SRP Wrapper Guide Asia Pacific 2024

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The Asia Pacific structured products market has remained stable in terms of both issuance numbers and sales volume over the last five years.

As seen in the European markets, the different Apac markets use a variety of vehicles to deliver structured products to investors.

Typically, structured products are issued in the forms of bonds and certificates and are issued by financial institutions such as securities companies and banks which often undertake the role of arranger of structured products, private placement agent or underwriter in charge of distributing the structured products.

The domestic securities regulator in each market regulates the issuance and offering of structured products that fall under its definition of ‘securities’. In some markets like Japan, China or Taiwan, structured products are privately placed and mostly traded on an over the counter (OTC) basis whereas in other markets like Hong Kong and Singapore most of the structured product are listed and traded on exchange.

In this guide, we look at the main Apac markets and the different wrappers used to deliver structured products to investors with a description of the main instruments, an overview of issuance and sales in each market for all the wrappers deployed in the public offering space and insights from senior executives shedding light on the different delivery mechanisms and the state of each market.

Disclaimer: This report is based on SRP data as well as market sources active in the structured products market including investment banks, wealth managers, private banks, trading venues, associations and regulators. The content of the report is for general informational purposes only and any third-party content was obtained from sources believed to be reliable and no guarantees are made by SRP as to its accuracy, completeness and/or timeliness.

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Hong Kong wrappers

Investment

products in Hong Kong are offered to end investors via a wide variety of wrappers authorised by the Securities and Futures Commission (SFC) of Hong Kong

The list of approved wrappers in Hong Kong includes:

Unlisted products

• Unit trusts and mutual funds

• Investment-linked assurance schemes

• Structured investment products

• Mandatory provident funds

• Pooled retirement funds

• Paper gold schemes

Listed products

• Exchange-traded funds

• Leveraged and inverse products

• Real estate investment trusts

• Closed-ended funds

And listed and unlisted shares and debentures

• Listed shares and debentures

• Unlisted shares and debentures

• Mainland-Hong Kong Stock Connect

Within the structured products wrapper, the most popular product types include equity-linked investment (ELI), callable bull/bear contracts (CBBCs), as well as derivative and inline warrants.

EQUITY-LINKED INVESTMENT (ELI)

An equity-linked investment (ELI) is a type of structured product. The reference assets used by these products can be shares in a listed company, units in an exchangetraded fund (ETFs), equity indices and baskets of up to four underlying equities.

An ELI is typically a short to medium-term investment product that may provide potential yield enhancement. On top of this potential interest, investors could either receive 100% of their initial principal investment or stock delivery of the worst-performing stock at a discounted price lower than the initial spot price upon maturity.

But in the worst-case scenario, the stock price can drop

to 0 which means that the stock investors receive can be worth nothing.

Some issuers include one or more additional special features in their ELIs. These features may affect the potential gain or loss of the ELIs in different ways.

To understand how an ELI works, it is important to first note its key dates:

Offer period - The period when the ELI is available for purchase from your distributor. However, certain specific terms may only be finalised after you are committed to invest in the ELI.

Trade date - The date on which the ELI purchase order will be executed by the issuer. All terms are finalised and the initial price of the reference asset(s) is determined on this date.

Issue date - The date on which an ELI is issued.

Final valuation date - The closing price of the reference asset(s) on the final valuation date is recorded to determine the settlement of the ELI at maturity.

Maturity date - Depending on the terms of the ELI, you will receive, at maturity, payment in cash or physical delivery of the reference asset(s).

Potential scenarios

Scenario 1 - Autocall condition is satisfied - If the worstperforming reference asset price is at or above the call price on the call date, then the ELI will be terminated early.

In this scenario investors receive a full redemption of the invested amount and the potential cash dividend amount up to the call date.

Scenario 2 - Closing price is equal to or above the exercise price – If the closing price is equal to or above the exercise price on expiry date, investors receive a full redemption of the invested amount and the potential cash dividend amount.

Scenario 3 - Closing price is lower than the exercise price with knock-in (airbag) triggered (for product with daily knock in observation) – If the closing price is lower than the exercise

price on the expiry date and the knock-in is triggered, investors receive either a physical or cash settlement.

• Physical settlement - Delivery of the worst-performing reference asset (fractional share may result in delivery of cash in addition to the share) and the potential cash dividend amount or (b) Cash settlement - cash equivalent of the physical settlement amount and the potential cash dividend amount.

Scenario 4 - Closing price is lower than the exercise price with knock-in (airbag) triggered (for product with daily knock in observation) - If the closing price is lower than the exercise price on the expiry date and the knock-in is triggered, you will receive either a physical or cash settlement.

• Physical settlement – Delivery of the worst-performing reference asset (fractional share may result in delivery of cash in addition to the share).

• Cash settlement – Cash equivalent of the physical settlement amount.

Worst-case scenario - Closing price of a settlement stock drops to zero – In the worst-case scenario, the physical settlement amount or the cash equivalent of the physical settlement amount could be worth nothing (ie if the closing price of a settlement stock drops to zero you could lose 100% of your initial investment amount).

ELI key features

1. Cash distribution rate:

The cash distribution rate establishes the potential return investors can earn. Generally, the cash distribution rate and

the chance of receiving physical settlement is proportionate – the risk increases when the potential return rises.

If the stock closing price on final fixing date is above or equal to the strike price, investors receive the total amount investment plus a dividend at the cash distribution rate. Unlike stocks, even if there is a slight drop in the underlying stock, ELIs can protect the invested principal and potential cash dividend amount as long as the closing price does not fall below strike price on final fixing date.

2. Underlying stock:

The outcome of the investment depends on the stock price of the underlying stock. Investors can choose their preferred stock based on their risk tolerance level, holding capacity, perception of stock price movement, etc. Some investors have switched their attention to US stock market in recent years due to larger market size and a wider selection of stock choices. Currently, certain eligible underlying stocks of ELI are from the US or HK stock markets.

ELI allow investors to link multiple preferred stocks up to a maximum of four underlying stocks. Generally, the more stocks the ELI is linked to, the higher potential return rate, however, the risk will also be relatively higher. If the stock price falls below the strike price on the final fixing day then the invested principal will be converted to the worst-performing stock (or cash equivalent according to the selection settlement) with the greatest price drop at predetermined strike price.

3. Airbag/Partial Capital Protection:

Airbag, also known as knock-in, is a special feature often used by issuers. It is a precondition for the put option to become exercisable by the issuer.

ELIs with an airbag feature or partial capital protection feature will protect investors’ principal even if the underlying is at a level below the strike price - as long as the closing price is above the relevant level on the final fixing date, investors will receive the principal amount and any potential return (If applicable).

These three key features will not only determine the investment return of an ELI, but will also define the associated risks of the product. For instance, the risk level of an ELI product that consists of a basket of (linked to two or above underlying stocks) will be higher than a single underlying stock, as investors are bearing with the risk of multiple stocks at the same time.

