SRPInsight: Americas - Special Edition

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US Q2 2023: investors lose interest in rates, quarterly sales/issuance flat

Sales of structures linked to interest rates fell by almost US$4 billion compared to the prior year quarter.

US: sales & issuance by quarter

Some 8,595 issued structured products collected US$26.7 billion in the second quarter of 2023 – down 6.4% by sales volume year-on-year (YoY).

Average volumes for the quarter stood at US$3.1m per product, a slight decrease from Q2 2022 when products sold on average US$3.5m.

Issuance, at 8,595 products, reached its highest level since Q1 2022 when 8,793 products were launched. YoY it increased by 6.5% (Q2 2022: 8,071 products).

Two-hundred and forty-five products were withdrawn as they did not gather enough sales. Of these, 142 were issued via J.P. Morgan.

*Compared by sales volumes with Q2 2022

US: top 10 issuer groups in Q2 2023*

US Q2 2023: asset class - market share US$m

J.P. Morgan was the number one issuer group in the quarter. The bank collected US$4.7 billion from 2,029 products between 1 April and 30 June 2023 – the equivalent of a 17.6% share of the US market.

Almost 50% of its volumes came from 806 products linked to a single equity-index. Of these, the S&P 500 was by far the most popular (US$1.9 billion from 474 products) followed at some distance by the Eurostoxx 50 (US$155m from 34 products) and Russell 2000 (US$100m from 36 products). JPM also gathered US$1.2 billion from 630 products linked to an index basket and a further US$380m was invested in interest-linked structures.

Citi, in second, captured 13.1% market share. It sold 1,131 structured notes worth US$3.5 billion –down 37.8% YoY. Like, J.P.

Morgan, most of its sales were equity-linked, although products linked to ETFs, especially the SPDR S&P 500 ETF Trust, were also popular options for its clients.

Goldman Sachs completed the top three, despite seeing a 33.8% fall in sales YoY. It claimed 11.5% of the market by collecting US$3.1 billion from 933 products, with single equity indices again the dominating asset class.

Barclays, which for the best part of Q2 2022 suspended the sale of structured notes after over-issuance in the US, registered a 12.5-fold increase in sales volume: from US$136.5m in Q2 2022 to US$1.8 billion this time around. The three Canadian banks in the top 10 – Scotiabank, CIBC and RBC – also significantly increased their sales volumes.

US: capital protection - market share by sales volume

Goldman’s Buffer Autocallable Gears (36265J490) on the S&P 500 was the best-selling product of the quarter. The five-year registered note, for which UBS Financial Services acted as selling agent, sold US$108.2m during its offering period.

It was one of seven products in the top 10 that featured the S&P 500 as a single index, while the US benchmark was also part of a worst-of basket (together with Nasdaq-100 and Russell 2000) in two more products: Bank of America’s Fixed Income Autocallable Yield Notes (09709VMX1) and Morgan Stanley’s Callable Fixed Income Securities (61774XZ55), which accumulated sales of US$93.4m and US$76.2m, respectively.

Morgan Stanley was also the issuer behind the highest selling interest-linked product. Its seven-year Fixed Rate Step-Up Callable Notes (61760QNZ3), which pays a fixed annual coupon of 5.50% during the first six-years of investment, and a coupon of 5.90% during its final year, collected US$100m.

The 2,677 products linked to a single equity index sold a combined US$10.3 billion, which translates in a 38% market share – up five percentage points YoY – while 2,787 products tied to a basket of indices, which collected US$7.1 billion, increased their market share by four percentage points: from 23% to 27%.

The solid performance of equity-linked products came mainly at the expense of structures on the interest rates whose market share fell from 22% in Q2 2022 to 8.5% this quarter. The 273 interest rates-linked products sold US$2.3 billion during the quarter compared to US$6.2 billion (from 297 products) in the prior year period.

There was more appetite for products linked to single stocks, which held 12% of the market – up one percentage point YoY – with Apple, Amazon, Bank of America, Blackstone, Microsoft, Nvidia, and Tesla all in demand.

ETF-linked products were also on the up, increasing their market share to 8.9% (Q2 2022: 3.5%). Funds popular with the US investor included the SPDR S&P 500 ETF Trust (US$1.1 billion from 184 products), Invesco QQQ Trust Series 1 (US$466m from 89 products), and Energy Select Sector SPDR Fund (US$288m from 63 products).

Fifty percent of total sales in Q2 2023 (US$13.2 billion) came from 3,885 products linked to the S&P 500 – up from 42% in the prior year quarter.

Some 1,842 products that sold a combined US$8 billion used the index on its own (Q2 2022: US$7.6 billion from 1,492 products), with the remaining US$5 billion collected from 1,934 products featuring the S&P as part of a basket, often including the Nasdaq 100, Russell 2000 and/or DJ Industrial Average Index.

The Eurostoxx 50 was used as the single underlying in 131 products worth US$557m (Q2 2022: US$380m from 141 products).

Capital-at-risk products continued to dominate the market, increasing their market share by 14.6 percentage points. In Q2 2023, they collected sales of US$19.8 billion from 6,096 products compared to US$17 billion (5,806 products) in the same quarter last year.

Products offering 100% capital protection saw their market share fall to 12.9% – down from 28.5% in Q2 2022 – driven by considerably lower sales for interest-linked structures (US$2.3 billion in Q2 2023 vs US$6.2 billion in Q2 2022).

The average maturity in Q2 2023 was 2.6-years with the longest tenor, at 20-years, offered by Citi’s Callable Fixed to Float SOFR CMS Spread Range Accrual Notes Contingent (17331HSQ0) on the S&P 500, which pays a fixed annual coupon of 10% for the first two years of investment.

For every quarter afterwards, the product offers a coupon calculated as 50 times the difference between the 30-year and two-year secured overnight financing rate (SOFR) constant maturity swap (CMS) rate prorated for the number of days in the observation period that the index is greater than or equal to 60% of its initial level. The product collected US$2m.

The shortest duration was offered by Scotiabank’s Autocallable Contingent Coupon Buffer Notes (06417YGR4) on the SPDR S&P 500 ETF Trust. The product, which sold US$10,000, redeemed early after just one month, returning 100.98% of the nominal invested.

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Spotlight on… top issuers in the US (Q2 2023)

J.P. Morgan overtook Citi and Goldman as number one issuer in the US structured products market during Q2 2023.

Some US$26.7 billion was collected from 8,594 structured products in the second quarter of 2023 – a 2.1% decrease compared to the previous quarter and down 6.4% year-on-year (YoY).

Seventeen issuer groups were active in the quarter (Q2 2022: 18).

J.P. Morgan was the most prolific issuer during Q2. The bank captured a 17.6% share of the US market with sales of US$4.7 billion from 2,029 products (Q2 2022: US$4.5 billion from 1,913 products).

