalf of or in collaboration with a financial institution, they often offer a spin to a benchmark incorporating methodology different to the market capitalisation rule and are algorithm-driven indices to provide active management of the index universe. Custom indices offer tailored/ personalised solutions to suit clients’ particular requirements or investment strategies.

Proprietary & custom indices: evolution 2016-2021* 1,800

900

1,600

800

1,400

700

1,200

600

1,000

500

800

400

600

300

400

200

100

2016

2017

2018

2019

Sales US$m (LHS)

2020

1H 2021

Issuance (RHS)

*As of 30 June 2021

Proprietary & custom indices: top 10 by market share 2016-2021* Index

Issuance

Sales US$m

Market share (%)

Morgan Stanley MAP Trend Index

543

537.78

11.80

BofAML Commodity MLCXSX6L Strategy ER Index

405.80

8.90

Motif Capital National Defense 7 ER Index

358

357.12

7.83

Multi Asset ETF Index

286.73

6.29

Morgan Stanley ETF-MAP 2 Index

278.82

6.12

Barclays Trailblazer Sectors 5 Index

269

276.81

6.07

VP Klassik 70 Benchmark Index

210.52

4.62

Credit Suisse Swiss Equity Enhanced Call Writing Index

190.34

4.18

Investec EVEN30 Index

173.81

3.81

Credit Suisse Digital Health Fund Index

127.14

2.79

Others

967

1,713.91

37.60

Total

2,400

4,558.77

100.00

*As of 30 June 2021

www.structuredretailproducts.com

Proprietary & custom indices: top 10 index provider by market share 2016-2021* Index provider

Issuance

Sales US$m

Market share (%)

Morgan Stanley

650

833.51

18.28

Unicredit

117

795.45

17.45

Bank of America

507.90

11.14

Credit Suisse

189

388.29

8.52

Motif Capital

364

357.57

7.84

BNP Paribas

121

323.39

7.09

Barclays

275

279.95

6.14

J.P. Morgan

325

266.64

5.85

Investec

173.81

3.81

Commerzbank

169.24

3.71

Others

249

462.99

10.16

Total

2,400

4,558.77

100.00

*As of 30 June 2021

Proprietary & custom indices: evolution top 5 index providers 2016-2021 by market share* 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2016 Unicredit

2017

2018

2019

Morgan Stanley

Credit Suisse

BNP Paribas

2020 J.P. Morgan

1H 2021 Others

*Based on the five most active providers in 2020, as of 30 June 2021

Proprietary & custom indices: breakdown by region 2016-2021* Region

Issuance

Sales US$m

Market share (%)

North America

1,873

1,963.95

43.08

Europe

196

1,357.88

29.79

Institutional

116

927.02

20.33

Latin America

153

223.20

4.90

Asia-Pacific

69.78

1.53

MEA

16.95

0.37

Total

2,400

4,558.77

100.00

*As of 30 June 2021

www.structuredretailproducts.com

Proprietary & custom indices: evolution top 10 indices 2016-2021 by market share* 100%

Others

90%

JPMorgan All-American Index

80%

Emerging Focus Strategy Index

70%

Barclays Trailblazer Sectors 5 Index

60%

Motif Capital National Defense 7 ER Index

50%

BNP Paribas Multi Asset Diversified 5 Index

40%

Credit Suisse Digital Health Fund Index

30%

UC ESG Goods for Life Strategy Index

20%

Climate Action Strategy Index

10% 0%

Multi Asset ETF Index

2016

2017

2018

*Based on the top 10 indices in 2020, as of 30 June 2021

www.structuredretailproducts.com

2019

2020

1H 2021

Morgan Stanley MAP Trend Index

Index Providers

Bloomberg Bloomberg entered the structured products market via a partnership with UBS which has resulted in more than 75 co-branded indices developed by both firms. These include the UBS Bloomberg Constant Maturity Commodity Index (CMCI) which appears in six live products worth US$20m sold in the US market. In 2014, both companies announced an expansion of their strategic partnership with Bloomberg Indexes being responsible for governance, calculation, distribution and licensing of the bank’s commodity indexes, taking over from the previous administrator and calculating agent, Dow Jones. The indices were renamed from the Dow Jones-UBS Commodity Index Family to the Bloomberg Commodity Index Family. In 2016, Bloomberg completed the acquisition of the Barclays Risk Analytics and Index Solutions (Brais) range. Brais comprised Barclays’ fixed income benchmark indices, including the Barclays Aggregate family of indices and Brais strategy indices. The only Bloomberg index recorded in the structured products market in 2020 was the Bloomberg Commodity Index which appeared in two products worth US$79.9m in the US market. The index has been used in over 75 products worth over US$600m over the last five years. Brais comprised Barclays’ fixed income benchmark indices, including the Barclays Aggregate family of indices, and Brais strategy indices. Barclays however retained its quantitative investment strategy (Qis) index business and the Barclays strategy indices, headed by Fabien Labouret, global head of EFS investment strategies at Barclays, which include the Roubini Barclays Country Insights Indices, and the Shiller Barclays CAPE indices, developed jointly by Barclays and Professor Robert Shiller of Yale University. The calculation and maintenance of Barclays’ strategy indices will be outsourced to Bloomberg. Up to 54 Bloomberg indices have featured in the structured products market, 11 of which have been used during the last five years across 130 products worth an estimated US$900m. No Bloomberg indices have been recorded in the structured products market in 2021

Bloomberg: top 10 issuers by sales volume 2016-2021* Issuer

Issuance

Sales volume US$m

Goldman Sachs

563.13

J.P. Morgan

41.67

Morgan Stanley

37.37

UBS

37.30

Deutsche Bank

25.07

Citigroup

21.66

Bank of America

19.81

MKB Bank

10.17

Société Générale

5.45

Wells Fargo

2.86

Total

764.50

*As of 30 June 2021

www.structuredretailproducts.com

Bloomberg: indices by sales volume 2016-2021* Index

Issuance

Sales volume US$m

Bloomberg Commodity Index

691.65

Bloomberg Commodity Index 3 Month Forward

47.85

Bloomberg Commodity TR Index

25.00

Total

764.50

*As of 30 June 2021

Bloomberg: top 10 distributor group by sales volume 2016-2021* Distributor group

Issuance

Sales volume US$m

Goldman Sachs

568.18

JPMorgan

78.77

UBS

53.34

Morgan Stanley

24.91

Bank of America

19.81

MKB Bank

10.17

Non-public

6.20

Landolt Securities

1.43

Stifel Financial Corp

1.43

Incapital

0.26

Total

764.50

Issuance

Sales volume US$m

Above 0 and below 90%

17.04

Equal to 0%

669.18

Equal to 100%

17.29

Equal to 90 and below 100%

60.98

Total

764.50

*As of 30 June 2021

Bloomberg: sales by capital protection 2016-2021* Capital protection

*As of 30 June 2021

www.structuredretailproducts.com

China Securities Index Company (CSI) China Securities Index Company (CSI) is the provider of the CSI 300 index and the CSI Smallcap 500, two of the most popular underlyings in the Chinese market. SRP data shows that the CSI 300 index has been featured as a single index across more than 1,700 products worth US$36.1 billion between 2016 and 2020. It is also included as the underlying in 58 live products* worth an estimated US$1 billion and targeted at investors in China. The CSI Smallcap 500 featured in some 3,716 products with combined sales of US$17 billion during the reporting period. Of these, 341 (US$2.8 billion) are live products (as of 13 April 2021). In 2020, there were 872 products marketed in China, and Singapore (11 products) worth US$13 billion linked company’s flagship indices the CSI 300 Index which sold US$4.8 billion across 249 products and CSI Smallcap 500 which sold US$7.4bn across 623 products.

CSI Indices: sales volumes 2016-2021* Index

Issuance

Sales volume US$m

CSI 300 Index

1,816

37,546.43

CSI Smallcap 500

3,894

20,434.54

CSI National Defence Industry Index

17.38

CSI Banks Index

17.22

5,712

58,015.57

Issuance

Sales volume US$m

Agricultural Bank of China

608

18,435.32

China Merchants Bank

614

11,097.77

Shenzhen Ping An Bank

241

4,549.52

China Minsheng Bank

150

1,523.02

DBS Bank

437.25

Others

173

347.16

Total

1,816

37,546.43

Issuance

Sales volume US$m

178

3,298.14

Total

CSI 300: top 5 issuers by sales volumes 2016-2021* Index

CSI Indices: sales volumes 2021* Index CSI Smallcap 500 CSI 300 Index

1,460.94

Total

254

4,759.08

Index

Issuance

Sales volume US$m

China

5,696

57,897.05

South Korea

90.12

Taiwan

28.41

Total

5,712

58,015.57

CSI Indices: breakdown by market 2016-2021*

*All tables as of 30 June 2021

Euronext Euronext offers a range of 400 indices ranging from national flagship indices (AEX, Bel 20, Cac 40, PSI 20 etc) to thematic, strategic and sectorial indices, as well as on-demand customised indices. Up to 45 of those 400 indices have been used actively in the structured products market globally across more than 800 structures worth an estimated US$15.1 billion, according to SRP data. The company has further increased its footprint in the market on the back of new demand for decrement and ESG indices. In 2020 there were 283 products linked to 28 Euronext indices worth US$4.07 billion. The highest selling Euronext custom index in 2020 was the Euronext Climate Objective 50 Euro EW Decrement 5% Index which sold US$985m across 18 products, followed by the Euronext Eurozone Energy Transition Leaders 50 EW Decrement 5% Index (US$393m/seven products) and Euronext Cac Large 60 EWER Index (US$365m/34 products).

Euronext indices: top 10 by sales volume in 2021* Index

Issuance

Sales volume US$m

Euronext Euro 50 ESG EW Decrement 50 Points Index

486.17

Euronext Climate Objective 50 Euro EW Decrement 5% Index

272.37

Euronext Water and Ocean Europe 40 Equal Weight Decrement 5% Index

243.94

Euronext CDP Environment France EW Decrement 5% Index

165.79

Euronext France Germany Leaders 50 EW Decrement 5% Index

125.52

SBF Top 50 ESG EW Decrement 50 Points

99.68

Euronext Transatlantic ESG Leaders 60 EW Decrement 5%

95.33

Cac Large 60 EWER Index

90.32

Euronext Core Euro & Global Climate Change EW Decrement 5% Index

86.84

Euronext CDP Environment Eurozone EW Decrement 4% Index

82.89

Others

84.84

Total

133

1,833.70

The company’s flagship index in the structured products market is the French domestic Cac 40 index which appears in more than 52,000 live products (as of 30 June 2021) including flow and leverage products linked to single and index baskets with estimated combined sales of US$4 billion. This includes 341 non-flow products worth an estimated US$3.9 billion.