Daily accrual

Daily accrual feature give investors the opportunity to receive a potential distribution amount which is determined by the daily price movements of the reference stock. For ordinary bull ELIs, the potential distribution amount, if any, is determined only on the final valuation date.

However, the potential distribution amount of a bull ELI with a daily accrual feature will be determined by the number of exchange business days on which the closing price of the reference stock is at or above the coupon accrual price within a calculation period.

It is possible that investors do not receive any potential distribution amount for the entire investment period. If a bull ELI is linked to a basket of stocks, the potential distribution amount on a particular exchange business day during the calculation period will be determined by which linked stock has become the reference stock (ie the worst-performing stock) on that day; and whether its closing price is at or above its coupon accrual price.

ELI types

Callable ELI

ELI will be early terminated before maturity if the closing price of the linked stock is above or equal to the call price during the callable period. Investors will receive the principal amount plus any potential cash dividend amount accrued up to the relevant call date.

Callable ELIs not only provide an option to gain coupons on a regular basis, but also offer the opportunity to receive the coupon amounts along with the principal invested before maturity.

This kind of ELI is usually considered by investors with a view

that the performance of the underlying stock will be stable or growing moderately during the investment term.

Bull

ELI linked to a single stock

A bull ELI will deliver a pre-determined gain if the closing price of the reference asset on the final valuation date is at or above a predetermined price (strike price). Bull ELI sell put options on the reference asset to the issuer. As the seller of a put option, the investor is obliged to buy the reference asset from the issuer at the strike price if the final price of the reference asset is below the strike price.

Bull ELI linked to a basket of stocks

The reference asset(s) of an ELI may be a basket of stocks. In this case investors are selling a put option over the stocks in the basket and will be obliged to buy the worst-performing stock in the basket at its strike price if the final price of the worst-performing stock is below its strike price.

CALLABLE BULL/BEAR CONTRACTS - CBBCs

Callable Bull/Bear Contracts (CBBCs) are derivatives traded on the Hong Kong stock exchange.

Movement of the price of CBBCs is essentially dependent on the movement of the price of the underlying asset. CBBCs gearing feature allows investors to capture the movement of the underlying asset and magnify investment returns by paying only a fraction of the underlying asset price.

However, the potential loss is also magnified in the same fashion if their market forecast is proven to be wrong.

The first CBBC in Hong Kong was launched in June 2006. The underlying asset can be a local or foreign index and stock, or even a commodity or a currency. In addition to its gearing feature, the pricing mechanism of CBBCs consists of two components – the Intrinsic Value (the difference between the price of the underlying asset and the exercise price of CBBC) and the Financial Costs charged by the issuer.

There are two types of CBBCs: Bull contract and Bear contract. The delta of CBBC is generally close to or equal to one. The bull contract represents optimistic, and the Bear contract represents pessimistic on a particular underlying.

CBBC can have a stock, index, foreign currency or commodity as underlying assets.

Mandatory Call Feature

One characteristic of CBBCs is that apart from the strike price, it has a call price and a mandatory call feature. If the

CONTRACT

underlying asset’s price reaches the call price at any time prior to expiry, the CBBC will expire early and the trading of the CBBC will be terminated immediately.

The mandatory call mechanism of CBBCs is often considered an automatic execution of stop loss arrangement on behalf of investors. A CBBC being called implies that investors have already forecasted the price movement of the underlying asset inaccurately. The mandatory call event may allow investors to regain part of the principal.

The operation of the mandatory call mechanism is that, when the price of the underlying asset touches or is below the call price of a bull contract, or when the price of the underlying asset touches or is above the call price of a bear contract, such bull or bear contract will be matured early and trading will be terminated immediately.

If an investor holds a CBBC until maturity, the profit or loss will depend on the settlement conditions.

CBBC Types

CBBCs are divided into Category N and Category R.

The strike price and call price of Category N are of the same level. When Category N CBBC is called before expiry, there will not be any residual value.

For Category R, the strike price and the call price of Category R are different. When Category R is called before expiry, there is possible residual value upon the occurrence of a Mandatory Call Event (“MCE”) but in the worst case, no residual value will be paid. The CBBCs in Hong Kong are mostly Category R.

Valuation at Expiry

CBBCs can be held until maturity (if not called before expiry) or sold on the exchange during trading hours before expiry.

• In the case of a Bull contract, the cash settlement amount at normal expiry will be the positive amount of the settlement

price of the underlying assets as determined on the valuation day less the strike price.

• In the case of a Bear contract, the cash settlement amount at normal expiry will be the positive amount of the strike price less the settlement price of the underlying assets on valuation day.

DERIVATIVE WARRANTS

Derivative warrants are used by investors that have the expectation for the underlying asset price or level to rise or fall.

There are two types of warrants – call warrants and put warrants. A bullish investor may buy a call warrant to benefit from upward movements of the underlying asset price; while a bearish investor may buy a put warrant to capitalise on the downward movements of the underlying asset price.

Investors in warrants may lose all of their capital if the performance of the underlying asset did not act as expected.

In general, warrants give investors the right to buy or sell the underlying asset at a predetermined price or level on or before a specified date.

A call warrant is in-the-money (ITM) if the underlying asset price is higher than the strike price - the intrinsic value and potential gain of a call warrant increase as the underlying asset price rises. BULL

Currently, all warrants listed on the Hong Kong Stock Exchange are European style and cash settled, meaning they can only be exercised automatically on the expiry date with cash settlement.

The theoretical price and payoff of a warrant will depend on the relationship between its strike price (or level if the underlying asset is an index) and the underlying asset price. Strike price or level is a pre-set benchmark price or level to determine the potential cash settlement payout at expiry.

Call Warrant – Payoff at maturity

On the contrary, a call warrant is out-of-the-money (OTM) if the underlying asset price falls below the strike price, rendering it not exercisable. The warrant will become worthless on the expiry date and the investor will lose all of the capital.

Put Warrant – Payoff at maturity

Similarly, a put warrant is in-the-money (ITM) if the underlying asset price is lower than the strike price. The lower the underlying asset price, the higher the intrinsic value and potential gain of the put warrant.

On the other hand, a put warrant is out-of-the-money (OTM) if the underlying asset price is above the strike price and will become worthless upon expiry. The investor will then lose all of the capital invested.

Common terms related to warrants:

INLINE WARRANTS

An alternative to call and put warrants in the HKEX are inline warrants, which are designed for investors with a relatively stable market view.

Inline warrants follow an “in and out of bounds” rule. An inline warrant is structured with a pair of upper and lower strikes, which form a corridor within which the price of the underlying asset must remain at expiry.

If the price of the underlying asset falls above the upper strike or below the lower strike at expiry, it will become out of bound.

In general, investors will buy a call warrant (a put warrant) in anticipation of the upward (downward) movement of the price of the underlying asset.