A large chunk of J.P. Morgan’s sales, at US$2.8 billion, came from 1,011 products linked to S&P 500, either on its own, or as part of a basket often also including the Russell 2000, Nasdaq

100 and DJ Industrial Average, while, despite considerable issuance, there was less demand for structures tied to its proprietary MerQube US Tech+ Vol Advantage (US$30m from 71 products) and MerQube US Large-Cap Vol Advantage (US$10m from 41 products) indices.

Citi, which was the number one issuer in Q1 2022, saw its market share fall to 13.1%, down 6.6 percentage points YoY. It gathered US$3.5 billion from 1,131 structured products, half of which were linked to the S&P 500. The bank’s main prop index was the Citi Dynamic Asset Selector 5 ER, which gathered sales of US$27m from 21 products in the quarter.

Goldman Sachs completed the top three, claiming an 11.5% market share (Q2

2022: 16.5%) from 933 products worth a combined US$ 3.1 billion. Its offering included the Buffer Autocallable Gears (36265J490) on the S&P 500, which, with sales of US$108m, was the bestselling US product of the quarter.

Morgan Stanley and Bank of America both increased their market share, albeit by less than a percentage point YoY, while that of UBS was up by 2.1 percentage points.

The biggest increase in market share was seen at Barclays: from 0.5% in Q2 2022 to 6.9% in Q2 2023.

Apart from Barclays, Scotiabank and CIBC were also new in the top 10, which saw Credit Suisse, Toronto Dominion Bank and HSBC drop out.

Spotlight on… asset classes in Canada (Q2 2023)

An estimated C$3.3 billion (US$2.5 billion) was collected from 1,131 structured products in the second quarter of 2023 – a 42% decrease by sales volume year-on-year (YoY).

Average sales, at C$2.9m per product, were also down compared to Q2 2022, when products sold on average C$3.3m. Products linked to single equity indices increased their market share to 59%up 11 percentage points YoY. In total, 736 such products were issued during the quarter (Q2 2022: 956), including 371 structures on the Solactive Canada Bank 40 AR Index that gathered sales of around C$950m.

The next index in line was the S&P 500, which, at C$135m, accumulated far less sales, although issuance (60 products) was also on a much smaller scale than that for its Solactive counterpart. Other indices that sold well included the Solactive Canada Blue Chip AR Index (C$125m from 14 products) and the

Solactive Canadian Large-Cap 100 AR Index (C$120m from 60 products).

The market share for products linked to a basket of stocks fell from 25% in Q2 2022 to 20% this time around. It was achieved from 191 products that sold a combined C$650m. Shares of companies from the oil and gas

sector most often frequented a basket, including those of Cenovus Energy (55 products), Suncor Energy (54), and Canadian Natural Resources (53).

ETF-linked products captured 8.4% of the market (Q2 2022: 7.7%) while product linked to an index basket held 6.8% (Q2 2022: 7.9%). The former achieved sales of C$275m from 103 products with the iShares Core S&P 500 ETF CAD Hedged, seen in 39 products, the preferred ETF for the Canadian investor, while the 60 products tied to an index basket sold C$225m.

The 28 products linked to a single share collected C$135m (Q2 2022: C$500m from 108 products) – the equivalent of a four percent market share (Q2 2022: 8.8%). Of these, the share of Bank of Nova Scotia (five products) was the most popular.

Products linked to single equity indices increased their market share by 11 percentage points YoY.

Product wrap

In this wrap, we look at a selection of structured products with strike dates in 2023.

USA

Barclays Bank’s Synthetic Convertible Notes (06741W7A2) on the Class A common stock of Alphabet is the best-selling US product in 2023 to date. The three-year registered note, which is targeted at institutional investors, sold US$450m in August. It offers a fixed coupon of four percent per annum. At maturity, the product offers minimum 100% capital return. However, if the final level of the underlying share is at or above 132% of its initial level, the product offers an additional return equal to 75.6% of the rise in the share. The initial issue price is US$108.90 while the estimated value of the notes is US$107.30.

Another top seller was J.P. Morgan’s Callable Fixed Rate Note (48133PDZ3), which collected US$307.5m in January. It offers a fixed coupon of five percent per annum, paid every six months. The one-year product has a call feature which can be activated by JPM quarterly. In that case, the product returns 100% of the nominal invested, plus any accrued and unpaid interest. Wells Fargo Securities is acting as a selling agent. The commission fee is 0.10%.

Citigroup Global Markets collected US$1.4m with its autocallable securities (17291Q5Z3) on the Russell 2000 and S&P 500 Dynamic Participation Index. The five-year registered notes redeem early – quarterly, from 19 August 2024 onwards – if both indices close at or above their respective initial levels. In that case, the investor receives 100% capital return, plus a coupon of 2.25% for each quarter that has passed. At maturity, if the worst performing index has not closed below 85% of its initial level, the product offers 100% capital return. The securities have an underwriting fee of US$40 and the estimated initial value is US$932.30.

Goldman Sachs sold US$7.2m worth of Autocallable Notes (40057TMZ4) on the GS Momentum Builder Focus ER Index, which measures the weighted performance of a base index composed of focused US equities, developed market equities, developed market fixed income, emerging market equities, commodities, and a money market position. The index has a volatility control level of five percent. The daily base index return is subject to a deduction equal to the return on the federal funds rate and, in addition, the entire index is subject to a deduction of 0.65% pa (accruing daily).

If, on the annual call observation date, the index closes at or above its call level, which starts at 100.75% for the first

year and increases by 0.75% for each of the following years, the product autocalls for a capital return of 100%, plus a call return of 14.60% pa. At maturity, if the index greater than the initial level of 103.46, the return on the notes will be equal to the index return. Otherwise, the product offers 100% of the nominal invested. An underwriting discount of 4.62% applies and the estimated value is US$892 per US$1,000 face amount.

Bank of America (BofA) gathered US$1.9m with its Contingent Income Issuer Callable Yield Notes (09711ADD7) on a worst-of basket comprising Nasdaq 100, Russell 2000, and S&P 500. The product offers a coupon of 0.6875% (8.25% pa) if each index closes at or above 70% of its starting price on any monthly observation date. At maturity, capital is preserved, providing none of the indices close below 70% of their starting price. Otherwise, the investor participates 1:1 in the performance of the worst performing index. Beginning 20 August 2024, the notes are callable monthly at the option of BofA. There is an underwriting discount of 3.65%. The initial estimated value is US$941.50 per US$1,000 principal amount.

BNP Paribas issued five-year unregistered notes (05605EFW2) on the Nasdaq 100. The product offers 100% capital return, plus 100% participation in the index, capped at an overall maximum capital return of 148.50%. An underwriting discount of up to three percent applies. However, BNPP may pay selected broker-dealers additional marketing, referral, or other fees of up to 0.6250% for providing education, structuring or other services. The estimated value of the notes is expected to be between US$935.19 and US$944.58 per US$1,000 principal amount.