Cac 40: top 5 markets by sales volume 2016-2021* Market

Issuance

Sales volume US$m

France

133

2,182.89

Italy

263.32

Spain

8.45

Brazil

6.08

Finland

4.30

Others

60.65

Total

166

2,525.70

*As of 30 June 2021

www.structuredretailproducts.com

Cac 40: capital protection by sales volume 2016-2020 Capital protection

Issuance

Sales volume US$m

Equal to 0%

151

2,300.45

Equal to 90 and below 100%

107.84

Equal to 100%

103.18

Above 0 and below 90%

8.15

Above 100%

6.08

Grand Total

166

2,525.70

Issuance

Sales volume US$m

Cac Large 60 EWER Index

341

6,072.55

SBF Top 80 EW Decrement 50 Points

232

3,742.41

Cac 40

166

2,525.70

Euronext Climate Objective 50 Euro EW Decrement 5% Index

2,199.96

Euronext Euro 50 ESG EW Decrement 50 Points Index

119

1,280.69

Euronext France Germany Leaders 50 EW Decrement 5% Index

124

1,277.75

Euronext Climate Orientation Priority 50 EWER

1,070.70

SBF Top 50 ESG EW Decrement 50 Points

1,053.21

Euronext Eurozone ESG Leaders 40 EW Decrement 5% Index

862.22

Euronext Eurozone 70 EW Decrement 5% Index

695.12

Others

327

4,056.39

Total

1,462

24,836.71

*As of 30 June 2021

Euronext indices: top 10 by sales volume 2016-2021* Index

*As of 30 June 2021

Euronext indices: top 10 countries by sales volume 2016-2020 Market

Issuance

Sales volume US$m

France

1,183

22,607.95

Italy

487.13

Belgium

328.93

Czech Republic

53.45

Finland

52.26

The Netherlands

47.07

Portugal

45.70

South Africa

44.95

Ireland

40.06

Sweden

35.81

Others

144

1,093.36

Total

1,462

24,836.71

*As of 30 June 2021

www.structuredretailproducts.com

FTSE Russell FTSE Russell is the provider of two of the most popular underlying indices in the UK ( FTSE 100) and US (Russell 2000) retail structured products markets. The FTSE 100 features in more than 8,000 live products including over 3,500 tranche based products and over 4,200 flow and leverage products with combined assets worth an estimated US$20 billion. The Russell 2000 is part of the underlying on 18,107 products worth an estimated US$67.1 billion.

FTSE Russell indices: top 10 by sales volume 2016-2021* Index

Issuance

Sales volume US$m

Russell 2000

2,755

12,539.91

FTSE 100

2,015

8,587.12

FTSE MIB

153

2,555.92

Russell 1000 Value

347.32

FTSE 100 Fixed Dividend Yield Equal Weight Custom Index

126

203.87

FTSE/JSE Africa Top 40

963

99.77

Russell 2000 Value Index

55.62

FTSE Custom 100 Synthetic 3.5% Fixed Dividend Index

40.11

FTSE France 40 Low Carbon ESG Screened Decrement 50 Points Index

26.05

FTSE Custom 150 Equally Weighted Discounted Return Index

22.93

Others

110.44

Total

6,157

24,589.07

*As of 30 June 2021

Other FTSE indices marketed in 2020 include the FTSE 100 Fixed Dividend Yield Equal Weight Custom Index (US$71m/37 products), FTSE MIB (US$176m/23 products), FTSE/JSE Africa Top 40 (US$15.7m/274 products), and Russell 1000 Value (US$231m/31 products).

FTSE Russell indices: top 10 markets by sales volume 2016-2021* Market

Issuance

Sales volume US$m

USA

2,848

13,045.52

1,877

7,410.62

Italy

144

2,727.91

South Africa

1,024

196.35

China

140.74

Ireland

39.25

Canada

31.33

France

27.59

Mexico

22.63

Portugal

17.78

Others

207

929.34

Total

6,157

24,589.07

*As of 30 June 2021

www.structuredretailproducts.com

New FTSE Russell indices recorded in the structured products market in 2020 include the FTSE Custom 100 Synthetic 3.5% Fixed Dividend Index (US$19m/seven products), FTSE Custom 150 Equally Weighted Discounted Return Index (US$3.6m/three products), FTSE UK 30 Yield Weighted Index (US$2.7m/one product), Russell 2000 Value Index (US$20m/five products) and Russell 3000 (US$3m/one product). Also the FTSE4Good UK 50 Index appeared in two products worth US$9.7m. In 2020, the FTSE 100 appeared in 316 products worth an estimated US$1 billion.

FTSE 100: top 5 markets by sales volume 2016-2021* Market

Issuance

Sales volume US$m

1,706

7,126.58

Italy

211.22

China

140.74

USA

101.48

South Africa

96.44

Others

193

910.66

Total

2,015

8,587.12

Issuance

Sales volume US$m

Equalt to 0%

1,561

6,602.96

Equal to 100%

324

1,531.68

Above 100%

346.67

Above 0 and below 90%

56.35

Equal to 90 and below 100%

49.46

2,015

8,587.12

*As of 30 June 2021

FTSE 100: sales by capital protection 2016-2021* Capital protection

Total *As of 30 June 2021

The Russell 2000 index was featured in 468 products worth US$1.8 billion in 2020.

Russell 2000: top 5 markets by sales volume 2016-2021* Market

Issuance

Sales volume US$m

USA

2,735

12,509.77

Canada

27.83

Mexico

0.97

Portugal

0.65

Italy

0.62

Others

0.08

2,755

12,539.91

Grand Total *As of 30 June 2021

www.structuredretailproducts.com

Hang Seng Indices The Hang Seng index has been a top 10 underlying in the Asia Pacific structured products market over the last five year. The Hang Seng Indices flagship benchmark appears in more than 10,000 live products including over 1,800 tranche-based products and over 8,500 flow and leverage products with combined assets worth an estimated US$12 billion. In 2020, there were 173 products linked to five Hang Seng indices worth US$3.1 billion. The Hang Seng Index was featured across 25 products worth US$423m sold in China by HSBC, Citi and Citic, while the Hang Seng China Enterprises Index was sold across 133 products worth US$2.5 billion, and the Hang Seng Corporate Sustainability Index appeared in six products worth US$122m. The Chinese exchange also introduced two new indices to the structured products market via the Hang Seng Tech Index (eight products/ US$81m) and the HSCEI Leveraged Index (one product/US$7.1m)

Hang Seng: top 5 indices by sales volume 2016-2021* Index

Issuance

Sales volume US$m

Hang Seng China Enterprises Index

578

7,623.61

Hang Seng Index

141

2,092.84

Hang Seng Corporate Sustainability Index

282.86

Hang Seng Tech Index

152.15

Hang Seng Composite Index

20.28

Others

7.08

753

10,178.82

Grand Total

Hang Seng China Enterprises Index: top 5 markets by sales volume 2016-2021* Market

Issuance

Sales volume US$m

China

437

7,263.58

South Korea

148.48

USA

133.19

Italy

22.60

Canada

17.77

Others

37.98

Total

578

7,623.61

Hang Seng China Enterprises Index: top 5 issuers by sales volume 2016-2021* Issuer

Issuance

Sales volume US$m

HSBC Bank

406

6,970.17

Citibank

166.70

China Minsheng Bank

72.75

Scotiabank

45.41

Hana Daetoo Securities

41.42

Others

144

327.16

Total

578

7,623.61

*All tables as of 30 June 2021

www.structuredretailproducts.com

MSCI MSCI is a leading provider of underlying indices in the global structured products market. In 2020 there were 481 products linked to 23 MSCI indices worth US$1.6 billion. The index provider’s most utilised index as underlying in the structured products market in 2020 was the MSCI EAFE (US$657m/210 products) followed by new additions to its pool of ESG and decrement underlyings including the MSCI Europe Select Green 50 5% Decrement Index (US$463m/11 products), MSCI EMU SRI Select 30 Decrement 3.5% Index (US$27m/81 products), MSCI Global Diversified Megatrends 5% Decrement Index (US$3.6m/two products) and MSCI World Climate Change ESG Select 4.5% Decrement EUR Index (US$3.5m/48 products). Other indices introduced to the market by MSCI in 2020 include the MSCI World Dividend Growers Quality Select Index, MSCI USA Women’s Leadership Index, MSCI Europe ESG Leaders 5% Decrement Index, MSCI Switzerland ESG Leaders 5% Decrement Index and MSCI World Health Care USD Index.

MSCI: top 10 indices by sales volume 2016-2021* Index

Issuance

Sales volume US$m

MSCI EAFE

919

3,196.61

MSCI Emerging Markets

376

1,955.03

MSCI Europe Select Green 50 5% Decrement Index

728.46

MSCI Europe

689.88

MSCI World Climate Change ESG Select 4.5% Decrement EUR Index

442

605.02

MSCI World

593.30

MSCI Euro 50 Select 4.75 Decrement

263.07

MSCI Emerging Markets 9% Risk Control 2% Decrement Index

236.78

MSCI Germany Climate Change ESG Select 4% Index

107

159.81

MSCI EMU SRI Select 30 Decrement 3.5% Index

178

152.79

Others

245

954.75

Total

2,504

9,535.51

*As of 30 June 2021

The most featured MSCI index over the last five years in the structured products market has been the MSCI EAFE index. SRP data shows that the MSCI EAFE index appears as an underlying in over 800 live products all of which are tranche-based structures sold in the US market (698 products/US$2.9 billion), the US indexed annuities (172 products/estimated US$768.2m) and the institutional market.

MSCI EAFE: USA sales volume 2016-2021* Market

Issuance

Sales volume US$m

USA

919

3,196.61

Total

919

3,196.61

*As of 30 June 2021

www.structuredretailproducts.com

MSCI EAFE: USA sales by capital protection 2016-2021* Capital protection

Issuance

Sales volume US$m

Equal to 0%

708

2,852.55

Above 0 and below 90%

204

333.59

Equal to 100%

10.48

Total

919

3,196.61

Issuance

Sales volume US$m

MSCI World Climate Change ESG Select 4.5% Decrement EUR Index

327

497.41

MSCI Emerging Markets

439.85

MSCI EAFE

105

433.05

MSCI Europe Select Green 50 5% Decrement Index

258.67

MSCI Germany Climate Change ESG Select 4% Index

107

159.81

MSCI EMU SRI Select 30 Decrement 3.5% Index

113.32

MSCI World Climate Change ESG Select 4% Decrement EUR Index

92.21

MSCI World

47.81

MSCI France Select ESG 30 5% Decrement Net Index

18.59

MSCI World IMI New Pharma Select 5% Decrement Index

12.40

Others

102.26

Total

839

2,179.38

Market

Issuance

Sales volume US$m

USA

1,349

5,761.86

France

1,299.57

Germany

828

1,053.35

Italy

512.08

South Korea

136.79

South Africa

125.54

Belgium

85.64

Austria

74.97

Poland

51.27

Finland

28.61

Others

405.83

Total

2,504

9,535.51

*As of 30 June 2021

MSCI: top 10 indices by sales volume 2021* Index

*As of 30 June 2021

MSCI: top 10 markets by sales volume 2016-2021*

*As of 30 June 2021

www.structuredretailproducts.com

Nasdaq Nasdaq’s US flagship index Nasdaq 100 features in more than 120,000 live products worth an estimated US$64.5 billion including over 126,000 flow and leverage worth an estimated US$500m and 2,500 tranche based structures worth an estimated US$63.8 billion. The index provider has also increased its profile in the European structured products market on the back of several collaborations to bring new indices to market including a partnership with Credit Suisse in 2018 to dispatch the Nasdaq OMXS30 Duo Index – a smart beta version of the OMX Stockholm 30 Index (OMXS3). Overall, there are more than 190,000 structured products across markets featuring up to 14 Nasdaq indices. There were 358 products worth US$842.8m linked to Nasdaq indices in 2020 sold in the US, Brazil and Switzerland, among other markets. The exchange’s flagship index was featured across 246 products worth US$677m. Other Nasdaq indices introduced to the structured products market in 2020 include the Nasdaq 100 Notional Net Return EUR ER Index (US$2.3M/one product), Nasdaq OMX Stockholm 30 Gross Index (US$12.3m/four products), Nasdaq OMX Stockholm 40 Equal Weighted Excess Return Index (US$17m/14 products) and Nasdaq PHLX Housing Sector (US$33.6m/four products).