Unlike call and put warrants, the payoff from inline warrants is fixed and pre-determined. If the underlying asset price falls within or at the lower or upper strike at expiry, i.e. in-the-range, the payoff per inline warrant will be $1.

If the underlying asset price falls above the upper strike or below the lower strike at expiry, i.e. out-of-the-range, the payoff per inline warrant will be $0.25.

Risks of Inline Warrants

The payoff of an inline warrant depends on whether it is inthe-range or out-of-the-range at expiry.

If the underlying asset price of an in-the-range inline warrant exhibits volatile or unidirectional movement (i.e. keep moving upwards or downwards), it will have higher risk of falling outof-the-range.

While inline warrants can be bought and sold at any time before maturity, the payoff of inline warrants at expiry exhibits the binary characteristic, i.e. there are only two possible outcomes of either offering $1 (in-the-range) or $0.25 (outof-the-range). As such, this can be regarded as an “all or something” investment.

Like other structured products, inline warrants are subject to liquidity risk.

*Note: At launch, the underlying assets are limited to Hang Seng Index and the top five most liquid stocks listed on the Exchange in terms of turnover.

**The information contained herein is derived from sources we believe to be reliable, but which we have not independently verified.

Hong Kong SAR

The equity-linked investment (ELI) is the main wrapper in Hong Kong SAR, although its market share has somewhat declined in recent years: from 81% in 2019 to 54% in 2023.

The main beneficiary of its decrease has been the deposit which registered a 28-fold increase in market share since 2019. The callable bull bear certificate (CBBC) and warrants are predominately seen in products listed on the Hong Kong Stock Exchange (HKEX); however, their combined market share was less than five percent in 2023.

Some 11,150 products worth an estimated HKD385.5 billion (US$49 billion) were wrapped as ELI in 2023, with Hang Seng Bank and its parent company HSBC the dominant issuers, capturing 52.5% and 42.1% market share, respectively. Other ELI issuers included UBS (2.8%) and Bank of China Hong Kong (2.5%) while BNP Paribas and Bank of East Asia were also active, although their impact was limited (0.1% each).

The number of structured deposits issued in 2023 reached just below 20k and achieved estimated sales of HKD296 billion. Issuers again included Hang Seng Bank (49.4% market share), HSBC (46%), Bank of China Hong Kong (2.8%) and Bank of East Asia (1.8%).

The vast majority (19,475 products) were linked to FX rates with 9,050 products tied to the appreciation of the Australian dollar relative to the US dollar and a further 2,760 structures linked to the GBP/USD currency pair.

Other asset classes were also used, albeit in small numbers, with 148 deposits linked to interest rates; 135 linked to a basket of shares; and 59 linked to a single share.

Hong Kong SAR: market share by wrapper type (HKDm)

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UBS: ELI – the preferred vehicle for foreign providers active in HK

US equities’ rally over the past year promotes Hong Kong market participants to focus on underlying beyond the local market.

Equity-linked investments (ELI), also known as nonprincipal-protected autocallable reverse convertible notes offered to retail investors, have grown rapidly in Hong Kong over the past two decades.

Regulated by the Securities and Futures Commission (SFC), the unique structured product wrapper is mainly issued by foreign investment banks and some distributors made up of local banks.

The survey from the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) showed that ELI, also known as authorised equity-linked structured products in the context of Hong Kong market, had the transaction amount of HK$78 billion in 2020 (US$9.9 billion).

To this date, there have been 13 to 14 ELI issuers in the competitive market of Hong Kong, according to Michael Chu, executive director at UBS Investment Bank who leads the bank’s Hong Kong equity structured solutions distribution.

Single stocks or a basket of equity shares are the most common asset classes, led by Chinese tech stocks as the popular assets, Chu noted to SRP. SRP database registered 1,234 single stock-linked ELI, as well as 1,825 tracking a basket of equities issued in Hong Kong market this year so far. Shares of Tencent, Xiaomi, and BYD (H shares) are the most used underlyings.

But the interest isn’t only coming from the supply side. Looking at Hong Kong retail investors’ profiles, they tend to be first or second-generation wealth creators who get more involved in management, he observed.

“They are more reactive to the market,” he said. “They invest in funds but they might not be putting 100% of wealth into funds or trusts.

As the first or second generation of wealth creators, they want to be hands-on with their [investing] activities.”

With the advantage of the world’s financial hub, there are also more sophisticated investors in Hong Kong who are better at assessing market information and determining the right products.

Now with ELI as a financial tool, when market volatility is triggered and elevated in an event, “generally speaking, a lot of investors use ELI to monetise over market volatility and extract yield,” he said.

As the technology improves efficiency, ELI can be more customised by investors via mobile apps in a small ticket size order than in a large campaign launch in the past, Chu added.

Beyond HK market

Over the past year, headlines about the US equities’ rally also buzzed around Hong Kong market participants’ minds.

“[In the past], we see 80% of Hong Kong underlyingfocused tickets and 20% of US [underlying-focused] tickets,” he said. “By the end of 2023, it was 40% of Hong Kong and 60% of US in some distributors.”

“This appetite shift… is really the first time we have experienced it in a very long time,” he continued.

Despite the higher-for-longer interest rate environment, investors’ interest in capital protection-focused products was entangled by the high equities volatility, which makes the ‘long options and bond-floor’ products less attractive, Chu highlighted.

“What we witnessed earlier this year was that when retail investors were looking for capital return protection instruments, most of the time they just went straight to long US Treasuries,” he said.

“Given that the market is telling us that the rate cut might not be as quick as people thought it was, people are sitting on the fence right now,” he added.

South Korea wrappers

Equity-linked warrant (ELW) - listed on Korea Exchange (KRX)

An equity-linked warrant (ELW) is a security that entitles the holder to buy (call) or sell (put) the underlying stock or stock index at a fixed exercise price until the expiry date. It was first introduced in December 2005.

The return of an ELW at maturity is determined by the exercise price and the price of the underlying asset (a stock price or stock index) at that time. In other words, from the investor’s point of view an ELW is similar to a call option on stocks. The two instruments differ greatly:

Equity-linked security (ELS) – OTC

First traded in February 2003, an ELS is a debt instrument that provides a pre-agreed return linked to an equity market. The securities companies issuing these instruments usually invest the funds they receive in safer assets such as bonds and deposits, as well as in stocks or stock derivatives to some extent.

One of the benefits of an ELS is that its maturity and yield can be structured in multiple ways. Its drawbacks are its low liquidity, since it is traded OTC, and the fact that the investor is exposed to the credit risk of the issuing securities company. The security often comes

with an automatic early repayment provision which is applied if the price of the underlying assets rises above a certain level.

In addition, investors are allowed to make a request prior to the maturity for a buy-back while accepting to pay a certain penalty.

The ELS payout structures can be classified into the following four types: knock-out, bull spread, digital and reverse convertible. The most issued type is the reverse convertible step-down ELS.