CANADA

National Bank of Canada (NBC) launched an autocallable contingent income note on the Solactive Canada Bank 40 AR Index. Every month, the product offers a coupon of 0.76% if the index closes at or above 70% of its starting price. From 24 January 2024 onwards, the product is subject to monthly early redemption if the index closes at or above 110% on any valuation date. At maturity, if the index has not fallen below 70% of its starting price, the product offers 100% capital return. Otherwise, the investor participates 1:1 in the fall. A selling commission of 2.50% applies. Dejardins Securities, which acts as independent dealer, will receive a fee of up to 0.15% for each note sold.

The Bank of Nova Scotia sold BNS Cyber Security Basket

Callable Contingent $14.01 Coupon Notes, Series 5 (CAD). The five-year Phoenix autocall offers access to an equally weighted basket comprising three shares from the software & services sector: Zscaler, Crowd Strike Holdings, and Cloudflare. If the worst performing share is above 60% of its initial level at any observation date, the product pays a fixed Coupon of 14.01% pa. Otherwise, no coupon is paid.

MEXICO

BBVA accumulated sales of MXN68.2m with an Accrual Range Note linked to the appreciation of the US dollar relative to the Mexican peso. At maturity, the product offers 100% capital return, plus 4.3746% pa prorated for the number of business days in the investment period when the USD/MXN is equal to or greater than 16.6035, and equal to or lower than 17.7035. Otherwise, the product offers a capital return of 100%.

Monex issued a dual currency note which sold MXN28.4m at inception. This product too is linked to the appreciation of the

USD against the MXN. If the final level of the exchange rate is equal or lower than the barrier, the investor will receive 100% capital return plus 7.5% pa, paid in USD. Otherwise, the return will be 100% capital return plus 7.5% pa, paid in MXN at an exchange rate of 16.912.

BRAZIL

XP Investmentos launched XP Índice de Tecnologia Bidirecional in Brazil. The five-year capital protected note features the twin-win payout and offers access to the proprietary Solactive XP Indice de Acoes Americanas de Tecnologia VT 19% Index. At maturity, the product offers 100% participation in the positive performance of the index.

Banco Santander introduced Prêmio Alta, a one-year digital tied to the Ibovespa Brasil Index. At maturity, the product offers 100% capital return. However, if the index has not fallen below 90% of its starting level, an additional coupon of 15.67% pa is paid.

Annuities: GS prop play enters market, FIA/RILAs claim new heights

Goldman Sachs has introduced a new proprietary underlying in the US indexed annuities market.

The Goldman Sachs Equity TimeX Index which was launched on 28 July offers exposure to the equity market while providing option-cost stability through volatility control and an excess return structure, said Pratik Pareek, head of insurance equity derivative sales at Goldman Sachs.

The index uses calendar-based signals and price patterns to dynamically adjust exposure to equities at a targeted volatility level of 10%, and ‘is subject to servicing and rebalancing costs and a deduction rate that accrues daily is applied’.

The index is available on select fixed index annuities (FIAs) with annual- and two-year participation rate crediting methods such as NAC VersaChoice and Performance Choice, offered by North American Company for Life and Health Insurance, a member company of Sammons Financial Group.

“We consistently listen to agents and advisors to deliver best-in-class solutions to meet the needs of today’s retirees and those facing retirement,” said Rob TeKolste, president of Sammons Independent Annuity Group.

Other Goldman Sachs underlyings in the US annuities market include the Goldman Sachs Dynamo Strategy Index and Goldman Sachs Voyager Index.

The new index has been licensed by North American to be used on an exclusive basis on a new fixed indexed annuity (FIA); H1 indexed and structured annuity sales continue upward trend.

… Record-breaking annuity sales in the first half of 2023

The launch comes on the heels of the latest update from LIMRA Annuity Research which has reported that total US annuity sales were $181.1 billion in the first half of 2023, increasing 27% and setting a new record.

While second quarter sales didn’t match the record high set in the first quarter, annuity sales jumped 10% from prior year results to US$87.1 billion.

‘Economic conditions — particularly equity market performance and interest rates — have shifted but continue to be favorable for the annuity market,’ said Todd Giesing (right), assistant vice president, LIMRA Annuity Research.

Total Annuity Sales Jumped 10% in Q2 2023

‘In the second quarter, registered indexed-linked and fixed indexed annuity sales set records as investors seek solutions that offer greater upside growth potential while maintaining some level of downside protection.

LIMRA is forecasting a strong second half of the year and expects 2023 sales to potentially surpass the record sales set in 2022.’

Traditional Variable Annuities Fell 19% in Q2 2023 (YoY)

RILA Sales Have a Record Breaking Quarter, Up 6%

FIA Sales Jumped 28% in Q2 2023, Setting a New Record

Dollars in billions

Source: LIMRA U.S. Individual Annuities Sales Survey

RBC Capital Markets: risk control indexes will likely have a higher volatility target

It has only been a month since Mike Heraty joined RBC Capital Markets after more than six years at Credit Suisse, but the senior banker already has a full agenda.

As far as Heraty’s new role goes, his responsibilities will be very similar to his previous life at the Swiss bank as he will be in charge of RBC’s US equity solutions and structured product sales. Heraty spent six years at Credit Suisse and was the head of North American equity derivative sales. Before that, he worked at Bank of America for 11 years, most recently as head of North American equity client solutions sales and structuring.

“Structured products are a very wellestablished product on the RBC platform, not just in the US, but globally,” he said. “On the solutions side, we also have a very good footprint. I will be spending a lot of my time expanding our coverage of insurance companies, pension funds, and asset managers.”

“We plan to expand our structured notes activity and we intend to be very active as a hedge provider for carriers in the annuities market,” he said.

According to Heraty, this is a growing market where RBC can leverage its structuring capabilities and develop new indices with external partners for the annuities market.

Interest rates

Heraty points to some of the consequences of the recent interest rate increases in the annuities market.

In his new role, Heraty (pictured) will support the Canadian bank’s ‘strategic priority’ of growing its equity structured product and QIS business targeting institutional and private bank clients, including pension funds, insurance, asset managers and banks.

“The RBC platform in the US market is impressive and when I talk to clients, they are very responsive and keen to working with us. RBC is a large global bank with a strong credit rating, and we have a good brand and fantastic people in the different businesses,” said Heraty.

The structured products business at RBC Capital Markets has a slightly different set up compared to the extinct CS as it is a lot more integrated with the convergence between annuity products and structured products which has been going on for some time now. The Canadian bank is a top 10 issuer in the US market and the second most active Canadian bank in the US market.