Nasdaq: top 10 indices by sales volume 2016-2021* Index

Issuance

Sales volume US$m

Nasdaq 100

527

1,542.67

OMX Stockholm 30

239

385.55

Nasdaq Yewno Global Innovative Tech Ex Idx EUR ER 5% Index

87.80

OMX Helsinki 25 Index

40.08

Nasdaq100 Technology Sector Index

105

39.57

Nasdaq Biotechnology Index

30.35

OMX Stockholm 40 Equal Weighted Excess Return Index

26.89

Nasdaq Yewno Global Innovative Tech Ex DA EUR ER Index

23.93

Nasdaq Yewno Global Innovative Technologies ER Index

18.52

Nasdaq Nordea SmartBeta Momentum Volatility Eurozone PR

18.28

Others

44.90

Total

961

2,258.54

Issuance

Sales volume US$m

Equal to 0%

610

1,760.87

Above 0 and below 90%

244

219.74

Equal to 100%

174.82

Equal to 90 and below 100%

81.71

Above 100%

21.39

Total

961

2,258.54

*As of 30 June 2021

Nasdaq: sales by capital protection 2016-2021* Capital protection

*As of 30 June 2021

www.structuredretailproducts.com

85 Nasdaq 100: top 10 issuers by sales volume 2016-2021* Issuer

Issuance

Sales volume US$m

Goldman Sachs

210.25

J.P. Morgan

113

184.51

Citigroup

151.35

UBS

111.99

Scotiabank

105.85

Morgan Stanley

105.48

Barclays Bank

99.55

Credit Suisse

84.68

TD Securities

68.20

HSBC Bank

60.79

Others

149

360.03

Total

527

1,542.67

Market

Issuance

Sales volume US$m

USA

512

1,406.56

Sweden

274

416.42

*As of 30 June 2021

Nasdaq: top 10 markets by sales volume 2016-2021*

Italy

114.31

Belgium

61.44

Finland

46.85

Denmark

40.74

Poland

27.95

Brazil

20.83

France

19.51

Mexico

14.91

Others

89.03

Total

961

2,258.54

Market

Issuance

Sales volume US$m

*As of 30 June 2021

Nasdaq 100: top 10 markets by sales volume 2016-2021*

USA

402

1,336.05

Italy

80.39

Poland

27.95

Brazil

20.83

Mexico

14.91

China

12.29

Switzerland

12.08

Austria

9.62

Belgium

5.90

Sweden

3.76

Others

18.89

Total

527

1,542.67

*As of 30 June 2021

www.structuredretailproducts.com

Nikkei The Tokyo Stock Exchange (TSE) stock market index Nikkei 225 is a popular benchmark for structured products in the Asia Pacific region. It has appeared consistently in the top 20 underlying ranking for the region over the last five years. The Nikkei 225 index features in more than 24,000 live products including over 5,900 tranche based products and over 16,000 flow and leverage products with combined assets worth an estimated US$109 billion. SRP data shows that the Nikkei 225 was featured across 173 primary market products worth an estimated US$5.4bn in 2020.

Nikkei 225: top 5 markets by sales volume 2016-2021* Market

Issuance

Sales volume US$m

Japan

842

26635.19117

Italy

483.64792

USA

179.1925

China

89.88111

South Korea

71.55844

Others

65.9

Total

940

27525.38007

Nikkei 225: top 5 issuers by sales volume 2016-2021* Issuer

Issuance

Sales volume US$m

Mitsubishi UFJ Securities International

5,817.12

Svensk Exportkredit

123

4,045.52

Kfw Bankengruppe

3,158.98

Morgan Stanley

2,468.96

Municipality Finance

1,438.98

Others

572

10,595.81

Total

940

27,525.38

Nikkei 225: top 5 distributor group by sales volume 2016-2021* Distributor group

Issuance

Sales volume US$m

Mitsubishi UFJ

229

16,694.18

Daiwa Securities

1,679.90

Sumitomo Mitsui Financial

1,659.21

Tokai Tokyo Financial Holdings

132

1,374.22

Mizuho Financial

1,370.99

Others

395

4,746.88

Total

940

27,525.38

Nikkei 225: sales by capital protection 2016-2021* Capital protection

Issuance

Sales volume US$m

Equal to 0%

891

26,733.75

Equal to 100%

723.29

Above 0 and below 90%

43.51

Above 100%

16.01

Equal to 90 and below 100%

8.81

Grand Total

940

27,525.38

Grand Total

940

27,525.38

*All tables as of 30 June 2021

Solactive Solactive has become one of the leading providers of underlying indices for the global structured products market and has established itself over the years as an alternative to traditional index providers. In the last five years, up to 128 different Solactive underlyings have been deployed across markets and products with a total of 258 Solactive indices registered on SRP’s database. There are more than 1,800 live products using Solactive indices of which 1,064 are not flow structures with an estimated value of US$5.6 billion.

Solactive: top 10 indices by sales volume 2016-2021* Index

Issuance

Sales volume US$m

Solactive Canada Bank 30 AR Index

596

1,244.58

Solactive France 40 Equal Weight NTR 5% AR Index

148

1,162.70

Solactive Canada Insurance AR Index

357

758.47

Solactive Digital Economy

566.09

Solactive Canada Pipelines AR Index

246

560.93

Solactive European Deep Value Select 50 Index

558.35

Solactive France 20 Equal Weight NTR 5% AR Index

496.04

Solactive Equal Weight Canada Banks 5% AR Index

166

388.53

Solactive United States Big Banks AR Index

163

383.27

Solactive Human Capital World MV Index

362.42

Others

1,634

6,070.31

Total

3,543

12,551.72

*As of 30 June 2021

In 2020, Solactive saw 52 of its indices deployed in the structured products market across 857 products worth an estimated US$3.1 billion. Some of the most successful Solactive underlyings in 2020 include the Solactive Canada Bank 30 AR Index (US$437m/196 products), Solactive France 20 Equal Weight NTR 5% AR Index (US$278m/49 products), Solactive France 40 Equal Weight NTR 5% AR Index (US$257m/31 products), Solactive Digital Economy (US$214m/six products) and Solactive Human Capital World MV Index (US$209m/15 products). The most successful Solactive underlying during the last five years was the Solactive France 40 Equal Weight NTR 5% AR Index which has raised an estimated US$1.1 billion on the back of 145 structured products.

Solactive: sales by capital protection 2016-2021* Capital protection

Issuance

Sales volume US$m

Above 0 and below 90%

1,982

4,494.49

Equal to 100%

798

4,014.14

Equal to 0%

509

2,620.46

Equal to 90 and below 100%

242

1,291.90

Above 100%

130.72

Grand Total

3,543

12,551.72

*As of 30 June 2021

www.structuredretailproducts.com

Solactive: top 10 indices by sales volume 2021* Index

Issuance

Sales volume US$m

Solactive Canada Bank 30 AR Index

400

802.63

Solactive Canada Insurance AR Index

282

593.44

Solactive Canada Pipelines AR Index

201

463.82

Solactive United States Big Banks AR Index

154

366.61

Solactive Equal Weight Canada Banks 5% AR Index

220.99

Solactive Canadian Large-Cap 60 AR Index

182.42

Solactive France 20 Equal Weight NTR 5% AR Index

125.57

Solactive Europe & US Top Pharmaceuticals 2020 AR 5% Index

100.98

Solactive Canada Telecommunications AR Index

87.46

Solactive Cloud Computing 14% Risk Control 5% Decrement Net EUR Index

79.91

Others

173

756.90

Total

63.21

Market

Issuance

Sales volume US$m

Canada

2,142

4,651.42

*As of 30 June 2021

Solactive: top 10 markets by sales volume 2016-2021*

Belgium

227

2,772.14

France

324

2,314.13

Italy

571.09

Poland

254.34

USA

292

244.98

Finland

229.91

Czech Republic

210.47

Ireland

202.03

China

147.67

Others

309

953.53

Total

3,543

12,551.72

Issuance

Sales volume US$m

*As of 30 June 2021

Solactive Canada Bank 30 AR Index: top 5 issuers 2016-2021* Issuer Bank of Montreal

217

545.37

CIBC

229

436.78

National Bank of Canada

136.59

Scotiabank

89.85

TD Securities

23.41

Others

12.58

Grand Total

596

1,244.58

*As of 30 June 2021

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S&P Dow Jones Indices More than 71 S&P Dow Jones indices have been featured across 7,271 structured products during the last five years with an estimated volume of US$23.2 billion with the S&P 500 index has appearing consistently as a top three single underlying index in the global structured products market for the last five years. In 2020, the S&P 500 was featured in 4,363 products worth US$24.6 billion across jurisdictions. There were also 1,356 products featuring 41 S&P DJI indices worth US$4.09 billion. Beyond the S&P500 index, the best-selling S&P DJI indices in 2020 were the DJ Industrial Average Index (US$1.08 billion/266 products), S&P/TSX 60 Index (US$772m/315 products), S&P/TSX Composite Index Banks (US$342m/83 products), S&P/TSX Composite Low Volatility Index (US$233m /90 products), S&P/TSX Capped Utilities Index (US$221m/93 products), S&P Euro 50 Equal Weight Synthetic 5% Price Index (US$80.2m/16 products) and S&P Economic Cycle Factor Rotator Index (US$77.1m/99 products).