Depending on whether the principal is protected or not, ELS is further classified into ELS (equity linked, without principal protection) and equity-linked bonds (ELBs) (equity linked, with principal protection).

Effective from February 2021, ELS underlying assets are limited to five major indices – Kospi200, S&P 500, Eurostoxx 50, HSCEI and Nikkei 225 – when banks sell retail investors that invest in ‘complex investment products’, which can lead to principal loss higher than 20%.

Products similar to the ELSs issued by securities companies are equity-linked funds (ELFs), which are managed by asset management companies and equitylinked deposits (ELDs) operated by banks.

Source: The Bank of Korea

Derivative linked securities (DLS) – OTC

An DLS is an extension of ELS, whose rate of return is determined by interest rates, foreign exchange (FX), real assets (gold, crude oil, etc.) and credit. They are invested for investment or hedging purposes.

Range accrual is a popular payoff in which a higher interest rate is paid compared to the market interest rate if the daily base interest rate falls within a certain range, otherwise a low interest rate is paid.

Depending on whether the principal is protected or not, DLS is further classified into DLS (derivative-linked, without principal protection) and derivative-linked bonds (DLBs) (derivative-linked, with principal protection).

Exchange traded note (ETN) - listed on Korea Exchange (KRX)

ETNs are derivative-linked securities issued by securities companies that promise to pay investors profits

in maturity in accordance with the returns on certain underlying indices.

ETN covers a range of reference assets including stocks, interest rate, futures, raw materials and FX. Investors can trade ETNs with real-time buy/sell prices and investment information/indicators provided by securities firms. The trading system for ETNs is almost the same as that for stocks or ETFs.

Substitute Securities: ETNs are designated as substitute securities that may be used to pay the margin instead of cash. ETNs under trading suspension for reasons corresponding to delisting or ETNs designated as the investment risk issues are not qualified for the substitute securities.

Settlement System: The settlement system for ETNs is the same as that for stocks. In other words, ETNs are settled on the second day from the trade execution date (T+2). ETNs in their entirety are deposited with a depository institution as in the case of ETFs, so that they can be delivered or received through account transfer.

Trading system for ETNs

ELS, ELF and ELD comparison

South Korea

South Korea offers a diverse range of wrappers with equity-linked bond (ELB), equitylinked security (ELS), derivative-linked bond (DLB), derivative-linked security (DLS), and equity-linked deposit (ELD) all used to various extends.

Traditionally, ELS captured the highest market share, but since 2022 ELB have become the main wrapper, albeit by a small margin. In 2023, when KRW78.5 trillion (US$60 billion) was collected from just under 19k structured products, market share for ELB reached 40% – up 23 percentage points since 2019 – just ahead of ELS with 39% (2019: 59%). At the same time, the market share for DLB remained relatively stable during the period (between nine and 16%) while that for DLS fell 14% in 2019 to four percent in 2023.

Meritz Securities was the number one issuer for ELB in 2023, achieving a 14.3% market share from 223 products that sold

a combined KRW4.7 trillion. The vast majority of Meritz ELB issuance was linked to the share of Samsung Electronics (210 products) with a further 10 products tied to the Hang Seng China Enterprises Index. Korea Investment grabbed 10.5% market share while Mirae Asset completed the top three with 9.8%.

The main provider for ELS in 2023 was Hana Securities, which held 12.4% of the market from 891 products that sold KRW3.9 trillion with around 70% of the volumes coming from structures linked to a basket of equity-indices. Mirae Asset and Shinhan Investment, were also strong ELS-issuers, as was Meritz – all with a market share of approximately 10%.

South Korea: market share by wrapper type (KRWbn)

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Samsung Securities: ELB/DLB have capitalised on ELS shortcomings

The Korean securities house expects HSCEI-linked equity-linked securities (ELS) to recover in the long run, but investors may pivot to ELS tracking other advanced markets, such as US, Europe, and Japan.

Gyun Jun, senior derivative analyst at Samsung Securities discusses the history of the main wrapper in the country, the equity linked security (ELS) products, as well as the aftermath of the mis-selling saga involving HSCEI-linked products, and the market outlook.

South Korea has been grappling with the fallout of the equity-linked securities (ELS) tracking the Hang Seng China Enterprise Index (HSCEI) triggered by Hong Kong stock market’s slow performance in 2023.

But the autocallable wrapper has been around for over two decades in the Korean market and have been gaining traction among local retail investors.

SRP data shows that in 2023, the ELS products’ issuance volume has reached KRW31.8 trillion (US$23.3 billion).

Prior to the Financial Supervisory Service (FSS)’s probe on dealers’ mis-selling of HSCEI-linked ELS in January, ELS products used to take a big market in Korea’s structured product space. What’s the history of this wrapper and how have the choices of underlyings have shifted over the years?

Gyun Jun: The ELS products made their debut in the Korean market in 2003. At that time, most of the products were based on Kospi 200. In early 2010, individual Korean stocks were used as underlying assets, and HSCEI also began to be adopted as underlying assets after 2010.

In the early days, most of them had a profit structure for principal compensation – such as knock-out call or hi-five and principle guaranteed – but the profit structure for those non-principal guaranteed like autocallable products gradually increased.

Although developed market indexes such as the S&P 500 and the Eurostoxx50 were used as underlying assets, issuers used the fact that the high volatility and liquidity of the HSCEI could increase the coupon of ELS as a product sales factor.

The issuance of ELS, which adopted HSCEI as its underlying asset, increased every year with the issuance volume reaching KRW46 trillion (US$33.7 billion) in 2015 – in particular, KRW8.4 trillion out of which was issued in March 2015, the highest ever.

As the Hong Kong stock market plunged in the second half of 2015, the issuance of ELS using HSCEI plunged, while the issuance of ELS using S&P500 and Eurostoxx50 increased.

When the global stock market rebounded in late 2010, the issuance of HSCEI-linked ELS increased again. In 2019, just before Covid-19, the issuance of HSCEI-linked ELS exceeded KRW50 trillion. Due to the plunge in the global stock market in 2020, ELS issuers saw their losses soar due to soaring volatility. At that time, the French banking giant Natixis suffered great losses in Hong Kong.

As the global stock market soared in 2021, ELS issuance increased again with issuance reaching KRW19 trillion. As

The autocallable wrapper has been around for over two decades in the Korean market

It will take time, but the issuance of ELS is expected to recover.

the Hong Kong stock market plunged in 2023, the loss of HSCEI-linked ELS soared, and the maturity of ELS, which caused principal loss, is approaching in 2024.

Why have ELS products – which many are in an autocallable, worst of options payoff structure – gained attraction among local retail investors over the years compared to other investment products?

Gyun Jun: The Korean stock market showed a trend of staying in a certain range for a long time. It is different from the US stock market showing a long-term upward pattern. Korean investors achieved relatively stable results through ELS investment rather than stock investment.