RBC was early to recognise that and organised its sales force and their structuring teams accordingly, said Heraty.

On the one hand, it has been a big boost for carriers in terms of their ability to offer compelling annuity products and attractive payoffs which has translated into a higher number of products brought to market.

“When rates went low in 2020, there was a lot of activity around registered annuities or Rilas in the market which has recently slowed down with the shift back to FIAs given higher interest rates,” said Heraty.

On the other hand, many of the custom indexes built over the last 10 years which had “static allocation to long dated fixed income and have performed poorly over the last couple of years will need to be looked at so that they are more resilient to interest rate risk”.

Structured products are a very well-established product on the RBC platform, not just in the US, but globally

conditions

“There's been a lot of innovation in the index space, whether it be thematics or the use of artificial intelligence to access new datasets and the way forward remains promising as the increase in interest rates should lead to increased product and index innovation,” said Heraty.

“In the next one to two years from now, risk control indexes will likely have a higher volatility target, above the 5% which has been the norm over the last few years.”

Market outlook

Going forward thematic indices will remain in focus as they can add new targeted exposures to investment portfolios.

“I think we are going to see more interesting thematics in the annuities space as carriers are very open and responsive to innovation,” said Heraty.

On the structured notes side, there are interesting workflows because with higher interest rates investors can get good protection and better participation rates for their equity-linked investments.

“We expect significant activity and demand around capital protected growth structures as well as rate-linked notes among US retail investors,” Heraty said.

From a delivery mechanism perspective, Heraty is wrapper agnostic as he believes the different vehicles have a role to play to meet the needs of investors.

“The wrapper choice is usually linked with age, risk profile and tax considerations,” he said. “The average age of a fixed indexed annuity consumer is around 62 which indicates annuities are viewed as more of a retirement product than an investment product.

“Then we see the use of different payoff types across structured notes to match different risk profiles.”

Heraty believes that structured products will continue to be a key element in investors’ portfolios as they can also help to mitigate market and geopolitical risk. “There are many compelling structured products out there that can meet different objectives regardless of market conditions,” concluded Heraty.

US advisory launches third party investment solutions platform

On 8 August, NewEdge Wealth, the US registered investment advisor introduced NewEdge Investment Solutions platform, which is ‘designed to provide third-party financial professionals and institutions with access to many of the same strategies it utilises to help their own ultra-high-net-worth (UHNW) clients achieve their goals’.

The new platform aims to provide investments ‘that are hard to get into, find or have structural advantages themselves’, stated the firm, a division of NewEdge Capital Group.

The company highlighted its ‘innovative approach to investing in structured notes and creating managed investment strategies that utilise them’.

‘In combination with providing NewEdge Wealth's ultra-high net worth clients with a highly personalized approach to wealth strategy, we believe we have unlocked several investment strategies that adapt to the ever-changing market landscape,’ said Rob Sechan, CEO and co-founder of NewEdge Wealth.

‘Our strategies are designed to deliver superior outcomes while producing returns which may be difficult to achieve through conventional equity and bond markets,’ he added.

There are many compelling structured products out there that can meet different objectives regardless of market

People moves

BNP

Paribas beefs up Americas EQD structuring team, relocates Apac head

Etienne Grisey (pictured), managing director and head of global equities structuring, Apac, at BNP Paribas, has been appointed co-head of EQD structuring, Americas, in New York.

The move comes 12 months after Grisey’s latest promotion - he relocated to Singapore from Hong Kong SAR in July 2022 to take on his previous role, which sits under the global equities division along with the global macro and the global credit units following the new global markets business structure launched earlier this year.

Prior to that, he served as Apac head of equity derivatives structuring at the French bank with responsibility for equity derivatives structuring and quantitative investment strategies (QIS) structuring for institutions in Asia ex-Japan.

Prior to moving to Singapore, Grisey spent 13 years in Hong Kong as head of equity derivatives structuring, Asia-Pacific. He also spent two years in Japan at the bank’s equity derivatives

structuring team after a four-year stint in equity derivatives pricing, in New York.

Grisey joined BNP Paribas in 2002 as an equity derivatives quant researcher in Sydney before he moved to New York as an equity derivatives trader covering Latin America.

SRP has learned that Frederic Cosmao will fill Grisey’s boots as head of equity structuring, Apac, based in Tokyo. Cosmao has held different senior roles in equity derivatives and QIS structuring across the region, including leading the team in Japan successfully for the past five years.

Based in Hong Kong Cosmao has been charged with growing BNP Paribas’ private banking & distribution and institutional solutions businesses in the Apac region.

In his new role, he reports to HK-based Vincent Desmarest, head of global equities, Apac, and Hamzah Kahloon, head of global markets structuring, Apac. Globally, Cosmao reports to Azad Mahavar, global head of equity derivatives structuring.

Cosmao has also spent over 20 years at BNP Paribas. He started at the bank’s Mutual Funds trading and structuring team in Paris before he moved to the systematic strategies group for Global Equity & Commodity Derivatives (GECD), also in Paris.

In this role, he was in charge of the entire production chain for all the volatility-related strategies, from algorithm design to performance reporting.

Cosmao also spent time in various structuring and trading positions in Paris, Hong Kong and New York.

BofA makes changes at the top

Bank of America (BofA) has promoted the head of its Latin America business, Alex Bettamio, to co-head of global investment banking alongside Thomas Sheehan.

Bettamio’s appointment is one of several announced by the second largest US bank which has also appointed Faiz Ahmad to jointly lead global capital markets with Sarang Gadkari. Ahmad currently runs the Global Transaction Services (GTS) unit.

Elif Bilgi Zapparoli, who currently serves as co-head of global capital markets, will become head of international client strategy, reporting to Bernie Mensah (pictured), BofA's president of international business and member of bank’s executive management team (MTM)

Other moves include the appointment of Augusto Urmeneta as president for Latin America, succeeding Bettamio; and the retirement of Jiro Seguchi, co-president of Asia Pacific.

Jin Su will become the bank's sole president for the Asia Pacific region when Seguchi retires, and Peter Guenthardt will lead global corporate investment banking in the region.

Millenium taps Citi head of EQD data & risk analytics

Francesco Taglietti (pictured) has joined the equity portfolio analytics team at global alternative investment management firm Millennium, in New York.

Taglietti joins the hedge fund company from Citi where he spent the last two years as head of equity derivatives data & risk analytics at Citi in London. He joined Citi in 2021 after three years at J.P. Morgan Chase & Co. as executive directorequity exotics trading, also in London.

Prior to joining J.P. Morgan, Taglietti wan executive director in equity derivatives trading at Goldman Sachs where he spent

eight years in a number of trading roles including managing the index correlation and MSCI options book within equity exotics (focusing on both institutional and retail products/ structured notes); managing the funding valuation adjustment (FVA) book for Emea equity derivatives; as well as developing equity volatility systematic trading strategies (STS).