S&P Dow Jones Indices: top 10 indices by sales volume 2016-2021* Index

Issuance

Sales volume US$m

S&P 500

16,715

95,532.99

S&P/TSX Composite Index Banks

1,033

5,755.54

DJ Industrial Average Index

972

4,018.04

S&P/TSX 60 Index

1,670

3,588.48

S&P Economic Cycle Factor Rotator Index

650

1,662.15

S&P Euro 50 Equal Weight Synthetic 5% Price Index

671.18

Energy Select Sector Index

524.29

S&P/ASX 200 Index

425.01

S&P 500 Value

102

400.00

S&P Regional Banks Select Industry Index

338.72

Others

836

3,196.30

Total

22,195

116,112.71

*As of 30 June 2021

The S&P500 index features in more than 140,000 live products including flow and leverage of which 1,397 open ended indexed annuities with combined assets worth an estimated US$154 billion. SRP data shows that the US most popular domestic benchmark appeared across more than 13,000 not flow/leverage products worth an estimated US$73.2 billion.

S&P 500: sales by capital protection 2016-2021* Capital protection

Issuance

Sales volume US$m

Equal to 0%

9,804

63,248.80

Above 0 and below 90%

4,818

21,859.01

Above 100%

479

6,559.70

Equal to 100%

1,521

3,680.02

Equal to 90 and below 100%

185.46

16,715

95,532.99

Total *As of 30 June 2021

www.structuredretailproducts.com

90 S&P Dow Jones Indices: top 10 indices by sales volume 2021* Index

Issuance

Sales volume US$m

S&P 500

1,937

9,847.94

S&P Eurozone 30 ESG-Momentum Select EW 50 Point Decrement Index

213.49

S&P EuroUSA 50 ESG Select Equal Weight 50 Point Decrement Index

177.91

S&P Eurozone 30 ESG-Momentum EW 50 Point Decrement TR Index

155.37

S&P/TSX 60 Index

153.71

S&P 500 Value

110.26

S&P/TSX Composite Index Banks

105.78

DJ Industrial Average Index

97.39

S&P Euro 50 Equal Weight 50 Point Decrement Index

84.08

S&P Euro 50 Equal Weight Synthetic 5% Price Index

83.40

Others

243

388.58

Total

2,481

11,417.91

*As of 30 June 2021

S&P Dow Jones Indices: top 10 markets by sales volume 2016-2021* Market

Issuance

Sales volume US$m

USA

14,953

86,297.25

Canada

3,433

10,899.92

South Korea

1,777

10,823.46

France

193

1,512.60

Italy

1,208.37

Japan

1,044.21

China

476.18

Austria

251

378.06

Taiwan

288.20

280.97

Others

1,340

2,903.48

Total

22,195

116,112.71

Market

Issuance

Sales volume US$m

USA

12,963

78,978.62

South Korea

1,578

10,484.51

Canada

573

1,227.22

Japan

1,044.21

Italy

992.18

*As of 30 June 2021

S&P 500: top 10 markets by sales volume 2016-2021*

China

476.18

Taiwan

288.20

Austria

240

187.61

Brazil

388

182.87

South Africa

164.78

Others

715

1,506.59

Total

16,715

95,532.99

*As of 30 June 2021

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+ Purposeful, iconic indices + Powerful strategies for all + Comprehensive, transparent data + Human insight and perspective

ADD CURIOSITY S&P DJI democratizes investing—an open door for everyone to participate in a vibrant market where investment ideas are brought to life. Just add your curiosity to shine.

spglobal.com/spdji Copyright © 2021 S&P Dow Jones Indices LLC. All rights reserved. S&P ® is a registered trademark of Standard & Poor’s Financial Services LLC. Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. It is not possible to invest directly in an index. S&P Dow Jones Indices receives compensation for licensing its indices to third parties. S&P Dow Jones Indices LLC does not make investment recommendations and does not endorse, sponsor, promote or sell any investment product or fund based on its indices.

S&PDJI: The appeal of ‘decrement’ Decrement indices have taken the European market by storm becoming one of the fastest growing areas in the structured products market but is rapidly catching up in other jurisdictions. S&P Dow Jones Indices talks about its synthetic index offering, the increasing demand for the decrement overlay by investors, what is driving adoption in new markets and the importance of disclosure and education around new investment strategies A decrement is an overlay applied to a given base index. A decrement index is constructed by deducting a predefined dividend or fee at predefined intervals from the total return of its base index. S&P Dow Jones Indices has been publishing decrement indices since 2016. Initially using the term “synthetic” or “premium” in index names, we subsequently unified the naming convention to “decrement” indices. “We have developed a transparent decrement framework through a series of decrement indices, including the S&P 500 Decrement Indices, S&P ESG Decrement Indices, and multi-asset decrement indices,” says Tianyin Cheng, senior, director, strategy indices, S&P DJI “The decrement methodology can be overlayed on any of our globally accepted, independent underlying indices. The parameters used in the calculation of decrement indices can be customized based on product issuer or market participant requirements.” Has demand for decrement indices increased compared to 2020? One key trend we observed this year is further expanding demand in Asia and the US. Being the first region entering zero or negative interest rate regime, Europe is ahead of other regions in the development of decrement index-linked products. A low-rate environment makes it challenging for issuers to provide attractive terms and triggers the search for a new underlying asset that could

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deliver cheaper optionality. Decrement indices were designed to provide a solution for this challenge. With interest rates dropping further globally after the pandemic, we started to see growing demand for decrement indices in Asia and the US as well. Another key trend is increasing interest in ESG and thematic indices as decrement underlyings. ESG and megatrend investing have been growing steadily over time, and they tend to land in the spotlight during extreme events, such as the global pandemic. With ESG and thematic investing growing at a faster pace since the pandemic, decrement strategies on these topics are picking up globally. Is there further need for education to avoid misleading investors? Yes, there is need for further education. Decrement indices are often wrapped up into structured products, sometimes marketed in similar ways as products based on their underlying headline indices. We believe there is still lack of education on how decrement indices work and the important practical implications for end users. Compared with conventional price return indices, decrement indices could allow product structurers to attract potential investors with favourable terms, such as higher participation rates and improved capital protection. However, depending on whether the fixed synthetic dividend is greater or less than the actual realized dividend received, the decrement index could underperform or outperform the corresponding price return index. So it’s important to select an underlying index that aligns with the objective of the structured product. The deduction method also matters. Investors should be aware that fixed percentage and fixed point deduction may deliver very different returns in volatile markets. Some critics see ESG and decrement as adding unnecessary complexity to the market. How important is to provide the full picture ‘what you get/what you give up’ when investing in new strategies?

Different from decrement, which is based on a transparent and well-defined methodology, ESG investing lacks a common standard. Despite the growing volume of ESG data, there are concerns around inconsistent ESG metrics across agencies and different types of reporting and disclosure across countries. Without a uniform methodology to quantify ESG factors and to regulate ESG reporting, it is challenging for investors to differentiate genuine ESG from green-washing.

Finally, to check out our existing offerings and parameters used in our index offerings, “S&P Dow Jones Decrement Indices Parameters” is a convenient reference.

A solution may appear in the coordinated efforts from governments and industries over time. For example, the EU is taking a step forward to try to define ESG labels and regulate sustainable investing through the Sustainable Finance Taxonomy Regulation. We have also successfully launched the S&P Paris-Aligned & Climate Transition (PACTTM) Indices, which are aligned with the EU’s minimum standards for low-carbon benchmarks under the EU Benchmark Regulation. Despite these advancements, there is still a long way to go to improve standards and encourage higher levels of ESG adoption.

We have launched many ESG decrement indices globally, especially for European users. These indices may use various methods to integrate ESG considerations, such as broad ESG, climate, ESG thematics, ESG multi-asset strategies, and so on. One example that innovatively examines companies by their ESG scores and their ESG scores improvements is the S&P Eurozone 30 ESG-Momentum Select Equal Weight 50-Point Decrement Index. It is designed to measure the performance of 30 stocks with the greatest S&P DJI ESG Score momentum, excluding companies in the lowest 30% by ESG scores within the S&P Eurozone BMI, less a fixed fee of 50 points per year.

Can you showcase two indices that are responding to investors’ needs in the current environment? S&P Eurozone 30 ESG-Momentum Select Equal Weight 50-Point Decrement Index

What kind of educational initiatives are you implementing to support investors’ understanding of the different indices available? To help investors understand the benefit and risk of decrement indices as well as the various methods used, S&P DJI has released educational content through different channels.

S&P Balanced Global Bond and Equity Futures 0.4% Decrement Index (S&P BEF 0.4% Decrement Index)

“Deciphering Decrement Indices” is a four-minute motion graphic video we produced to provide an easy-to-digest overview on how decrement indices work, their characteristics, and potential applications.

We have also launched many multi-asset decrement indices. For example, the S&P BEF 0.4% Decrement Index is a multi-asset strategy designed to limit volatility while delivering consistent returns through various market cycles and economic conditions. A 0.4% fee is deducted from the index return per year. It is a typical example of packaging a quantitative investment strategy with a risk control mechanism into an investable index.

For investors seeking a deeper understanding of the decrement methodology with illustrative examples, they can read our paper entitled “A Guide to S&P Decrement Indices”.

By exploiting the complementarity and negative correlations between equities and bonds, the index has demonstrated the ability to outperform, Actualespecially during periods of crisis.

Decrement Parameters Decrement Type

Decrement Application

Decrement Frequency

Fee Calculation Method

Day-Count Convention

Fixed percentage

Subtracted from return

Daily

Simply pro-rated

Actual/N

Fixed percentage

Subtracted from return

Daily

Simply pro-rated

Actual/N

Source: S&P Dow Jones Indices LLC.

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Stoxx / Qontigo Qontigo/Stoxx is a top supplier of underlying indices to the structured products market. The company’s flagship index, the Eurostoxx 50 index, is one of the most widely used underlying assets in the structured products market globally, and has appeared consistently in the global top three underlying ranking over the last five years. In addition, Stoxx saw 1,694 products linked to 71 of its indices worth US$11,8 billion across markets in 2020. The best-selling indices beyond the top 10 Stoxx indices in the structured products in 2020 included the Stoxx Global Select Dividend 100 (US$822m/49 products), Stoxx Europe 600 Health Care (US$513m/51 products), Stoxx Global ESG Leaders Select 50 EUR Index (US$476m/76 products), Stoxx Europe Sustainability Select 30 EUR (US$333m/two products), iStoxx Europe 600 ESG-X NR Decrement 4.75% Index (US$307m/two products) and iStoxx Transatlantic ESG 100 EW Decrement Index (US$379m/eight products).

Stoxx/Qontigo: top 10 indices by sales volume 2016-2021* Index

Issuance

Sales volume US$m

Eurostoxx 50

20,518

107,477.71

Eurostoxx Select Dividend 30

1,141

14,860.87

Eurostoxx Banks

1,354

6,212.08

Euro iStoxx Equal Weight Constant 50

594

5,301.29

Euro iStoxx 70 Equal Weight Decrement 5%

2,835.68

Stoxx Europe 600 Oil & Gas Index

423

2,775.63

Stoxx Global Select Dividend 100

242

2,663.77

Stoxx Global ESG Leaders Select 50 EUR Index

165

2,091.78

iStoxx Europe Demography 50

1,708.42

Stoxx Europe Select 50 EUR

1,639.73

Others

2,800

17,227.79

Total

27,429

164,794.76

*As of 30 June 2021

The Eurostoxx 50 index underlies more than 171,000 live products including over 34,000 tranche based products and over 135,000 flow and leverage products with combined assets worth an estimated US$145 billion. In 2020, the Eurostoxx 50 appeared across more than 16,000 products worth an estimated US$11.9bn.