As Korea’s domestic bond interest remained low for a long time, conservative investors also became interested in ELS, and banks began selling ELS products. In addition, most of the Korean ELS products were issued in a structure that could be repaid early or early redemption, repeating the experience of investors earning high profits in a short period of time.

Given the FSS recently stepping in to guide those sellers on ELS to compensate those investors who faced financial losses, from the sell-side’s angle, do you think the latest mis-selling saga could scale back the sales of newly-issued ELS sales at large going forward?

Gyun Jun: Due to the loss of HSCEI-linked ELS, it is unlikely to expect a significant increase in issuance by the first half of 2024. In addition, the relatively high global bond rates will also serve as a factor in dampening investment demand for ELS.

From the sell side’s point of view, ELS issuance is expected to gradually increase from the second half of 2024. The environment of ELS investment is expected to improve due to falling interest rates and rising volatility in the stock market. However, due to the trauma of HSCEI, it is expected that issuance will increase mainly on ELS tracking those

stock indices of advanced countries – such as the US, Europe, Japan – except for HSCEI-linked ELS.

In the Q1 derivative report, you highlighted the shift to capital-protected products such as equity-linked bonds (ELB) and derivative-linked bonds (DLB). What are the drivers leading to more interest in these products lately? Do you see this capital-protection trend will last in the Korean market for a while? How does the macroenvironment like interest rates impact investors’ choices?

Gyun Jun: I can explain it in two ways. One is that high coupons of ELB/DLB using high fixed income rates are competitive. The other that money escaped from ELS seem to have moved to ELB/DLB for a while. Therefore, if interest rates fall, money is expected to return to ELS. Meanwhile, as retirement pension assets increase, investment demand for ELB/DLB is gradually increasing. Structurally, the size of ELB/ DLB issuance may increase.

What’s the next step for ELS products? Do you think there will be a recovery in sales volumes? Any products you think may have a good performance next? What are the next catalysts that could drive up the activities in Korea’s structured product market at large?

Gyun Jun: It is expected that investors will turn their attention to ELS again after the maturity of ELS, which will be repaid for losses, is completed. It will take time, but the issuance of ELS is expected to recover.

Still, autocallable products are powerful in Korea. If the use of underlying assets deviates from a small number of stock indexes and expands to baskets composed of individual stocks, various products can be developed.

I think there is still a lot of room for growth in interest ratelinked products. In particular, institutional investors such as insurance are likely to use structured products more actively in terms of increasing returns or risk cycles.

China wrappers

Structured products were introduced into the Chinese domestic financial management market at the beginning of this century, starting with structured deposits offered by banks to the mass retail market between 2002 and 2003.

Structured notes offered by securities houses started gaining traction in the country beginning in 2013. Among product types, snowball derivative products – also known as fixed-coupon autocallable structured notes – earned their name over the years.

Structured deposits

Structured deposits are commonly issued by large domestic banks and some foreign banks in China. The products embed financial derivatives on the basis of deposits and link them to fluctuations in interest rates, exchange rates, indices, etc., allowing retail investors to capture higher returns while assuming certain risks.

The country’s structured deposit industry’s beginning traces back to September 2002 when China Everbright Bank launched the foreign currency-linked structured deposit business line. In August 2003, China Construction Bank (Shanghai Branch) debuted China’s first batch of foreign exchange-focused structured deposits, marking the first time a Chinese commercial bank provided financial derivatives services to domestic residents via such wrapper.

The official recognition in the regulation space came in 2005 when the term “structured deposit” was first referred to in China Banking Regulatory Commission Order No. 2 of 2005.

The market has grown rapidly over the decade. The People’s Bank of China data shows by January 2019, the outstanding notional of structured deposits stemming from commercial banks reached CNY10.98 trillion (US$1.52 trillion). In late 2019, the China Banking and Insurance Regulatory Commission (CBIRC) issued a notice on further regulating the structured deposit business of commercial banks.

In Q1 2024, the SRP database recorded nearly 2,100 new issuances of structured deposits, up 39% compared with the prior-year quarter (Q1 2023: 1509 product issuance).

The FX rates asset class maintains its dominant role in the issuance landscape, appearing among 1,793 structured deposits in the first quarter of the year. Gold (XAU) to the US dollar (USD) maintains the most-favoured underlier

(762 products), followed by the EUR/USD pair (589), USD/ JPY (102), USD/CHF (93), and others. Digital, range, and accrual are the most-common payoff structures of the FXlinked products.

Other asset classes – such as a single index led by the CSI500, commodities led by gold, ETFs led by CSOP FTSE China A50 ETF (HKD) – are also widely seen in the product.

Active issuers include China Merchants Bank, Bank of China, Shanghai Pudong Development Bank, Ping An Bank, HSBC Bank, China Citic Bank, Agricultural Bank of China, Bank of East Asia, and China Construction Bank.

Structured notes

Structured notes – locally also known as beneficiary certificates (收益凭证) – are issued and distributed by securities houses. Using securities houses’ credit and capital as guarantees, these private notes are offered to qualified investors and are on-balance sheet liabilities of those securities houses.

First introduced in the provision draft in 2013 by the China Securities Regulatory Commission (CSRC) and then the following trial regulations (《证券公司开展收益凭证业务规范 （试行）》) in 2014, the beneficiary certificates are divided into several types, including fixed income, floating income, fixed plus floating income, binary structure and others.

The market has grown swiftly since in 2018 a research paper by Haitong Securities noted that the total outstanding notional of structured notes in China amounted to around CNY454.2 billion (US$62.7 billion).

Among product types, the snowball products – the fixed coupon autocallable products betting on market volatility – have gained traction among yield-seeking sophisticated investors amid the 10%-20% coupon rate the products offer. However, the products linked to several Chinese indices took a hit in January 2024 after breaching into knock-in levels, triggered by the slumpy equities performance.

On the regulation front, the industry has seen tightened

regulations around the product’s issuance eligibility, sales practices and risk management over the past year.

Wealth management scheme

Wealth management schemes are managed and distributed by local banks or joint ventures involving local banks and foreign financial institutions.

According to public sources, there are up to 25 wealth management institutions – consisting of state-owned banks, shareholding commercial banks, city commercial banks, rural financial institutions, and joint ventures –officially operating in China.

SRP database recorded 14 wealth management schemes issued by DBS Bank offering to retail investors and four issued by United Overseas Bank offering to private banking investors in Q1 2024.

Trust scheme

Trust schemes are managed and distributed by subsidiaries of trust companies and investors can investor in those products directly.

Structured trust products allocate trust beneficiary rights in a hierarchical manner based on investors’ different

risk preferences, dividing beneficiaries into priority beneficiaries and secondary beneficiaries.

The priority model is generally adopted in the entrustment of trust plans. Social investors are the priority beneficiary rights entrusters, while the general beneficiary rights entrusters are institutional investors.

Structured trust products are diversified portfolios of investments and can invest in a variety of securities such as equities, funds, bonds, and money market instruments. The specific investment ratio is controlled by the investment team of the trust.