Taglietti joined Goldman as an equity derivatives and systematic trading strategies structurer in 2010 as an equity derivatives and systematic trading strategies structuring analyst.

ex-CS structurer joins Mizuho to lead EQD in Americas

The veteran structurer has shifted to the Japanese bank following a 16-year career at the Swiss bank, which is expected to see the departure of further senior executives.

Bogdan Ianev has been appointed managing director, head of structuring, equity derivatives (EQD) at Mizuho Americas based in New York, according to a spokesperson at the Japanese bank. He reports to Arunesh Hari, head of EQD at Mizuho Americas, also based in New York.

“In this role, he is responsible for working with internal and external clients on investment solutions and providing access to new payoffs and quantitative investment strategies (QIS),” the spokesperson told SRP.

Ianev is currently registered with Mizuho Securities USA, which is fully-owned by Mizuho Financial Group. From 2007 to 2023, he was affiliated with Credit Suisse Securities (USA), according to the Financial Industry Regulatory Authority (Finra).

The structurer left the Swiss bank just before the 167-year-old bank was forced into a merger with its Swiss arch rival UBS midlast month, leaving 8,500 live structured products on its paper to be transferred to the UBS books.

Back in October 2022, several wealth managers including one of the largest UK banks stopped trading structured products with CS or sharply decreased its exposure to the issuer, when CS' five-year credit default swaps (CDS) hit a record high, SRP has learnt.

At CS, Ianev was promoted to managing director as head of volatility solutions specialising QIS for Americas in January 2022. Prior to that, he was responsible for EQD structuring, including flow

In the US, Mizuho Financial Group has continued to promote a ‘CIB model’, which aims to enhance collaboration between banking and securities, coverage and products, and primary and secondary business, after its revenues in the market surpassed that of Japan for the first time in FY2021 ended in March 2021.

SEC aims at predictive data analytics used by broker-dealers, advisers

The Securities and Exchange Commission (SEC) has proposed new rules requiring broker-dealers and investment advisers to take certain steps to address conflicts of interest associated with their use of predictive data analytics and similar technologies to interact with investors to prevent firms from placing their interests ahead of investors’ interests.

advice or recommendations, firms are obligated to eliminate or otherwise address any conflicts of interest and not put their own interests ahead of their investors’ interests.’

The use by broker-dealers and investment advisers of technologies to optimise for, predict, guide, forecast, or direct investment-related behaviours or outcomes has accelerated. Use of such technologies can be beneficial to investors in providing greater market access, efficiency, and returns.

Given the scalability of these technologies and the potential for firms to reach a broad audience at a rapid speed, any resulting conflicts of interest could cause harm to investors in a more pronounced fashion and on a broader scale than previously possible.

Litigation: financial advisor's ETN craze cost clients US$11m

A financial advisor who was the principal of an RIA for 21 years racked up more than $11 million in client losses by selling investment products he didn't understand, according to US state regulators.

Thomas M. Chadwick of New London, New Hampshire-based Chadwick & D'Amato has been accused of investment fraud after recommending his clients invest 50% to 92% of their portfolios in a Credit Suisse exchange-traded note (ETN) and held shares in the highly volatile real estate product for an average of 386 days, state regulators said.

‘Today’s predictive data analytics models provide an increasing ability to make predictions about each of us as individuals,’ said SEC Chair Gary Gensler (pictured). ‘This raises possibilities that conflicts may arise to the extent that advisers or brokers are optimizing to place their interests ahead of their investors’ interests. When offering

Under the new rules, firms will be required to eliminate, or neutralise the effect of, any such conflicts, but firms would be permitted to employ tools that they believe would address these risks and that are specific to the particular technology they use, consistent with the proposal.

Chadwick failed to act in his clients' best interests and breached his fiduciary duty of care and loyalty

The New Hampshire Secretary of State's Bureau of Securities Regulation secured an order for relief on July 27 alleging that his activities cost clients US$11.1 million in losses between 2017 and 2021.

Firms are obligated to eliminate and address any conflicts of interest and not put their own interests ahead of their investors

According to the regulator’s order, Chadwick ‘displayed a fundamental misunderstanding’ of the ‘complexity and risk’ of the Credit Suisse X-Links Monthly Pay 2xLeveraged Mortgage REIT ETN, which was delisted in December 2021 amid steep losses in value during the pandemic.

‘[Chadwick] failed to act in his clients' best interests and breached his fiduciary duty of care and loyalty,’ stated the regulator’s order.

The order also noted that Chadwick’s clients were primarily low-to-moderate risk investors including elderly and retired individuals ‘who relied on fixed income disbursements’.

The value of the CS ETN fell steadily from the mid-US$20 range in late February 2020 to just US$0.52 per share — its lowest value — on 18 March 2020.

The state regulator is requesting a permanent bar against Chadwick from securities licensure in New Hampshire and restitution of US$11,108,725.09 plus statutory interest for Chadwick’s investors.

Additionally, the Bureau requested that Chadwick pay a fine, investigation and enforcement costs, and other equitable relief. In April 2022, the Bureau filed a petition for emergency relief against Chadwick in a separate case, alleging he fraudulently accessed his former clients’ Fidelity accounts.

GeoWealth Partners plugs in Halo

GeoWealth, a proprietary technology and asset management platform (TAMP),

has announced a new partnership with Halo Investing.

Under the terms of the agreement, GeoWealth will have access to Halo’s platform to offer customisable structured note portfolios as a component of a Unified Managed Account (UMA).

Matt Radgowski, chief executive officer at Halo, said that RIAs that take advantage of this partnership and incorporate structured notes into UMAs will be able to view, report and bill at the individual sleeve level, made possible by GeoWealth’s proprietary sub-accounting software.

‘We foresee a rising demand for structured notes and hedged equity strategies in the years ahead, and by joining forces with GeoWealth, we are equipping RIAs with tools and capabilities to stay ahead of this growing market trend by incorporating notes into models,’ said Radgowski.

‘We believe advisors are looking for increasingly diverse solutions to meet the goals of their clients,’ said Colin Falls, president and CEO at GeoWealth.

‘[We are] squarely focused on providing RIAs new tools and product choice in constructing and maintaining model portfolios on behalf of their clients.’

Stifel advisor faces investor claims over structured notes

A veteran financial advisor with Stifel Nicolaus & Co. Inc. is facing several investor complains relating to the sale of structured notes.

Chuck Roberts, a Florida-based advisor

with 33 years of experience who has worked at Stifel since 2016, is facing eight investor claims amounting to US$23.5m in damages, according to his Finra BrokerCheck report.

The complaints all name Stifel as a respondent, not the advisor, and include claims of negligence, breach of fiduciary duty and unauthorised trading.