Eurostoxx 50: sales by capital protection 2016-2021* Capital protection

Issuance

Sales volume US$m

2,496

7,650.86

Above 100%

2,335.43

Equal to 0%

15,878

76,788.55

Equal to 100%

1,326

14,604.13

Equal to 90 and below 100%

732

6,098.73

20,518

107,477.71

Above 0 and below 90%

Total *As of 30 June 2021

www.structuredretailproducts.com

95 Stoxx/Qontigo: top 10 indices by sales volume 2021* Index

Issuance

Sales volume US$m

Eurostoxx 50

1,862

6,713.74

Eurostoxx Select Dividend 30

130

803.91

Eurostoxx Banks

120

736.22

Euro iStoxx Equal Weight Constant 50

102

569.27

iStoxx Europe 600 Energy ex Coal GR Decrement 50 EUR Index

107

360.59

iStoxx Transatlantic ESG 100 EW Decrement Index

314.40

Euro iStoxx 50 Carbon Adaptation GR Decrement 5% Index

236.98

Euro iStoxx 50 Equal Weight Decrement 5%

166.50

Euro Stoxx 50 ESG-X Index

125.88

iStoxx Europe 600 ESG-X NR Decrement 4.75% Index

120.39

Others

379

1,290.08

Total

2,720

11,437.98

Market

Issuance

Sales volume US$m

France

2,882

56,606.75

*As of 30 June 2021

Stoxx/Qontigo: top 10 markets by sales volume 2016-2021*

Italy

736

32,061.55

USA

4,679

23,426.47

Germany

8,794

11,550.26

Spain

283

8,553.63

Belgium

507

7,102.11

China

291

4,447.44

Austria

4,002

3,303.43

South Korea

938

2,374.33

Canada

1,215

2,235.08

Others

3,102

13,133.71

Total

27,429

164,794.76

Market

Issuance

Sales volume US$m

Germany

7,140

9,478.09

USA

4,281

21,891.20

Austria

3,113

1,507.84

France

1,487

41,351.29

*As of 30 June 2021

Eurostoxx 50: top 10 markets by sales volume 2016-2021*

Canada

981

1,822.42

South Korea

927

2,366.72

Switzerland

576

508.88

Italy

266

10,333.55

Spain

208

7,351.65

South Africa

119

594.69

Others

1,420

10,271.38

Total

20,518

107,477.71

*As of 30 June 2021

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For the ROI-focused. For the ESG-conscious. For the API-native. Index and analytics solutions that optimize impact. qontigo.com/optimizing-impact

Investment Banks

Barclays Barclays is an active manufacturer and provider of structured products globally, and has held a leading position over the last five years in some of the most developed markets such as the US market. In 2016, Barclays sold its Barclays Risk Analytics and Index Solutions (Brais) range to Bloomberg - Brais comprised Barclays’ fixed income benchmark indices, including the Barclays Aggregate family of indices, and Brais strategy indices. Barclays however retained its quantitative investment strategy (QIS) index business and the Barclays strategy indices, which include the Roubini Barclays Country Insights Indices, and the Shiller Barclays CAPE indices, developed jointly by Barclays and Professor Robert Shiller of Yale University. The calculation and maintenance of Barclays’ strategy indices were outsourced to Bloomberg. SRP data also shows that the UK bank has marketed over 650 structured products linked to 69 of its custom and proprietary indices with estimated sales of more than US$2.8 billion. The only Barclays-branded index deployed via structured products in 2021 was the Barclays Trailblazer Sectors 5 Index which sold US$31.4m across 18 products in the US market. The index is now the most featured Barclays proprietary strategy appearing in 290 products worth US$297m. In Sweden, Strukturinvest used the Barclays Mutual Fund ER AF 2% RC 16% SEK 2 Index and Barclays Mutual Fund ER AF 0% RC 2% SEK 3 Index in two products launched in May. The strategy index provides exposure to Prior Nilsson Realinvest – an actively managed equity fund focused on real estate, forestry, raw material and infrastructure companies.

Barclays: top 10 indices by sales volume Index

Issuance

Sales volume US$m

Barclays Infiniti Capital Foundation Index

660.53

Barclays Trailblazer Sectors 5 Index

290

297.16

Barclays Armour EUR Index

246.48

Barclays Ivy Clarus Index

173.68

Barclays ComBATS 6 ER Index

130.18

Barclays Equity Compass Share Buyback Index

120.75

Barclays TrendVol Gold ER (USD)

90.17

Barclays Intelligent Carry Index

89.11

Barclays 7-10 Year Treasury Index

85.00

Barclays Overnight EUR Index

70.04

Others

235

879.90

Total

654

2,843.02

Issuance

Sales volume US$m

Barclays: sales by capital protection Capital protection Above 0 and below 90%

37.21

Above 100%

189.26

Equal to 0%

104

467.08

Equal to 100%

500

2,092.62

Equal to 90 and below 100%

56.83

Grand Total

654

2,843.02

www.structuredretailproducts.com

Barclays: top 10 markets by sales volume Market

Issuance

Sales volume US$m

USA

452

840.61

Japan

834.21

Portugal

307.41

Australia

173.58

Singapore

118.38

85.00

Brazil

57.21

Germany

49.42

South Africa

44.22

Ireland

42.39

Others

290.56

Total

654

2,843.02

Issuer

Issuance

Sales volume US$m

Barclays

498

1,326.32

Moore Management Services

834.21

Instreet

166.35

Harris Bank

90.00

Friends Provident

68.55

Swiss Life

38.53

Barclays: top 10 issuers by sales volume

Bawag P.S.K.

37.48

Anglo American

35.26

Haitong Investment Ireland

33.38

Itau

32.26

Others

180.67

Total

654

2,843.02

Issuance

Sales volume US$m

Barclays

160

846.21

Moore Management

834.21

Barclays: top 10 distributor group by sales volume Distributor group

Instreet

166.35

Incapital

164.23

Raymond James

122.76

Advisors Asset Management

100.00

Non-public

77.54

Friends Provident

68.55

Scura Paley Securities

50.43

Absa

44.22

Others

110

368.51

Total

654

2,843.02

www.structuredretailproducts.com

100

BNP Paribas BNP Paribas is a leading global provider of structured products globally and has featured in the European top 10 manufacturers ranking over the last five years. As an equity derivatives powerhouse, the French bank has marketed a comprehensive range of in-house developed underlying strategies in the global structured products market over 1,100 structured products linked to 146 of its custom and proprietary indices worth an estimated US$5 billion. There were four BNP Paribas branded indices recorded by SRP in 2020. The BNP Paribas Multi Asset Diversified 5 Index was used as the underlying for 22 certificates of deposits that collected a combined US$45.2m in the US while the Índice BNP Seleção de Fundos Internacionais – which is based on a universe of 56 mutual funds from 29 different managers, split into 17 investment categories – was exclusively marketed in Brazil. The BNP Paribas MultiAsset Diversified vol 8 EUR Future Index (two products) and BNP Paribas Multi-Asset Megatrend Overlay 5% Index (one), were used in South Africa and Australia, respectively. In February 2021 the French bank announced an agreement with Credit Suisse Asset Management QIS to act as the allocation agent for the CSAM QIS Dynamic Multi-Factor Diversified Strategy (DMD7) index. The index is a quantitative strategy seeking to provide diversified exposures across a range of systematic investment indices offered by the French bank via structured products. The new index is aimed at the US annuities market where the French bank already has deployed a number of proprietary underlyings (BNP Paribas High Dividend Plus Index, BNP Paribas Momentum Multi Asset 5 Index, BNP Paribas Multi Asset Diversified 5 Index) across 60 indexed annuities.

BNP Paribas: top 10 indices by sales volume Index

Issuance

Sales volume US$m

BNP Paribas New Frontier 8 ER

476.31

BNP Paribas Millennium 10 Europe Series 3 ER

383.36

BNP Paribas Millenium Master Series 8 PLN ER

328.65

BNP Paribas Flexinvest BRIC

260.50

BNP Paribas Millenium Master Index

212.68

BNP Paribas Libra Emerging Markets PLN ER

177.31

BNP Paribas Millenium 10 Europe ER

173.96

BNP Paribas SLI Enhanced Absolute Return Index

162.05

BNP Paribas Spectrum Long/Short Style ER

149.42

BNP Paribas Multi Asset Diversified 5 Index

131

118.52

Others

710

2,562.32

Total

1,148

5,005.10

Issuance

Sales volume US$m

BNP Paribas: sales by capital protection Capital protection Above 0 and below 90%

82.93

Above 100%

255.37

Equal to 0%

81.60

Equal to 100%

826

4,016.45

Equal to 90 and below 100%

187

568.74

Total

1148

5,005.10

www.structuredretailproducts.com

101

BNP Paribas: top 10 markets by sales volume Market

Issuance

Sales volume US$m

Poland

278

1,678.35

Belgium

517.05

Ireland

371.85

Sweden

101

297.94

Italy

281.31

219.01

USA

103

188.61

Czech Republic

146.54

South Africa

101

144.53

Brazil

114.14

Others

334

1,045.75

Total

1,148

5,005.10

Issuance

Sales volume US$m

BNP Paribas

135

1,259.36

LC Corp

148

1,229.35

BNP Paribas: top 10 distributor groups by sales volume Distributor group

Wealth Options

360.07

SEB

106

285.48

Momentum

108.96

First Trust Portfolios

103.13

SIP Nordic Fondkommission

99.30

Santander

92.47

ING

80.82

XP Investimentos

80.50

Others

440

1,305.63

Total

1,148

5,005.10

Issuance

Sales volume US$m

BNP Paribas

330

1,381.64

SecurAsset

765.09

SEB

108

294.70

BNP Paribas Fortis

288.59

Getin Noble Bank

276.33

Ulster Bank

245.53

BNL

175.91

Bank of the West

117.35

BNP Paribas Issuance BV

106.72

Van Lanschot Bankiers

96.37

Others

381

1,256.86

Total

1,148

5,005.10

BNP Paribas: top 10 issuers by sales volume Issuer

www.structuredretailproducts.com

102

Citigroup Citigroup is an active manufacturer of structured products across regions and markets as well as one of the investment banks making the most of its indexing and structuring capabilities with more than US$1.2 billion raised across 732 structures underlying up to 33 of its in-house developed strategies. Four Citi-branded indices have been used in the structured products market in 2021: the Citi Dynamic Asset Selector 5 ER Index which sold US$149m across 75 products; the Citi Radar 5 Excess Return Index (US$25.6m from 19 products); the Citi Dynamic Asset Selector 3.5 ER Index (US$13.9m from 15 products); and Citi World ESG Index (US$1.4m across two products). These products were marketed in the US.The US investment bank entered chapter two of its cooperation with BlackRock earlier this year with the launch of a call option certificate (warrant) linked to the Citi Multi Asset Active Allocation VT 4.5 Index (CIXBMAB5 index or MA3 index). The Citi Multi Asset Active Allocation Index has been developed using BlackRock’s Model Portfolio allocation advisory service and model portfolio capabilities. The strategy, which has a risk profile of around three to six percent (as opposed to a target income objective), aims at maximising returns by allocating exposure to three different buckets - fixed income, equity and non-traditional assets. Fixed income represents between 70% and 90%, equity between 10% and 30% and non-traditional assets like gold and inflation-linked bonds around 10%. The allocation methodology results from a combination of quantitative and discretionary management.