Fund scheme

Fund schemes are managed and distributed by subsidiaries of hedge funds.

Investor types are usually divided into two-tier structures: preferred and general investors. Preferred investors can expect fixed income after the structured product matures, with an expected rate of return of 5% to 10%.

The principal and expected fixed income of preferred investors will be guaranteed by the funds of general investors. Meanwhile, general investors get investment returns on top of expected fixed income while taking risks.

CSI 500 Index Snowball Derivatives Trigger Levels

Source: Bloomberg

China

Products sold in the Chinese market are typically wrapped as deposit, wealth management scheme, certificate, or note. Between 2019 to 2023, at least 93% of all volumes were invested in structured deposits, a figure which was more than 99% for both 2022 and 2023.

Total sales for 2023 – at an estimated CNY2.44 trillion (US$347.7 billion) from 6,654 products – included CNY2.43 trillion that was invested in 6,604 deposits. The main issuer for deposits last year, by some distance, was Bank of China which gathered a 69.4% market share, ahead of China Merchants Bank (11.1%) and China Construction Bank (9.1%).

The formers issuance for 2023 was solely linked to FX rates, of which the EUR/USD (1,057 products), AUD/USD (479), and USD/JPY (305) were the most frequently used. China Merchants Bank’s deposit offering again mostly focused on FX, but the bank issued a fair number of products linked to single equity indices and commodities too, while China Construction Bank only offered FX products to its clients,

China: market share by wrapper type (CNYm)

including 利得盈结构性存款2023年第16期/Structured Deposit CNY ZHJGX202303016001, which with sales of CNY15.1 billion was the best-selling Chinese product of the year, according to SRP data.

Market share for products wrapped as wealth management scheme is marginal – it fell from 5.4% in 2019 to a meagre 0.2% in in 2023. In 2019 12 providers were active in this segment but by 2023 the number had fallen to two, both foreign: DBS Bank and United Overseas Bank.

Notes were last seen in 2021, with Shenwan Hongyuan Securities the sole issuer, while certificates were last seen in 2020 from Citic Securities.

China: top 10 issuers deposits in 2023 - market share by sales volume

China: sales & issuance by year

3,000,000 3,500,000 4,000,000

China: top issuers wealth management scheme in 2023 - market share by sales volume

HSBC China: Structured deposits, notes keep growing as investor base expands

The structured deposit business was first introduced onshore in 2002, followed by China Construction Bank (Shanghai Branch) debuting the country’s first batch of FX-focused structured deposits in August 2003.

The industry has grown steadily over the decade. And the turning point came around April 2018, when the financial regulators issued a landmark guideline on standardising financial institutions’ asset management businesses （ 《关于规范金融机构资产管理业务的指导意见, also known as《资管新规》).

While the structured deposits market has seen rapid growth starting from early 2018 it has retreated in the past two years, as the domestic structured product industry “is becoming more regulated” following recent moves from regulators, according to Ying Wang, managing director, head of investments and wealth solution, wealth and personal banking (WPB) at HSBC China.

While domestic stocks remain one of the preferred underlying assets among investors, clients in foreign banks like HSBC China are also looking for foreign index underlyings or ETFs, according to Wang.

“We want the investors to be able to use index underlying to better participate in the asset allocation by utilising structured products as downside protected investment tools for risk management,” she said.

For structured deposits, foreign exchange (FX) remains the most common asset class used in the Chinese market this year so far, led by Gold (XAU) to the US dollar (USD), the EUR/USD pair, USD/JPY, USD/CHF, and others, according to SRP data. Other asset classes, including single indexes, commodities, and ETFs, are also widely used in the construction of structured deposits.

China is currently hovering in a relatively low-interest rate environment, with a one-year loan prime rate of 3.45%. Last December, major Chinese state-owned banks cut one-year deposit rates to 1.45%.

Wang notes that the different rate cycles in China compared with other markets also allows product manufacturers to capitalise on the macro factor in designing those products convinced with capital

protection features and yield enhancement features.

“Structured notes or deposits at large can help clients to express a view of the market,” she said.

With just two decades of industry development in China, there is still room to grow in the Chinese market as local investors familiarize themselves with the features of different products, including structured deposits and structured notes. And that process can’t succeed without investor education, Wang highlighted.

“We do see investors take structured products as an investing tool more,” she said. “In the meanwhile, I think it’s important to let every investor truly understand the advantages and risks associated with the product and know why they buy the product.”

Speaking of risks, Wang said Chinese investors have grown to get a better understanding of risks in the past few years.

“Many investors came to realize with many real-life examples and then started believing the risk warnings and worst-case scenarios of an investment communicated with them could be real,” she said.

“The constant investor education process is still much needed to help them understand the risks,” she added.

With the market evolving, looking ahead, Wang hopes to see the industry’s innovative product structure growth match the market’s demand and understanding.

“We don’t want the product design to sound overly complicated for the investors,” she said. Some complex structures can look nice but are hard for investors to digest.”

“We want to design the product’s payoff structure or underlying digestible by the investors so that they can have the room to choose based on their reviews and market scenarios,” she concluded.

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Japan wrappers

The Japanese structured products market is long-established but remains lukewarm due to regulatory swings over the past two years.

The public offering market commonly sees structured Uridashi notes, structured deposits, structured funds, and structured annuities products that are offered to retail investors.

Retail investors favour the Nikkei 225 as the country’s benchmark index has been the most-used underlying in structured Uridashi. SRP data shows that out of 2,200 structured Uridashi issued from 2020 to 2023, almost half are linked to the Japanese index, often constructed as a single index or a basket of indices.

However, the public-offering market took a hit by the 2022 and 2023 regulation notices. As of Q1 2024, only 24 structured Uridashi sold JPY21 billion (US$136m).

Similar or more complex types of structured products linked to stock indices and FX transactions are offered to institutional investors, such as power reverse dual bonds, reverse floater bonds, and constant maturity swap bonds.

Structured Uridashi (仕組債)

Structured Uridashi are commonly referred to as publicly distributed structured notes in Japan.

Issued by global investment banks and distributed by local securities houses, structured notes usually have an autocallable or barrier reverse convertible payoff structure and track equities such as a single stock, a basket of stocks, a single equity index, or a basket of indices. The products are often constructed in a non-principalprotected format, mostly having a one-year tenor or between one and three years.

Some specific products, such as exchangeable bonds, equity index-linked notes and conditional dual currency notes, may fall under the “complex structured note” category.

In June 2020, Barclays became the first one in the Japanese market to issue fully principal-protected structured Uridashi distributed by Shizugin TM Securities. The product’s debut was novel as previously, principal guaranteed Uridashi structures usually came with fixed coupons that may step up periodically but did not allow investors to cash in any rise in the underlying asset.

The structured Uridashi market boomed in 2021, with sales volume reaching JPY2.26 trillion (US$14.4 billion) out of over 750 new issuances, according to SRP data.

