SRPInsight 23

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Belgian insurer partners with Goldman, tracks ESG

benchmark

Ethias has returned to the Belgian market after an absence of 13 years.

as an EU benchmark, is based on the MSCI Europe, its parent index. It aims to support investors seeking to reduce their exposure to transition and physical climate risks and who wish to pursue opportunities arising from the transition to a lower carbon economy while aligning with the Paris Agreement requirement.

“It is an index with a story, a scientific story of decarbonisation in line with the Paris Agreement,” said Alain Flas (pictured), senior investment manager sustainable investing and fund selection, Ethias.

related to one or more investment themes and are determined by algorithms with complex mathematical calculations based on volatility and dividends, significantly increase the risk that investors not (fully) understand these structures.

“That’s why I wanted an index which is considered by the EU as a benchmark,” said Flas, who asked Goldman Sachs International not to use a proprietary index made by the investment bank for this product but use an external benchmark index instead.

Ethias has launched Ethias Invest, issue 01/2023 in Belgium. The 8.1-year lifeinsurance (Class 23) is linked to an internal structured investment fund, which invests fully in an EMTN issued by Goldman Sachs International. It participates 100% in the rise of the MSCI Europe Climate Paris Aligned Price EUR Index, capped at 59% and subject to 24-months backend averaging.

The minimum capital return is 102% and the product classifies as a financial product according to Article 8 of the sustainable finance disclosure regulation (SFDR). It is Ethias’ first structured offering since July 2010 when it launched Lift Security 07/2010.

The underlying MSCI Europe Climate Paris Aligned Price EUR Index, which qualifies

The index is built to target a reduction of at least 50% in greenhouse gas (GHG) intensity (Scopes 1, 2 and 3) and potential emissions.

“It is designed to reduce its GHG intensity by 10% every year; achieved through re-weighting and selection of companies during rebalancing,” said Flas.

The product is the first linked to an equity index in Belgium since June 2022, when the FSMA sent a letter to distributors of structured products in which it recommended not to use proprietary or house indices that are optimising the potential payoff for the end client.

“With the exception maybe of some products on the Eurostoxx 50,” said Flas.

According to the regulator, custommade house indices, which are often

Despite wanting an index with a story, Flas admits he might not be able to use this story for the E or S characteristics in the product.

“That story may well not be applicable if the index has not provided a positive performance at the end of the investment term.

“The E or S characteristics of the product, we find them in the sustainability bond framework from Goldman Sachs. I wanted to have an issuer issuing the EMTN under the very strict green, social or sustainability bond framework by ICMA, the International Capital Market Association.

“Any normal plain vanilla type of issue would not pass this test. I refused a few proposals that we received because I wanted this product to qualify for SFDR 8 –that's the story,” Flas concluded.

Agreement

It is an index with a story, a scientific story of decarbonisation in line with the Paris

Erste Fair Invest Garant 109.50% 23-28 is linked to the Solactive Erste Fair Invest Index VC and offers a guaranteed return of 9.50% after five years, while Erste Green Invest Garant 120% 2331, which is tied to the Solactive Erste Green Invest Index VC, has a slightly longer tenor, but its minimum return, at 20%, is higher too.

Additionally, both structures offer 100% uncapped participation in the rise of the underlying index.

“The yield curve has increased dramatically since May last year and that is good news for capital guarantee products,” said Uwe Kolar (pictured), head of retail and savings banks sales at Erste Group Bank in Vienna.

“You can offer higher coupons and higher participation and you can also offer 100% capital protection at maturity instead of 90 or 95%,” Kolar said.

The bank started with its Invest Garant series around two years ago, but back then, because the yield curve was so low, it could not offer more than 95% capital protection.

“Now we can offer these products with a two percent per annum minimum yield [paid at maturity] plus a participation on the index, which is something our conservative client base really likes.”

The underlying Solactive Erste indices are mixed asset portfolios of bonds and equities with a volatility target on top of them. The Solactive Erste Fair Invest Index tracks 50 international sustainable stocks, with a focus on high Social and Governance ratings, while the Solactive Erste Green Invest Index VC comprises of equity ETFs and ETFs with bond exposure.

“If volatility increases above a certain percentage the index is shifted partially in money market instruments. For that reason, we have less volatility and better pricing for the call spread, which is not the case for a pure equity index,” said Kolar.

Erste’s asset management company has a Fair Invest Fund and a Green

Invest Fund, which are pure equity funds with the story of ‘fair investing’ and ‘green investing’ respectively, according to Kolar.

“These are pure equity plays on growth stocks. Green Invest Fund is more on the E of ESG while Fair Invest Fund is more related to the S and G,” he said.

For those clients that do not want to invest in pure equity products Erste offers the same story as ‘Invest Garant’ with capital protection.

“We use the same headline for two different product classes.

“One is more for the equity investors and for the monthly savings plans – this is the asset management company, and for other investors who want to invest in the story we offer capital guaranteed products,” said Kolar.

“If you play the recession game, structured products still make sense, and capital guaranteed products even more.

“On the one hand side, you can fix the current yield environment and then you get a minimum coupon, or minimum redemption at a high level. On top of that you can fix the equity index on a lower level, so the participation is from a lower level than you had one year ago. It makes sense,” Kolar concluded.

Erste Group Bank has issued two capital protected products with a minimum redemption in Austria.

Erste offers minimum yield of up to 20%

The yield curve has increased dramatically since May last year and that is good news for capital guarantee products

Bank Millennium – demand for guaranteed coupons has increased

Bank Millennium is one of the success stories at this year's SRP Europe awards. The bank had a stellar 2022 and is now seeking to enter a new phase of development as a top distributor following the launch of its multi-issuer platform.

exchanges allowed for the start of investments at attractive levels”.