Citi: top 10 indices by sales volume Index

Issuance

Sales volume US$m

Citi Dynamic Asset Selector 5 ER Index

482

728.47

Citi Radar 5 Excess Return Index

120

136.14

Citi Climate Change Opportunities Index

53.01

Citigroup S&P Global STARS

49.59

Citi Commodities F3 vs F0 – 4x Leveraged Index

48.32

CitigroupS&PGlobalStars

46.17

Citi ETF Market Pilot 5% ER Index

33.33

Citi Asset Class Index

25.64

Citi BRIC Enhanced Commodities Index

25.45

Citi Dynamic Asset Selector 3.5 ER Index

25.22

Others

81.33

Total

732

1,252.67

Issuance

Sales volume US$m

Equal to 100%

686

1,135.00

Equal to 0%

57.94

Above 100%

36.01

Above 0 and below 90%

16.72

Equal to 90 and below 100%

6.99

Total

732

1,252.67

Citi: sales by capital protection Capital protection

www.structuredretailproducts.com

103

Citi: top 10 markets by sales volume Market

Issuance

Sales volume US$m

USA

661

975.72

South Korea

67.70

Malaysia

44.82

Spain

23.46

Czech Republic

20.80

Mexico

18.20

Poland

10.07

Brazil

7.95

Hungary

7.44

Estonia

4.69

Others

71.81

Total

732

1,252.67

Issuance

Sales volume US$m

Citi: top 10 distributor group by sales volume Distributor group Non-public

217

379.57

First Trust Portfolios

261

305.17

Citi

150.67

Advisors Asset Management

142.55

Incapital

126.24

ING

44.82

Hana Financial Group

25.35

Korea Investment

25.35

Scura Paley Securities

20.42

Daishin Securities

16.90

Others

15.63

Total

732

1,252.67

Issuer

Issuance

Sales volume US$m

Citi

707

1,134.51

ING

44.82

Citi: top 10 issuers by sales volume

Hana Financial Group

25.35

Korea Investment & Securities

25.35

Daishin Securities

16.90

SEB

4.69

Standard Bank

0.95

Woori Finance

0.10

Protective Life and Annuity Insurance Company

0.00

Voya Insurance and Annuity Company

0.00

732

1,252.67

Total

www.structuredretailproducts.com

104

Credit Suisse Credit Suisse is one of the main global providers of structured products and has featured in the top 10 manufacturers ranking over the last five years. SRP data also shows that the Swiss bank has marketed over 650 structured products linked to 68 of its custom and proprietary indices with an estimated sales value of US$2.6 billion. The most utilised Credit Suisse index during the first half of 2021 was the Credit Suisse Digital Health Fund Index which sold US$30.2m across 14 products in Brazil and Switzerland. The Credit Suisse GEM 10% Risk Control Index has also appeared in eight products worth US$6.7m sold by Absa Group with the Credit Suisse Balanced Trend 5% Index also deployed in Brazil for the first time across three products worth US$4.5m. Other indices used recently by the Swiss bank include the Credit Suisse RavenPack AIS Balanced 5% ER Index which sold US$1.3m across 10 products and Credit Suisse US Balanced 5% ER Index which sold US$1.9m across six products in the US. The products were sold by Incapital, Raymond James and First Trust.

Credit Suisse: top 10 indices by sales volume Index

Issuance

Sales volume US$m

HS 60 Europe

285.97

Credit Suisse Global Warming Index

192.16

Credit Suisse Swiss Equity Enhanced Call Writing Index

188.62

Credit Suisse / Tremont Hedge Fund Index

178.76

Credit Suisse Global Alternative Energy Index

158.68

Credit Suisse / Tremont Investable Index

136.86

CS Custom Mark-ING SRI-R1C1

129.05

Credit Suisse Money Market

128.96

Credit Suisse Digital Health Fund Index

127.95

Credit Suisse GEM 10% Risk Control Index

113

109.00

Others

394

1,031.26

Total

664

2,667.28

Issuance

Sales volume US$m

Above 0 and below 90%

59.79

Above 100%

360.51

Equal to 0%

378.56

Equal to 100%

492

1,654.69

Equal to 90 and below 100%

213.72

Total

664

2,667.28

Credit Suisse: sales by capital protection Capital protection

www.structuredretailproducts.com

105

Credit Suisse: top 10 markets by sales volume Market

Issuance

Sales volume US$m

USA

190

252.83

Brazil

157

237.81

South Africa

113

109.00

Switzerland

555.55

Sweden

159.69

433.99

Germany

180.39

Norway

165.04

Finland

86.23

Poland

13.50

Others

473.25

Total

664

2,667.28

Issuance

Sales volume US$m

Credit Suisse

110

900.11

Leeds Building Society

307.55

XP Investimentos

149

225.19

ING

164.24

Orkla

136.86

Santander

112.77

ABSA Group

113

109.00

Carnegie

108.35

FIM

86.23

Cattolica Assicurazioni

82.12

Credit Suisse: top 10 distributor group by sales volume Distributor group

Others

217

434.84

Total

664

2,667.28

Issuance

Sales volume US$m

Credit Suisse

441

1,759.24

ING Bank

164.24

Credit Suisse: top 10 issuers by sales volume Issuer

Santander

112.77

ABSA

112

108.67

FIM

86.23

Cattolica Assicurazioni

82.12

Dexia Bank

58.66

Rabobank

58.66

Kobelco

46.93

DNB

28.17

Others

161.58

Total

664

2,667.28

www.structuredretailproducts.com

106

Deutsche Bank The German banking group has seen its activity in the global structured products market diminished over the last few years as a result of the bank’s senior management decision to de-risk its books, but remains a powerhouse with more than 435,000 live structures across markets worth an estimated US$11 billion. Deutsche Bank is one of the top providers of custom and proprietary strategies to the structured products market with more than 90 indices linked to over 400 structures with estimated sales of US$7.5 billion, according to SRP data. The only two DB-branded indices recorded in 2021 include the Deutsche Bank Företagsobligationer 2% Index which has featured across three products worth US$3.5m sold in Sweden by Garantum Fondkomission, and the Deutsche Bank High Yield Fund 2% Index which was used as the underlying in two certificates distributed via Strukturinvest in Sweden.

Deutsche Bank: top 10 indices by sales volume Index

Issuance

Sales volume US$m

Deutsche Bank Liquid Alpha EUR

2,789.96

DB Liquid Commodity Index - Corn Index ER

802.02

DB Commodity Index

645.31

Deutsche Bank CROCI Japan Index

384.50

Deutsche Bank Forward Rate Bias Index

350.50

DB Liquid Commodity Index

308.04

DB Liquid Commodity Mean Reversion ER

198.34

DB Liquid Commodity - Mean Reversion Plus

178.70

DB Liquid Commodity - Mean Reversion Plus Total Return

124.97

DB Agricultural Optimum Yield Index ER

122.08

Others

272

1,676.36

Total

441

7,580.80

Issuance

Sales volume US$m

Equal to 100%

180

5,104.67

Equal to 0%

163

1,042.52

Above 100%

694.96

Equal to 90 and below 100%

599.48

Above 0 and below 90%

139.17

Total

441

7,580.80

Deutsche Bank: sales by capital protection Capital protection

www.structuredretailproducts.com

107

Deutsche Bank: top 10 markets by sales volume Market

Issuance

Sales volume US$m

Germany

3,416.70

China

1,561.70

USA

173

889.55

Japan

384.50

Italy

375.32

Taiwan

86.66

Switzerland

82.19

Portugal

78.95

Sweden

71.89

Canada

63.31

Others

110

570.03

Total

441

7,580.80

Distributor group

Issuance

Sales volume US$m

Deutsche Bank

229

4,835.66

Bank of Communications

1,021.53

Hua Xia Bank

386.94

Poste Italiane

280.21

DZ Bank

138.83

Allianz

86.66

Deutsche Bank: top 10 distributor group by sales volume

Morgan Stanley

73.15

Non-public

67.09

Garantum Fondkommission

58.11

Garanti Invest

41.37

Others

114

591.23

Total

441

7,580.80

Issuance

Sales volume US$m

Deutsche Bank

259

4,585.75

Bank of Communications

1,021.53

Hua Xia Bank

386.94

DB Platinum Advisors

384.50

Poste Italiane

280.21

DZ Bank

138.83

Morgan Stanley

85.57

KommuneKredit

41.37

Danske Bank

40.27

Scotiabank

39.46

Others

104

576.36

Total

441

7,580.80

Deutsche Bank: top 10 issuers by sales volume Issuer

www.structuredretailproducts.com

108

Goldman Sachs Goldman Sachs is an active manufacturer in the global structured products market and has featured consistently among the top global manufacturers over the last five years. In 2019, the US banking group issued more than 2,000 retail structured products worth an estimated US$5.5 billion. SRP data shows that Goldman Sachs has also provided 39 proprietary and custom strategies developed inhouse as underlyings for 1,823 structured products worth an estimated US$5.1 billion. The most featured Goldman Sachs indices in 2021 include the GS Momentum Builder Multi-Asset 5S ER Index, which has been used in 17 US products worth a US$37.7m followed by the GS Momentum Builder Focus ER Index which has featured across six products worth US$7.5m distributed by Simon Markets in the US.