But then, in September 2022, the industry faced a setback after the Financial Services Agency started scrutinizing these retail-facing products, citing concerns about product complexity and pricing transparency. The situation intensified after the Japan Securities Dealers Association (JSDA) proposed a new distribution guide in July 2023.

The SRP database shows that there were just eight equitylinked structured Uridashi issued year-to-date, which collected JPY10.9 billion, far from its high three years ago. These products were issued by Société Générale (3), Barclays (3), and Crédit Agricole CIB (2), respectively.

Structured deposits

Offered by local banks, structured deposits usually incorporate derivative transactions, attracting yieldhunting investors to earn higher interest rates than regular deposits.

Some structured deposits in Japan are defined as deposits that also carry the risk of a loss of the principal due to fluctuations in the money rate, currency value, or quotations on a financial instruments market.

SRP database recorded 120 structured deposits issued in Q1 2024, gathering an estimated sales volume of JPY249 billion. Out of 120 issuances, 105 of which track FX rates, while the rest are linked to interest rates.

Out of 22 distributors SRP recorded, Shinsei Bank and Mizuho Bank were the leading distributors, with each distributing 15 structured deposits in the quarter ended 31 March. 16 Bank distributed 12 structured deposits, while Tokyo Star Bank and ANZ Bank marketed 9 products, respectively.

Exchange-traded notes (ETNs)

Exchange-traded notes (ETNs) are currently the only listed structured product type available in Japan, following the establishment of listing rules of the Tokyo Stock Exchange (TSE) for ETNs in March 2011.

ETNs are products whose price tracks a stock price index, commodity price, or other such specified indicator. They are the most active listed product behind exchange-traded funds (ETFs) in the European market – in Europe they are known as “listed certificates”.

Mitsubishi UFJ Securities and Nomura Europe Finance

N.V. are the only two ETN active issuers in the market, according to the TSE. As of April 2024, there are 29 ETNs listed on the exchange.

Structured funds

Structured funds are a type of fund that combines equity and fixed-income product features. In Japan, structured funds commonly see a call overwriting payoff type.

SRP data shows that in 2023, 72 newly issued structured funds sold JPY243 billion in volume, a 54% drop from the prior year (2022: 119 structured funds sold JPY531 billion). The majority of which are non-fully principal-protected STRUCTURES.

Daiwa Asset Management manufactured 37 structured funds last year, followed by T&D Asset Management (seven products), and Mitsubishi UFJ Asset Management (six products) as leading issuers.

Annuities

Japan has a large market for fixed-indexed annuities (FIA), which primarily use reference indices created by securities companies or investment banks.

According to research by Milliman published in November 2023, several companies began to sell FIAs through the bancassurance channel in the past five years.

At first, FIAs denominated in foreign currencies such as USD and Australian dollars (AUD) were the only ones available in the market, but then yen-denominated products were also introduced to the market.

‘Since FIAs have no downside risk to policyholders’ accounts and the market risk is limited compared to variable annuities (VA), FIAs offer an alternative investment solution compared to other deferred annuities denominated in foreign currencies,’ stated Milliman in the report.

The FIAs are typically sold either with a five-year or a 10year term. The surrender charge period syncs with the product term. At the end of the term, FIA coverage ends and policyholders would either collect a lump sum or enter the annuity payment stage, according to the report.

Cash is King: Most Japanese household assets are still kept incash

- 1.4%

Source: Bank of Japan

Structured products in Japan are wrapped as registered notes (unlisted). We must go back to 2018, to find a small percentage (less than two percent) of products featuring a different wrapper, either investment certificate, fund or bond.

In 2023, an estimated JPY100 billion (US$650m) was collected from 78 registered notes – down 87% by sales volume YoY and a decrease of 94% compared to 2021. The drop in sales was driven by the Financial Services Agency (FSA) stepping up its scrutiny of structured bonds sold to retail investors in 2022, with the regulator citing concerns about product complexity and pricing transparency. Since then, most products sold in the market are simple interestlinked products with a callable option. gah

Fourteen distributors were active in 2023, of which Chugin Securities was the most active. The company held more than 25% market share, which was achieved from 22 products that sold an estimated JPY25.3 billion. All bar

three of its products were equity-linked and they were issued via Crédit Agricole, Société Générale, Barclays, and BNP Paribas, respectively.

Gungin Securities, the second busiest distributor of the year, gathered JPY20 billion from 14 notes that were exclusively linked to interest-rates – including nine that were issued on the paper of Barclays.

The UK bank was by far the biggest issuer in 2023 with a market share of 68%, up 56 percentage points YoY. Barclays solid performance came at the expense of last year’s top performers: local issuer Mitsubishi UFJ and Svensk Exportkredit, which disappeared from the market.

SocGen: structured Uridashi hit by sales setback amid regulatory challenges

Following the regulatory notice in July 2023, only three complex structured note Uridash distributors actively remain in the mass retail market.

Structured Uridashi is also known as public-distributed, non-fully principal-protected structured notes in Japan. It is often constructed with equity shares or indices underlying.

Over the course of the years, the structured Uridashi market had grown on the mass retail side, so do non-retail investors usually go through private placements channels, according to Tomoyuki Sasai, head of global markets sales for Japan at Société Générale.

But for the retail market, the direction of the wind shifted in September 2022 as the country’s Financial Services Agency (FSA) stepped up reviewing structured Uridashi sold to retail investors. The financial watchdog’s move scaled back the selling of the products, which led the structured Uridashi’s traded volume to shrink by “more than half in 2022 compared with 2021,” Sasai told SRP.

He noted that then following the structured Uridashi distribution guidance issued by the Japan Securities Dealers Association (JSDA) in July 2023, only three active distributors remained in the mass retail market for the complex structured note Uridashi market compared to 20 prior to the regulatory notice.

SRP data shows that in 2024 so far, Chugin Securities and Meiwa Securities are two of the three remaining distributors that marketed seven and one structured Uridashi linked to equities, respectively, worth JPY 10.4 billion (US$67m) and JPY405m, respectively in sales volume. These products are designed with autocall and barrier reverse convertible payoffs, involving a basket of equities, a single index, and an index basket format such as Nikkei 225 and the S&P 500.

“In 2023, the sales volume for structured Uridashi was less than one-tenth compared with 2021’s,” he said.

According to SRP data, there were just 24 equity-linked, non-principal-protected structured Uridashi issued in 2023 that sold around JPY24 billion. In 2022, the sales were around JPY685 billion. And in 2021, that figure was around JPY2.2 trillion.

Yet with the strong Japanese equities market over the past 2-3 years, there’s still strong demand as retail investors in general favour simple equity-linked investment products, according to him.

“The current active distributors have been communicating with the regulator because they believe they’re doing the appropriate business based on the guidelines required by JSDA,” he said. “Therefore, I assume some other [currently inactive] distributors may resume the business [in the near future].”