The customer complaints claim breach of fiduciary duty, negligence, fraud, breach of contract and other allegations, with six filed in May and one each in June 2023, and last October.

The complaints all name Stifel as a respondent, not the advisor, and include claims of negligence, breach of fiduciary duty and unauthorised trading.

The managing director of investments at Stifel made the headlines locally in south Florida as a prominent buyer of real estate – the Stifel adviser bought a Miami Beach penthouse for US$13.8m in 2021, according to the South Florida Business Journal.

Some of the customers who have filed complaints over structured notes include the Bravura Insurance Company, Maercks Family Management Company, Noble Insurance and The Harbor Group of New York.

According to BrokerCheck, in 2010, Roberts lost one investor arbitration complaint, with US$202,000 in damages, stemming from alleged unsuitable and unauthorised trades. He was also suspended for four weeks and fined US$40,000 for allegedly breaking industry rules about opening client accounts. Roberts was registered with Morgan Stanley at the time.

Advisors are looking for increasingly diverse solutions to meet the goals of their clients - Collin Falls, GeoWealth

Monex debuts Sofr play

The Mexican financial group is seeking to take advantage of the Libor transition as it rebuilds its interest rates offering.

in Mexico. The company retained its crown as the top issuer of structured products in Mexico in 2022 with more than 60% market share.

“The launch of the new CME TERM SOFRlinked structure is the first of many as there is market demand. The idea is to take advantage of the transition in the rates space from LIBOR to SOFR which opens opportunities to offer new notes linked to US dollar rates,” said Huitrón.

SOFR notes to resonate among our clients as we saw with the TIIE notes,” said Huitrón, adding that the notes will focus on the short term.

“All of our notes are practically dominated by the short term, which is where we have the highest volume. In the current context it is difficult to introduce the three-month product given the Bank of Mexico’s decision to stop rates increases until next year.”

Monex Grupo Financiero has launched the first ever product in Mexico linked to the CME TERM SOFR 1M Coupon Range. The new interest rate structure which has a term of 184 days is fully protected and will pay six coupons of 5.90% throughout the term.

The product created by Monex’s Derivatives Desk is the first structure in the Mexican Market using the CME TERM SOFR 1M as the underlying and it surge as a result of reactivate rates structured products.

“We practically stopped issuing TIIElinked notes two years ago because it was difficult to offer value to our clients but last year, we saw an opportunity to relaunch the business and compete with other players in the rates space,” said Alan Huitrón Fernández (pictured), senior rates derivatives trader at Monex.

Rates-linked products have always been Monex's flagship product, and a differentiator for the provider over the years

“We chose the CME TERM SOFR 1M because it is calculated by a recognised exchange - our clients are already familiar with the structure, as well as the coupon payments and the full protection this kind of structure offers.”

At the moment and given the rates environment, Monex is not looking at deploying other reference rates but will seek to play with different maturities to offer choice to investors.

“Most of the issuance are three-month structures but we have also starting to close at six, seven and nine months so that we can position our clients in different maturities with the same underlying,” said Huitrón.

Monex which has raised over MX14 billion (US$875 million) it resumed the issuance of TIIE 28-linked notes in October 2022 is seeking to replicate this success with the new SOFR-linked notes.

“It's a bit of a change of chip for us as this is a new product. We expect the CME TERM

According to Huitrón, the three-month term has practically extinguished which has forced Monex to migrate all structured notes to six and nine-month investment terms.

“Now we are focusing on modifying the renewals to longer investment terms in order to be able to continue rolling over products that reach maturity,” said Huitrón.

Monex’s dual currency notes continue to be the main offering product – this product range comprises bonds, duals and notes with capital protection with investment terms of between seven and 14 days.

“We continue to grow this part of the business – our issuance and sales of dual currency notes grew exponentially in 2022,” said Ricardo Guido, head of derivatives at Monex. “Year to date, we have almost tripled sales in all products. The market is generally holding up well in terms of demand.”

The revival of Monex’s TIIE-linked notes has also increased the pool of clients distributing the notes, said Huitrón.

We expect the CME TERM SOFR notes to resonate among our clients as we saw with the TIIE notes

Canada regulator seeks margin rules for structured notes

Proposal revises conservative approach initially sought by IIROC regarding margin requirements for structured products.

The Canadian Investment Regulatory Organization (CIRO) is reviving a proposal by the Investment Industry Regulatory Organization of Canada (IIROC) aimed at providing clarity on margin requirements for structured products such as principal-protected notes (PPNs).

The self-regulatory organization (SRO) is seeking comment on proposed rule changes first tabled by IIROC in 2021 (Notice 21-0032) regarding proposed amendments to the Dealer Member Rules and IIROC Rules that would allow margining of structured products that meet certain eligibility requirements.

The main purpose of the proposed amendments is to set a margin methodology for structured products which considers the different risk profiles of the two main structured product types

In its initial proposal, the regulator sought to introduce a fixed margin rate of 70% for structured products, or to allow firms to use an alternative methodology for products with principal protection features. Now, in response to criticism that the 70% rate was too conservative, the new SRO’s proposals would allow for a 30% rate for PPNs and a 50% rate for principal-at-risk notes (PARs).

On January 1, 2023, the board of directors of CIRO approved the adoption of the 2021 proposed amendments

to the Investment Dealer and Partially Consolidated Rules (IDPC Rules).

The main purpose of the proposed amendments is to set a margin methodology for structured products which considers the different risk profiles of the two main structured product types.

However, in response to feedback on that proposal, the SRO carried out further analysis, including a review of the underlying securities typically used in PARs. The review found that the underlying securities of structured notes are typically comprised of ‘highly liquid securities with low levels of volatility which allow the issuer to create structured products that offer a variety of features to limit upside and downside risks’.

‘Highly-volatile and low-capitalized underlying securities are not usually considered for inclusion in structured products as the high volatility creates challenges for the issuer to create a viable structured product that can be sustained for the full term to maturity,’ stated the SRO.

CIRO also noted that a 50% margin rate for PARs is ‘similar to other products with limited or low liquidity such as bonds in default, preferred shares and thinly traded listed securities’ and that ‘the majority of PARs (approx. 91%) issued in the past five

years are based on the performance of a portfolio of underlying securities that have a margin rate of 30%’.

Further, CIRO stated that margin eligibility criteria included in the proposals is ‘designed to address additional liquidity and credit risk concerns’.

The SRO added that a lower margin rate for PPNs was appropriate ‘to recognize the lower risk associated with PPNs due to the zero-coupon bond component that provides the principal protection’.

CIRO said the proposals will improve the consistency and transparency of margin requirements for structured products.

The revised approach aims to ‘set margin requirements that consider the differences in risk between PPNs and PARs and the risk profile of the structured products compared to the underlying securities they track’, CIRO said in a notice outlining the proposals.