Goldman Sachs: top 10 indices by sales volume Index

Issuance

Sales volume US$m

GS Momentum Builder Multi-Asset 5S ER Index

1,304

2,988.46

GS Momentum Builder Multi-Asset 5 ER Index

386

1,621.84

GS Momentum Builder Multi-Asset 2 ER Index

134.63

GS Dynamic Momentum Optimisation ER

83.34

Goldman Sachs Absolute Return Tracker Index

66.38

Goldman Sachs i-Select III Series 57 - 2 ER Strategy Index

59.00

Goldman Sachs US Dispersion Series 31 Excess Return Strategy Index

25.00

Goldman Sachs Global Diversified Funds Volatility Target Strategy

23.46

GS RP Equity World Long Short Series 37 Excess Return Strategy

22.25

GS Momentum Builder Focus ER Index

14.78

Others

61.26

Total

1,823

5,100.42

Goldman Sachs: sales by capital protection Capital protection

Issuance

Sales volume US$m

Equal to 100%

1,767

4,850.87

Above 100%

132.94

Equal to 0%

86.05

Equal to 90 and below 100% Total

www.structuredretailproducts.com

30.56

1,823

5,100.42

109

Goldman Sachs: top 10 markets by sales volume Market

Issuance

Sales volume US$m

USA

1,767

4,771.72

Institutional

84.00

Switzerland

78.14

Mexico

66.38

Brazil

32.11

Ireland

30.74

South Korea

16.90

Estonia

14.08

Sweden

5.19

Norway

1.15

Total

1,823

5,100.42

Issuance

Sales volume US$m

Incapital

1,283

4,039.24

Raymond James

239

444.46

Goldman Sachs

146

412.26

Scura Paley Securities

52.89

XP Investimentos

32.11

First Trust Portfolios

30.50

BCP Asset Management

23.46

Hana Financial Group

16.90

SEB

14.08

Prudential

12.00

Goldman Sachs: top 10 distributor group by sales volume Distributor group

Others

22.53

Total

1,823

5,100.42

Issuance

Sales volume US$m

1,769

5,024.55

19.26

Hana Financial Group

16.90

SEB

14.08

Prudential

12.00

RBS

7.27

Kommuninvest i Sverige

5.19

Orkla

1.15

Atlantic Coast Life

0.00

EFG Group

0.00

Others

0.00

Total

1,823

5,100.42

Goldman Sachs: top 10 issuers by sales volume Issuer Goldman Sachs Wells Fargo

www.structuredretailproducts.com

110

HSBC HSBC is an active manufacturer in the global structured products market and has featured consistently in the global top 10 manufacturers ranking over the last five years including tranche-based and flow/leverage products. In 2020, the UK banking group issued 4,718 retail structured products (excluding flow and leverage) worth an estimated US$62 billion. SRP data shows that HSBC has also supplied 19 proprietary and custom strategies as underlyings for 490 structured products worth an estimated US$1.2 billion. The UK bank has used two of its in-house developed indices in 2021 including the HSBC VantageZ Index (USD) Excess Return, which has sold US$8.7m (from six products) and HSBC Low Beta Factor ESG Europe Price Return Index which has sold US$7.7m (five products), in China. In 2020, the UK the bank deployed the HSBC Vantage5 ER Index, which collected US$584.84m from 365 products, and the HSBC Vantage+ Index (USD) ER Index (US$22m, also from 14 products).

HSBC: top 10 indices by sales volume Index

Issuance

Sales volume US$m

HSBC Vantage5 ER Index

365

584.84

HSBC Investable Climate Change Index

406.46

HSBC Optimised GEM TR

48.25

HSBC Global Equity Navigator Index

39.69

HSBC AI Powered Equity 5 USD ER Index

35.10

HSBC Low Beta Factor ESG Europe Price Return Index

29.69

HSBC VantageZ Index (USD) Excess Return

25.05

HSBC Vantage+ Index (USD) Excess Return

23.60

HSBC Global Multi-Asset Alpha Strategy Index

22.93

HSBC Optimised Global Water PR Index

10.02

Others

18.27

Total

490

1,243.91

Market

Issuance

Sales volume US$m

USA

371

597.05

China

448.00

49.17

Malaysia

23.87

Canada

23.49

Italy

23.46

Taiwan

17.99

Germany

9.67

Sweden

8.78

Latvia

3.52

Others

38.92

Total

490

1,243.91

HSBC: top 10 markets by sales volume

www.structuredretailproducts.com

111

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Together we thrive www.structuredretailproducts.com

112

J.P. Morgan J.P. Morgan is a top 10 manufacturer of structured products globally. More than 120 of its own custom and proprietary indices have been deployed in the global retail structured products market across almost 4,000 structured products with an estimated sales value of US$11.5 billion, making it a leading provider of underlyings to the market from an issuer perspective. In 2021, the US bank has used seven of its indices in the retail market across 40 products worth US$37m. Of these, the vast majority were used as the underlying for certificates of deposit (CDs). They included, among others, the J.P. Morgan Efficiente Plus 5 Index (US$11.2m/10 products); JPMorgan Tech+ Dynamic Blend Index (US$8.8m/12 products); J.P. Morgan Large-Cap Dynamic Blend Index (US$5.3m/ eight products); JPMorgan Mojave Index (US$4.2m/four products); as well as the J.P. Morgan Dynamic Blend Index; J.P. Morgan Balanced Value Dividends 5 Index, and J.P. Morgan All-American Index.

J.P. Morgan: top 10 indices by sales volume Index

Issuance

Sales volume US$m

J.P. Morgan Efficiente Plus DS 5 Index

1,555

4,496.42

J.P. Morgan ETF Efficiente 5 Index

585

2,585.85

J.P. Morgan ETF Efficiente DS 5 Index

616

1,209.51

J.P. Morgan USD Efficiente Index

507.30

J.P. Morgan Optimax Market-Neutral Index

167

398.81

J.P. Morgan Efficiente Plus 5 Index

275.09

J.P. Morgan Alternative Index Multi-Strategy 5 (USD)

230.07

J.P. Morgan Balanced Value Dividends Index

156

206.87

J.P. Morgan Yield Alpha 8 Index (EUR)

155.08

J.P. Morgan Balanced Capital Strength Index 8.5%

90.99

Others

612

1,352.23

Total

3,993

11,508.23

J.P. Morgan: sales by capital protection Capital protection

Issuance

Sales volume US$m

Equal to 100%

3,733

10,666.74

Equal to 0%

106

440.48

Above 100%

197.41

Equal to 90 and below 100%

165.83

Above 0 and below 90%

37.77

3,993

11,508.23

Total

www.structuredretailproducts.com

113

J.P. Morgan: top 10 markets by sales volume Market

Issuance

Sales volume US$m

USA

3,726

9,958.61

Sweden

210.45

South Korea

170.26

Switzerland

147.35

Canada

121.74

Germany

100.62

Japan

96.04

Malaysia

75.04

Australia

72.68

Italy

68.63

Others

155

486.80

Total

3,993

11,508.23

Issuance

Sales volume US$m

Incapital

1,036

3,945.58

JPMorgan

1,209

3,356.69

J.P. Morgan: top 10 distributor group by sales volume Distributor group

First Trust Portfolios

1,021

1,699.02

UBS

456.09

Raymond James

246

433.27

Scura Paley Securities

123

315.26

Advisors Asset Management

197.10

Kaupthing Bank

105.50

KDB Financial Group

101.14

Daiwa Securities

96.04

Others

200

802.55

Total

3,993

11,508.23

Issuance

Sales volume US$m

3,843

10,686.64

96.04

KDB Financial Group

95.49

Handelsbanken

81.27

OSK-UOB

75.04

Hana Financial Group

42.25

Landesbank Baden-Württemberg

35.99

Symetra Life Insurance

27.00

Hua Xia Bank

24.74

Investec

24.21

Others

106

319.56

Total

3,993

11,508.23

J.P. Morgan: top 10 issuers by sales volume Issuer J.P. Morgan Daiwa Asset Management

www.structuredretailproducts.com

114

Morgan Stanley Morgan Stanley has featured in the top 20 manufacturers ranking globally over the last five years. SRP data shows that the US investment bank has brought 40 of its in-house developed indices to the structured products market via more than 1,000 structures worth US$1.5 billion. In 2021, the US bank has used five of its indices in structured products marketed in Brazil and the US market including the Morgan Stanley Global Opportunity 9% Index which has raised US$33.8m across 11 products sold in the US market; Morgan Stanley MAP Trend 6% Vol Index which has sold US$20.4m across 11 products distributed by XP Investimentos in Brazil; Morgan Stanley MAP Trend Index which sold US$14m across 11 products in the US. The US bank has also seen its Morgan Stanley ETF-MAP 2 Index being used across three products worth US$18.7m sold by Morgan Stanley Wealth Management in the US, and Morgan Stanley US Growth 11% VT EUR Index which sold US$2.4m across two products sold by BTG Pactual in Brazil.

Morgan Stanley: top 10 indices by sales volume Index

Issuance

Sales volume US$m

Morgan Stanley MAP Trend Index

549

542.02

Morgan Stanley ETF-MAP 2 Index

311.62

Morgan Stanley Global Opportunity 9% Index

139

232.16

Morgan Stanley MAP Trend 6% Vol Index

111

176.65

Morgan Stanley Technology

115.00

Morgan Stanley ETF-MAP ER Index

56.98

MS SmartInvest Equity

34.62

Morgan Stanley Brazil Large Cap 20% Index

17.88

MS Dynamic Fund Allocation Index

17.35

Morgan Stanley Brazil Small Cap 17% Index

16.50

Others

70.53

Total

1,025

1,591.30

Morgan Stanley: sales by capital protection Capital protection

Issuance

Sales volume US$m

Above 0 and below 90%

13.76

Above 100%

160.86

Equal to 0%

88.25

Equal to 100%

908

1,308.62

Equal to 90 and below 100%

19.81

1,025

1,591.30

Total

www.structuredretailproducts.com

115

Morgan Stanley: markets by sales volume Market

Issuance

Sales volume US$m

USA

718

1,060.57

Brazil

282

450.97

Switzerland

18.54

Ireland

17.35

Taiwan

4.03

Sweden

2.88

Finland

1.19

Austria

1.17

Others

34.60

1,025

1,591.30

Distributor group

Issuance

Sales volume US$m

Morgan Stanley

228

581.33

XP Investimentos

277

442.94

Advisors Asset Management

208

213.43

First Trust Portfolios

116

112.14

Incapital

87.93

Raymond James

21.64

Grand Total

Morgan Stanley: top 10 distributor group by sales volume

Rabobank

18.08

Cantor Fitzgerald

17.35

Scura Paley Securities

9.32

BTG Pactual

8.04

Others

79.10

Total

1,025

1,591.30

Issuance

Sales volume US$m

Morgan Stanley

960

1,486.46

Lehman Brothers

40.00

Morgan Stanley: top 10 issuers by sales volume Issuer

Rabobank

18.08

SG Structured Products

10.00

American General

9.00

BTG Pactual

8.04

Fidelity & Guaranty Life

6.00

Nationwide Life

6.00

International Bank for Reconstruction and Development

4.70

Citibank

3.02

Others

0.00

Total

1,025

1,591.30

www.structuredretailproducts.com

116

Natixis Natixis is an active user of indices developed in house for its structured product offering as well as a manufacturer of proprietary strategies. The French bank has seen more than 100 products linked to 14 underlyings developed in-house with an estimated value of US$692.8m. There were two products linked to Natixis indices in the structured products market recorded in 2020. The Natixis iEdge France 50 EW NTR Decrement Index and NXS Climate Optimum Prospective VT Index sold a combined US$4.4m in the French market. No Natixis-branded indices have been recorded in the global retail market in 2021. The French bank also has exclusive rights on a number of sponsored indices from different index providers including Stoxx, FTSE Russell, Nasdaq, KRX, SGX, Solactive, Euronext, S&P DJI and MSCI. These include market access indices such as the CAC Large 60 Equal Weight Excess Return Index; risk premia such as the Solactive U.S. Corporate Leverage Strategy Index and smart beta such as the Euro iStoxx 50 Style Weighted Decrement Index, climate indices such as the Euronext Climate Orientation Priority 50 Equal Weight Excess Return Index and thematic strategies such as the Solactive Quality of Life Select 40 Index.