The regulatory impact on structured Uridashi since 2022 also hit the structured fund distributed in the retail market in Japan, with the issuance of structured funds dropping to just one-fourth in 2023 compared with 2021, he said.

Private placement picks up

More product flows are now coming from the private placement products distributed to institutions these days.

“[At SG,] we’ve seen good inflows of private placement, quantitative investment strategies (QIS) structured funds for institutional investors,” Sasai said. “And one of the quantitative investment strategies that are widely accepted by institutional investors well is to provide risk premium from the gap between option implied volatility and realized volatility.”

“I think there is an 80-90% possibility the market can observe this risk premia in the equity market stable they are currently in developed countries,” he said.

As the Bank of Japan (BOJ) increased its key interest rate from -0.1% to a range of 0%-0.1% in March and they could raise interest rates further into next year, Sasai sees more issuers and distributors shift the product design to a principal-protected format for retail investors.

“We don’t expect a big recovery in the [non-fully principalprotected] structured Uridashi market [in the near future, but some will shift to principal-protected structured notes format,” he concluded.

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Taiwan wrappers

Structured notes

Structured notes in Taiwan are commonly issued by foreign banks and distributed by mostly local banks. The local market typically divides structured notes into two categories: principal-guaranteed notes (PGN) and nonprincipal-guaranteed equity-linked notes (ELN).

Local investors favour a basket of equity shares as underlying assets, focusing on tech and semiconductors underlying sectors specifically. The autocallable is the most common payoff structure seen in the construction of these products.

In 2020, the Financial Supervisory Commission (FSC) lifted some of the existing restrictions on financial products. The latest rule allowed banks and brokerages to launch several new products, including structured notes, aiming to encourage more domestic investment activity and attract wealthy investors.

In 2023, the structured notes issuance doubled from the prior year to reach over 25,000 new product issuance, SRP data shows.

In Q1 2024, there were nearly 9,900 structured notes issued by 15 different banks led by Singaporean banking giant DBS Bank (2,875 products) and Morgan Stanley (1,255).

DBS Bank also topped the distributor league table, marketing 2,630 structured notes in the quarter ended 31 March. Other distributors include HSBC Bank (926) and some Taiwan local profiles such as CTBC Bank (737), Cathay Securities Investment Trust (721), and Yuanta Securities (684).

Exchange-traded notes (ETN)

ETNs are securities issued by securities houses that pay a return at maturity based on the performance of the underlying index. They’re listed on the Taiwan Stock Exchange Corporation (TWSE).

According to the TWSE data, there are 16 live domestic underlying-focused ETNs, two foreign underlying-exposed ETNs, and two leveraged and inverse ETNs, and one strategy ETN in the local market.

Out of 16 domestic-focused ETNs, there are three ESGfocused ETNs offered by Yuanta Securities.

Singapore wrappers

Actively managed certificates (AMC)

The AMC is an investment wrapper that combines the features of actively managed funds and structured products. The wrapper has seen demand in the Singaporean market over the years and is commonly issued by foreign banks, particularly those with Swiss background profiles.

Structured warrants (SW)

Structured warrants are listed on the Singapore Exchange (SGX) and issued by foreign banks. They track a single stock or index and are offered to specified investment products (SIP)-qualified investors.

There are two types of warrants: One is the call warrant which takes a bullish view of the underlying asset and the

other one is the put warrant which takes a bearish view of the underlying asset. Structured warrants listed on SGX are primarily European-style warrants.

Australia’s Macquarie Group is currently the sole structured warrant issuer and has been around in the Singaporean market since 2005. SRP data shows that in Q1 2024, the Australian issuer issued 90 SWs into 32 different underlying assets, led by the Hang Seng Index (19 products).

Daily leveraged certificates (DLC)

Daily leveraged certificates (DLC) are leveraged structured products listed on the SGX. They’re issued by foreign banks. The products offer investors fixed leverage of up to seven times the daily performance of the underlying asset, such as market indices or single stocks, according to SGX data.

DLCs are designed to be traded over short periods of time, predominantly on an intra-day basis.

There are two types of DLCs on SGX – a Daily Long and a Daily Short – that allow investors to benefit from market fluctuations in both ways, according to SGX. Buying a long DLC to benefit from rising prices, while buying a short DLC to benefit from falling ones.

There are currently three DLC providers in the Singaporean market, consisting of Société Générale, UBS, and Mirae Asset Securities which debuted its first batch in March 2023.

Structured certificates

The listed structured product was first listed on the SGX on 30 August 2023. Issued by Société Générale and distributed by United Overseas Bank (UOB) and its sister company UOB Kay Hian, the wrapper tracks the performance of a single stock or an equity index and offers to specified investment products (SIP)-qualified investors.

The SGX data shows that the current underlying assets include Alibaba, BYD, PingAn, and JD shares. The payoff structures currently have two yield enhancement-focused structures: discount certificate and autocallable certificate.

Thailand wrappers

Structured notes

Structured notes are commonly issued and distributed by local banks and securities houses in Thailand and are offered to private banking clients. The products are regulated by the Securities and Exchange Commission of Thailand.

The Thai market is dominated by non-capital-protected structured notes that have a tenor of less than a year and have a reverse convertible payoff structure, according to SRP data. In Q1 2024, the sales volume of structured notes reached THB31.2 billion (US$862m) from over 6,200 structured notes issuance, down seven percent compared to the prior-year quarter in sales.

The majority of the products track a single stock or a basket of equity shares with a heavy focus on local underlying. Meanwhile, other asset classes such as single index, FX rates like USD/THB, interest rates, credit, and

fund asset classes also have presence in the market. In the quarter ended 31 March, InnovestX Securities (1,588), Kiatnakin Phatra Securities (1,152), and Bualuang Securities (1,138) issued the most products.

Derivative Warrants (DW)

DWs are derivative securities that gives rights to the buyers to buy or sell the underlying securities in the future at pre-set price (exercise price) and quantity at specified time by the issuers. The issuers of derivative warrants can be any financial institutions which are authorised by the regulators. Derivative warrants are traded in the local equity market same as the index options are traded in the futures market. While index options require retail investors to have a future account which impose strict requirement on clients, retail investors can easily trade DW by opening a cash account. This feature makes derivative warrants trading especially attractive to small retail investors.

Malaysia wrappers

Structured warrants (SW)

Structured warrants are listed structured products traded on Malaysia’s stock exchange Bursa Malaysia. The products give investors the right, but not the obligation, to buy or sell the underlying asset in the future for a fixed price. SRP data shows there are 262 SWs issued in Q1 2024, stemming from seven providers that include both local and foreign banking

profiles. 226 of which are call warrants, while the rest are put warrants.

There are seven active SW issuers in the Malaysian market: Affin Hwang Investment Bank Berhad, AmBank Berhad, CIMB Bank Berhad, Kenanga Investment Bank Berhad, Maybank Investment Bank Berhad, RHB Investment Bank Berhad, and Macquarie Capital Securities Malaysia Sdn Bhd.