SRP AMERICAS
SRP Americas 2022: crypto structured products can be done on TradFi set-up Rehan Tariq, head of trading and structuring at Murex Americas, presented a case study during the SRP Americas conference in Chicago based on a research and development (R&D) project to provide investors with exposure to crypto beyond the cash and listed markets.
The main challenge to increase adoption is regulation
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he research and development (R&D) project was developed for clients interested in issuing crypto-linked structured notes and looked at different payoffs including yield enhancement, reverse convertibles and autocalls, as well as dual currency deposits, power reversal dual currency notes and principal-protected notes. “The research has not gone through compliance but provides a case study for crypto structured notes,” said Tariq (pictured). “For us, it was a way of confirming Murex’s MX.3 integrated platform readiness in terms of pricing, risk management, hedging and workflows, etc.” Of course, the research made some assumptions - using relative volatilities from option exchanges and created a generic index instead of using a published benchmark. “We used our advanced equity local volatility model to price autocalls and black model for capital-protected notes where we looked at different levels of yield and protection levels, notes pricing and hedging. The yield curve was modelled based on the exchange trade futures to calculate the forwards and implied rates,” said Tariq.
FINDINGS The conclusion of the Murex research confirms the system
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readiness, said Tariq. “As a proof of concept everything worked as expected, as with any other structured note - hedging, back-toback trades, risk management, as well as pricing and issuance,” he said. There is appetite from issuers of structured products to enter the crypto market as investors increase their demand to get exposure to this asset class, but from Tariq’s perspective a lot of things need to happen before it gets to active trading in the North American market. “There is a lot of talk about the applications of blockchain technology to deliver these new crypto structured products settling trades – and how other areas of the value chain beyond issuance such as custody could be impacted,” he said, adding that the Murex research was purposely based on the classical trading and settling set up as “this would help to remove the dependency on blockchain technology”. According to Tariq, an increasing number of market players are seeking exposure to cryptos and ways to participate and bring products to market, but they want to do it within their existing framework. “There is a lower barrier for entry if the notes are issued in a classical way where the payoff is linked to crypto index instead