Natixis indices – Top 10 Natixis Top 10 indices

Issuance

Sales US$m

Market Share

NXS Selective Europe 30

234.40

34%

NXS Momentum Fund Stars ER

175.12

25%

NXS Climate Optimum Prospective VT Index

62.05

NXS Europe Selective 30 Index

54.59

Natixis Targeted Absolute Return Strategies Index

41.94

NXS Risk Parity Fund Allocator ER Index

30.88

NXS Elite Funds Selection Index

26.48

NXS Federal Objectif Climat Index

19.33

NXS Protected Optimum World Index

15.00

NXS Ultimate Fund Allocator Index

12.20

Others

25.06

Grand Total

119

697.05

100%

Issuance

Sales US$m

Market Share

334.34

48%

Equal to 90% and below 100%

269.95

39%

Equal to 0%

61.2

Above 100%

29.41

Above 0% and below 90%

2.15

Grand Total

119

697.05

100%

Natixis indices – capital protection Capital protection Equal to 100%

www.structuredretailproducts.com

117

Natixis indices – Top markets Market

Issuance

Sales US$m

Market Share

France

268.78

38%

Poland

246.86

36%

Czech Republic

43.42

12.48

Austria

2.71

Others

122.80

18%

Grand Total

119

697.05

100%

Issuer

Issuance

Sales US$m

Market Share

Natixis

337.44

48%

Issuers of products linked to Natixis indices

Idea Bank

121.44

18%

Getin Noble Bank

98.01

14%

International Bank for Reconstruction and Development

50.00

KBC

43.42

Alior Bank

19.46

Crédit Mutuel Arkéa

19.33

Inova Capital

4.46

Deutsche Bank

3.49

Grand Total

119

697.05

100%

Issuance

Sales US$m

Market Share

BPCE

251.29

36%

Getin Holding

164.87

24%

Natixis

114.10

16%

LC Corp

54.59

KBC

43.42

Alior Bank

19.46

Crédit Mutuel Arkéa

19.33

IDAD

10.00

Inova Capital

4.46

Deutsche Bank

3.49

Others

12.05

Grand Total

119

697.05

100%

Distributors of products linked to Natixis indices Top 10 distributor group

www.structuredretailproducts.com

118

Société Générale Société Générale remains a driving force in the global structured products market. The French banking group has featured in the global top 10 manufacturers ranking over the last five years including tranche-based and flow/ leverage products. SRP data shows that Société Générale has marketed more than 450 structured products worth US$3.3 billion linked to 64 indices developed in-house by its SG Index franchise. The only SGI branded indices recorded in 2021 by SRP is the SG US Strong Balance Sheet Beta Hedged 5% VT Index which was launched in the institutional market in Q2 2021. In 2020, the French bank introduced the SG World Water Index which in Austria and the SGI US Risk Parity Momentum 2014 Index which was featured in four products (US$2.37m) targeted at institutional investors.

Société Générale: top 10 indices by sales volume Index

Issuance

Sales volume US$m

SGI Sustainable & Efficient Europe 30

106

539.08

SGI WISE Long/Short

451.62

SGAM AI Baraka Commodity Index

245.67

SGAM AI Baraka Index

187.62

SGI Ethical & Efficient Europe 30

174.92

SGI Sector Efficient Europe 30

171.86

SGI Sustainable & Efficient World 30

128.22

SG European Quality Income Index

67.71

SGI Global Senior Index

57.58

SGI Multi Asset Global Futures EUR Index

70.84

Others

208

1,209.93

Total

458

3,305.07

Issuance

Sales volume US$m

Equal to 100%

221

2,161.74

Equal to 90 and below 100%

455.72

Société Générale: sales by capital protection Capital protection

Equal to 0%

108

365.86

Above 100%

182.18

Above 0 and below 90%

139.58

Total

458

3,305.07

www.structuredretailproducts.com

119

Société Générale: top 10 markets by sales volume Market

Issuance

Sales volume US$m

Belgium

466.59

Ireland

317.72

Malaysia

299.95

USA

228.16

China

222.57

Japan

205.25

Singapore

162.97

Finland

161.05

Germany

139.02

Czech Republic

133.69

Others

234

968.09

Total

458

3,305.07

Distributor group

Issuance

Sales volume US$m

Société Générale

155

1,080.00

BCP Asset Management

280.15

ING

261.31

Crelan

171.52

Maybank

133.34

Incapital

115.33

Société Générale: top 10 distributor group by sales volume

Handelsbanken

88.74

Österreichische Sparkassen

87.04

KBL epb

81.49

SEB

58.71

Others

189

947.45

Total

458

3,305.07

Issuance

Sales volume US$m

Société Générale

247

1,660.30

Bank of Ireland

280.15

ING

261.31

Maybank

133.34

Wells Fargo

132.52

Handelsbanken

88.74

Erste Group Bank

85.86

SEB

60.55

Delta Lloyd Bank

43.72

Nordea

39.83

Others

102

518.74

Total

458

3,305.07

Société Générale: top 10 issuers by sales volume Issuer

www.structuredretailproducts.com

120

UBS UBS is an active manufacturer in the global structured products market and has featured consistently in the global top 10 manufacturers ranking over the last five years including tranche-based and flow/leverage products. The Swiss bank has deployed 73 of its in-house custom and proprietary indices in the global retail structured products market across more than 500 structured products with an estimated sales value of US$4 billion. Only one UBS index – the UBS GAM Star Credit Opportunities Fund Rotator Index (seven products/ US$8.94m) - was featured in the structured products market in 2020 in South Korea. The index was introduced in November 2019 via DLBs issued by Samsung and Shinhan – the 10 products linked to the index have raised an estimated US$34.4m. No UBS-branded indices have been recorded in the retail market in 2021.

UBS indices – Top 10 UBS indices (Top 10)

Issuance

Sales US$m

Market Share

UBS TA Bill Index

534.35

13%

UBS CA Bill Index

527.37

13%

UBS Diapason Biofuel Index

318.46

UBS Comm-PASS Index

266.68

UBS V10 Currency Index Volatility Cap

225.82

UBS Global Alpha Strategies

193.05

UBS G10 Carry

144.54

UBS African Index

144.02

UBS Equity Long Short Alpha Index

126.42

UBS YC Stockholm 30 ER

109.98

Others

262

1,442.62

36%

Grand Total

505

4,033.31

100%

Issuance

Sales US$m

Market Share

Equal to 100%

183

1,647.05

41%

Equal to 0%

159

1,413.35

35%

Equal to 90% and below 100%

135

684.36

17%

Above 100%

195.40

Above 0% and below 90%

93.15

Grand Total

505

4,033.31

100%

UBS indices – capital protection Capital protection

www.structuredretailproducts.com

121

UBS indices – Top markets Top 10 markets

Issuance

Sales US$m

Market Share

Switzerland

139

2,067.64

51%

Sweden

197

658.73

16%

USA

289.26

Denmark

238.91

Italy

188.09

Norway

106.37

Finland

93.68

Germany

89.55

The Netherlands

81.37

Australia

66.18

Others

153.53

Grand Total

505

4,033.31

100%

Issuance

Sales US$m

Market Share

UBS

355

3,196.17

79%

Swedbank

242.07

Issuers of products linked to UBS indices Top 10 issuer

Morgan Stanley

171.82

Sparebank

64.29

SEB

61.07

Rabobank

54.25

AmLife

32.91

Nordnet

30.26

Ulster Bank

29.29

Nordea

28.96

Others

122.22

Grand Total

505

4,033.31

100%

Issuance

Sales US$m

Market Share

UBS

209

2,506.17

62%

Garantum Fondkommission

315.51

Distributors of products linked to UBS indices Top 10 distributor group

Swedbank

242.07

Carnegie

197.75

Poste Italiane

171.82

Jyske Bank

110.14

SEB

75.71

First Securities ASA

64.29

Rabobank

54.25

Ambank

44.20

Others

251.4

Grand Total

505

4,033.31

100%

www.structuredretailproducts.com

122

Unicredit Unicredit is an active manufacturer in the European structured products market and has featured consistently in the region’s top 10 manufacturers ranking over the last five years thanks a strong presence in German speaking countries, Italy and Eastern Europe including tranche-based and flow/leverage products. The Italian group has deployed a total of 30 of its in-house developed strategies in the global retail structured products market across more than 400 structured products with an estimated sales value of US$1.7 billion. In 2021, Unicredit has introduced two new indices to the structured products market – the UC ESG Goods for Life Strategy Index (two products/US$9.1m) which was featured in the German structured products market; and the UC European Sector Rotation Risk Control Index which was also used for the first time in a capped called structure which sold US$2m in Germany.

Unicredit: top 10 indices by sales volume Index

Issuance

Sales volume US$m

Multi Asset ETF Index

284.02

VP Klassik 70 Benchmark Index

208.56

Global Water Strategy Index

182.36

Global Disruptive Opportunities Strategy Index

180.50

UniCredit Premium Basket Risk Control – Serie 1

113.19

HVB Vermögensdepot Wachstum Flex Index II

147

111.12

Emerging Focus Strategy Index

78.21

HypovereinsBank HVB Midcap

73.32

Silver Age Strategy Index

66.97

Climate Action Strategy Index

64.99

Others

158

392.78

Total

411

1,756.04

Unicredit: markets by sales volume Market

Issuance

Sales volume US$m

Austria/Germany*

311

1,357.45

Germany

152.31

Italy

113.19

Czech Republic

80.26

Slovakia

45.45

Poland

3.06

Hungary

2.65

Sweden

1.67

Total

411

1,756.04

*Products sold in both markets

www.structuredretailproducts.com

123

Unicredit: distributor group by sales volume Distributor group

Issuance

Sales volume US$m

UniCredit

407

1,747.46

Allianz

6.91

Erik Penser

1.03

Mangold Fondkommission

0.63

Total

411

1,756.04

Issuance

Sales volume US$m

Equal to 100%

226

1,217.74

Equal to 90 and below 100%

135

405.37

Equal to 0%

128.42

Unicredit: sales by capital protection Capital protection

Above 100%

2.35

Above 0 and below 90%

2.17

Total

411

1,756.04

Unicredit: evolution 2011 to 2021* 350

140

300

120

250

100

200

150

100

2011

2012

2013

2014

2015

2016

Sales US$m (LHS)

2017

2018

2019

2020

2021

Issuance (RHS)

*As of 20 September 2021

www.structuredretailproducts.com

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