The notice added that the 70% rate proposed in 2021 “was based on a 50% margin rate plus a 20% margin rate premium to cover increased liquidity risk.”

The deadline for submissions is 18 September. CIRO intends to make the proposed amendments effective within 90 days after approval from the national regulators.

The new rules will differentiate the risk profiles of products compared to the underlyings

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US trends: shift back to protected growth continues

An analysis of the US market over the last three years shows the changes in the use of product types as the macro environment evolves.

By Suzi Hampson - FVC

Earlier this year we used data from StructrPro to look at the best and worst performing underlyings in the US. Performance statistics for individual products and portfolios are the main focus of StructrPro however this article is going to examine trends in the market which is another key area that can be performed by using StructrPro.

The following analysis has been extracted from StructrPro and covers products striking since July 2020. Products are grouped into six-month periods and the products within each period can then be group into categories of different criteria.

Figures 1 and 2 illustrate the change in product characteristics over the past three years. Figure 1 is broken down into broad categories focusing on return aims and capital repayment.

Figure 2 covers a structured product specific product type breakdown. The charts also show the progression of total USD sales of products over the period. The most noticeable feature is the very low total for the first period of this analysis (shortly after the start of the Covid-19 pandemic) and the recovery over subsequent semi-annual periods.

From both charts we can see a change in the proportion of income vs growth products. During 2021 income autocalls were the most

popular product type and at-risk income (which also includes traditional reverse convertibles) was the most common of the more general capital aim categories.

This trend reversed for the following three periods as at-risk growth products have once again become the most popular category with leveraged return, and digital growth products increasing their market share. This suggests that where investors were looking to structured products to provide yield outside of traditional income investments there has been a shift back to growth products as risk free rates have risen and income seeking investors have other solutions elsewhere.

Protected growth products have become more common over the past 18 months and there have also been a small number of capital protected income products over the past year. The rise in capital protection can also be contributed to the rise in interest rates. Higher rates makes structuring capital protected products easier as the capital protection costs less and therefore there is more to spend on options leading to more attractive product terms.

Figure 3 shows a breakdown for each period of the top 10 most common underlyings. This analysis shows how many times each underlying appears in a product either as a single underlying or as

Figure 1: Product notional (USD m) by capital and aim property - Jul 2020 – Jun 2023

part of a basket. This chart shows the breakdown by number of product issued (rather than notional amount).

The top five underlyings of the ones shown here are all benchmark stock market indices. These are consistently the most popular underlyings in the US and are used in products either as the sole underlying or as part of a basket. During 2021 when the market was recovering from Covid-19 there was a sharp increase in both the number of products issued and sales volume.

During this period the spread of underlyings was greater than for subsequent periods and the proportion of products linked to the top five was lower than for the other four periods although still over 50%. Over the past year the number of products linked to the larger underlyings has been higher and more stable and

the last period observed had the highest proportion of products linked to the S&P 500 suggesting some preference for products linked to established names.

Identifying trends in any market is interesting both in terms of looking backward and for forecasting future or expected behaviours. Keeping abreast of patterns such as some of the observations discussed here enables stakeholders to monitor the current situation and gives an idea of how the market reacts in certain environments which may help predict the direction the market is headed.

StructrPro is a US structured products data service that can be used to analyze both live and matured products from the SRP US database using analytics powered by FVC.

Figure 2: Product notional (USD m) by product type Jul 2020 – Jun 2023

Figure 3: Product issuance by underlying Jul 2020 – Jun 2023 for top 10 underlyings by total number of products over the three-year period.

StructrPro: contingent income products

Income paying structured products have long been popular in the US market.

By Suzi Hampson - FVC

Source: StructrPro.com

Currently the income autocall is the most common product type overall in the US with the remaining income categories of fixed income and contingent income also contributing to the total number. This article will focus on contingent income products which have a decent presence in the US market and are an interesting group.

StructrPro can be used to analyse a portfolio of products from the US structured product market. This analysis includes both live and matured products from the SRP database using analytics powered by FVC. Products in the contingent income category on StructrPro all have a fixed maturity with no autocall or issuer call opportunities and generate returns through an income stream that is paid if the relevant underlying is above the coupon barrier. Products can be linked to a single underlying or multiple underlyings as is more common. In the US, products in this category tend to be capital at risk although capital protected varieties are more often seen in other markets.

Figure 1 shows the performance of contingent income products versus the StructrPro entire universe of over 70,000 products. Contingent income products have outperformed the rest of the market paying average returns of 6.245% compared to 5.86% for matured products and by even more for live products with 15.74% compared to 5.86%.

Figure 2 shows key levels for live contingent income products. The average coupon barrier is calculated at 69% of the initial strike level but is now at 54%. This implies that on average the underlyings for these products have increased since product strike dates giving greater buffer to the coupon barrier level making them more likely to be paid. This is also reflected in the high return figure for live products due to the positive effect of growth in underlyings on product valuations.

Figure 2 can also be used to give a very simplified view of typical product terms; the average coupon barrier and barrier are quite

* For live products results use previous income paid plus the current independent product valuation

Figure 1: performance summary of all contingent income products and StructrPro universe*

Figure 2: key levels for contingent income products

similar and both well below the strike level. In general, these products require no underlying growth to pay their maximum return and will continue to pay the contingent coupon even if there is a significant fall in the underlying asset.

Most contingent income products are linked to more than one underlying and performance will typically be dependent on the worst performing of the basket to boost yield. However, most products are linked to major indices as shown in the underlying breakdowns in Figure 3 and Figure 4. For single asset products the S&P 500 Index is the most popular underlying whilst for multi asset products the most common underlying across products is the Russell 2000 index, followed by the S&P 500 in second place. Alternatives to major benchmark indices are ETF and single stock linked products although these make up a much smaller percentage.

StructrPro can also be used to analyse and track individual products in the market. Figure 5 shows one of the charts from the individual

product page for contingent interest notes (48133DJB7) linked to the Russell 2000 Index and Nasdaq 100 index. It struck in March 2022 and will mature in March 2024. The chart shows the underlying evolution, coupons paid and future coupon points along with key product barriers and levels. There is also the functionality to show future evolution so can visualise scenarios such as the effect of a 10% per annum decline in both underlyings as shown here.

The use of coupon barriers to provide higher yield through contingent income is a popular feature of several product types so the concept is familiar to structured product investors. Pure contingent income products are less common than the autocall variants but do offer an attractive alternative to other traditional income investments at a fixed maturity without the complication of calls or autocalls. These products are typically defensive in terms of underlying growth so returns can have low correlation to market performance and represent a viable controlled risk vehicle to generate attractive yield levels.

Figure 3: underlying breakdown for contingent income products (single asset)

Figure 4: underlying breakdown for contingent income products (multi asset)

Source: StructrPro.com

Source: StructrPro.com

Source: StructrPro.com

Figure 5: events and timeline for contingent interest notes (48133DJB7)

Analysis: US ETF-linked products prove their worth

Exchange-traded funds (ETFs) are one of the top five asset classes for structured product market striking in the US market this year.

By Tim Mortimer - FVC

Source: StructrPro.com

Ahead of them are various flavours of equities including indices, shares and share baskets, SRP shows. The most popular and widely used ETFs typically aim to track the performance of a benchmark index which is usually also used directly as a product underlying.

Table 1 shows four ETFs commonly used as underlyings in the US market - product issuance and sales volume data for the ETFs themselves and the indices they aim to track. This information is for products linked solely to the underlying and does not take include basket or worst-of products. The largest ETF in US market is the SPDR S&P 500 ETF Trust, designed to track the S&P 500 index, the most popular US underlying for structured products. The correlation between the two assets is over 99.9%, and the one-year historic volatilities of the two underlyings are very similar at 21.71% (ETF) and 21.49% (index).

The second most popular ETF to use as an underlying by structured product issuers is the Invesco QQQ Trust Series 1 which tracks the Nasdaq 100 index. Like the S&P 500 pair, this ETF has a very high correlation to the index and similar historic volatilities.

The remaining two index/ETF pairs are examples of MSCI indices and ishares ETFs based on them. These have much lower levels of product issuance and sales although are still very frequently used both as single underlyings and as part of a basket.

In both these cases, while high, the correlation is not as close as for the first two. The historic volatilities also differ by enough to suggest differences in the underlyings caused by replication, currency effects and different market closing times. This is interesting in terms of structured product underlyings as the greater the difference between the ETF and the index the more likelihood that there is variation in product returns and outcomes.

StructrPro can be used to analyse a portfolio of product taken from the US structured product market. For the following analysis, all products linked to the SPDR S&P 500 ETF Trust either in a basket or as a single underlying were analysed. This analysis includes both live and matured products from the SRP database using analytics powered by FVC.

The most popular product type linked to this underlying is the income autocall with over 81% of products falling into this category. Approximately 57% of products in this set are linked to the SPDR S&P 500 ETF Trust and at least one other underlying.

Figures 1 and 2 show charts of the live products linked to this underlying and the important trigger levels such as coupon barrier, autocall level, strike and capital at-risk barrier. From Figure 1 we can see that most products linked to this underlying are below their strike level. Figure 2 highlights the coupon and autocall levels and

Table 1: Index and corresponding ETF data for four popular ETFs used as underlyings for structured products in the US market for 2023.

Source: StructrPro.com

shows that there is still the potential for returns through the coupon stream as most products are above the coupon barrier level.

ETFs are directly investable assets unlike the indices they track. This can mean that an ETF linked product is easier for the issuer to hedge and risk manage. However, the indices in question are

so large and popular and that any issuer will have a large trading book with the associated economies of scale. For investors the advantage of a product linked to an ETF will depend on whether the product on offer is more appealing due to the structure or terms. It is no surprise that ETFs that track the benchmarks of the S&P500 and Nasdaq100 are the two most popular in the US market.

Source: StructrPro.com

Fig 2: Levels Scatter charts for all products linked to the SPDR S&P 500 ETF Trust showing coupon and autocall level only

Fig 1: Levels Scatter charts for all products linked to the SPDR S&P 500 ETF Trust

Analysis: Russell 2000 – maturities vs live valuations

In general, presenting structured product performance in a meaningful way is not as easy as might be first anticipated.

By Tim Mortimer - FVC

This has significant effect in the market as it makes available a large amount of funds to be reinvested from investors because of the product maturities and from those investors that have just had a positive experience. By contrast in times of down markets products take longer to call (or mature) and the money is not freed up as quickly.

Secondly, it is the nature of autocalls that positive outcomes occur earlier in the product lifetime and that flat or negative outcomes will only happen at maturity once the product has missed all opportunities to call. Therefore, we tend to see more positive results early in a new or increasing issuance cycle with potentially worse performances coming later on.

Source: StructrPro.com

The simplest place to start is analysing matured products and this is the indicator of product performance most used by distributors, advisers and commentators in the industry.

In most active markets structured products are issued continuously and therefore there is usually a corresponding steady stream of maturities which allows performance to be calculated for a set of products.

We can analyse the average, maximum and minimum returns over any time period such as a calendar year. It is then possible to see if these meet investor expectations and compare favourably to other simple investments such as cash deposit rates over the same period.

Analysis of structured products is simplest for fixed term capital protected products. However, the autocall product type tends to dominate the global structured products market as they have been the most popular payoff structure for many years. This has two important consequences for reporting structured product maturity data.

Firstly, we typically observe a clustering effect in that during times of growth or a significant rebound trend of the market there is a trigger of a large number of products calling in a short space of time.

This is because if products have been struck with the next autocall level in a certain points range (e.g. 3500 to 4000 for the S&P500) then these products will be called at their next respective opportunity as the market rises through those levels.

Assessment of a portfolio of structured products divides into those that have previously matured products and those that are still live. This is equally as true for an individual investor’s portfolio as for an assessment of a country or region.

There can often be a disconnect between previous maturities and the behaviour of live products. For assessment of live products, it is natural to use its live price, but these are heavily dependent on current underlying spot levels and other parameters such as volatility.

Live (or secondary market) valuations tend to exacerbate short term effects. This was seen recently during the Covid market sell off in 2020 when valuations of live capital-at-risk products were suddenly impacted by dramatic falls in the underlying and large increases in volatility. Most of these products recovered before maturity.

Russell 2000

This can be illustrated by products linked to the Russell 2000 Index. There are over 1400 products linked solely to this index on the StructrPro application.

The overall breakdown of products is given in the following table:

A more granular analysis of performance of matured products can be seen in the chart below. The analysis of previous maturities shows that while most products made a gain a significant number did lose money.

As the chart shows, most of these losses were experienced in the last year during the recent market declines. One example, is a one year capped buffered leveraged return note that matured

Figure 1: Summary of Russell 2000 linked products

Source: StructrPro.com

in May 2022. During that time the index was down nearly 20% but because of the 5% buffer the product loss would have been smaller than for the index itself.

The right-hand side of the chart shows a similar picture given the current state of products that are live. Many of these products have valuations significantly in excess of 100%. One such example is a three-times geared Leveraged Growth product which is six months into a 15 month term. Although the index is only up 4%

since inception the product valuation is up to nearly 20% because of the geared return.

These examples and findings show how presenting structured product performance data can be done in a meaningful but accessible way.

It is of great value to advisers and investors to be able to get such insights to understand how the market is performing.

Source: StructrPro.com

Figure 3: Individual breakdown of product maturities and current live products

Figure 2: Product maturities for Russell 2000 products