“Customers saw this opportunity, sales were at a very high level, I think they will be satisfied with the results achieved by the products purchased over the last year,” said Jagodziński.

How would you rate the performance of Bank Millennium’s structured products business?

Structured products dealer, treasury department, at Bank Millennium Poland Piotr Jagodziński (pictured) told SRP that demand for structured products in Poland remained stable with investors benefitting from the change in the interest rate environment.

“On the one hand, [it was] demanding due to rapid changes in the financial markets, and on the other hand, market events allowed for the construction of attractive products, giving a chance for a high rate of return for the client,” he said.

According to Jagodziński, rising interest rates made it possible to “significantly improve the conditions of products, and the declines on the world stock

The last one was record-breaking in terms of sales volume of structured products in Bank Millennium, the nominal value of products sold was three times higher than in 2021.

Thanks to the strong increase in interest rates, we were able to offer customers products with a guaranteed coupon, which in the worst-case scenario will give a rate of return slightly lower than traditional deposits, and in the best case, a rate of return that will exceed the level of inflation.

Most of our products are based on stock markets. We believe that in the long term the past year was a good time to start investing.

What are Bank Millennium’s differentiator with other competitors?

We have always tried to build products with a simple payout profile and based

on assets that clients know and can easily follow their quotes. Our offer includes products only with a 100% capital guarantee because the financial security of our clients is very important to us.

Did investors shift towards a particular type of wrapper, underlying, payoff in 2022?

The highest demand was for products that can pay out a guaranteed coupon. This type of structured product in the worst-case scenario will give a rate of return slightly lower than traditional deposits, and in the best case, a rate of return that will exceed the level of inflation.

Do you think there is scope to grow the domestic structured products market further?

It will be difficult to repeat the record results from 2022, but despite this, this year should be successful. I think that what was the hit of 2022, i.e. products with a guaranteed coupon, will disappear from the Polish market at the end of 2023 due to the decrease in market interest rates.

We will try to take advantage of emerging opportunities on the financial markets. There are so many unknowns that we don't have any concrete plans.

The highest demand was for products that can pay out a guaranteed coupon

VLK: additional focus on external clients

2022

“The year started positive during Q1 with the traditional autocall business we do in the Netherlands,” said Pronk, adding that the second and third quarter were much slower.

“There was more uncertainty in the market and far less autocall products were redeemed early, offering less rollover opportunities.”

In Q4, the bank saw a revival of its business in Belgium, driven by the increase in interest rates. “It became possible again to structure capital protected products linked to interest rates, which proved the be very popular in the Belgium market,” said Pronk.

Although most of its public offers in the Netherlands were either Phoenix or Athena autocalls, a capital guaranteed note was one of VLKs highlights for last year.

The seven-year Positive Impact Finance Capped Index Garantie Note ESG Eurozone 22-29 offered 100% participation in the rise Euro Stoxx 50 ESG Index, capped at 40%. It was issued on the paper of Société Générale and sold €9m during the subscription period.

“This was the first product since a long time that could offer 100% minimum redemption in euro […] it combined a positive impact finance bond component with exposure to an ESG equity index. As sustainability preferences are becoming increasingly important for our clients this product fitted very well,” said Pronk.

Despite rising interest rates, autocallables remain popular in the Netherlands where there is still more demand for yield enhancement products compared to structures offering capital protection.

However, Pronk has seen a shift towards memory coupon notes in recent months.

“Due to the rates increase, the pickup in coupon on an autocallable became a bit less compared to a memory coupon note,” he said.

In Belgium, where capital protected products always have been the most popular, Pronk expects to see a continuation of this trend. “It would be interesting to see if demand for equitylinked products will start to increase again, as currently demand is almost exclusively on interest-linked products,” he said.

One of the main themes for VLK in 2023 is how it is going to classify its structured products in terms of sustainability preferences of its clients.

“With the new obligation introduced in 2022 to actively ask end clients on their sustainability preferences, it is going

to be important how you label different type structured products in that respect.

“Unfortunately, there is no clear European regulation on this topic yet, so it will be interesting to see what approaches will be taken in different countries,” said Pronk.

Pronk expects 2023 to be a good year for the structured products market, with higher rates making it easier to structure attractive products while the recent increase of the equity markets has also had a positive impact.

“Traditionally we are mainly focused on our internal private banking clients, but this year we will try to put some additional focus on the coverage of Dutch external clients.

“We have already done some nice deals with external clients this year and we have some coming up any time soon as well,” Pronk concluded.

was a moderate year for the structured products business of Van Lanschot Kempen (VLK), according to Marcel Pronk, director treasury sales, structured products & FX at VLK.

Van Lanschot Kempen has won the award for Best House Benelux, Best Distributor and Best Performance The Netherlands at this year's SRP Europe awards.

Amundi adapts structured product offering to match market environment

Amundi has posted an adjusted net income of €1.2 billion for 2022 – virtually stable compared to the previous year. Adjusted net income for the fourth quarter of 2022 stood at €303m, up 7.5% from Q3 2022.

fourth quarter were primarily driven by structured products, but also by real assets and index management while there was solid business activity in Italy in fixed income products and in Spain in structured products.

In Q4, especially in the retail segment, the most important flows were not in money market but in structured products, according to Valérie Baudson (pictured), chief executive officer, Amundi.

we must discuss in good faith to rebuild or preserve the general economic balance of the relationship,’ he said.

‘If [a ban on inducements] happens, and that's a big if, it will take some time to be implemented so the impact on existing contracts would be limited, if any,’ he said.

The asset manager adapted its product range during 2022: the first half of the year saw inflows of €3 billion in equities under active management, particularly in thematic products, whereas in the second half, the adaptation of the structured product offering to match the new market environment (higher interest rates and flight to safety) meant Amundi could attract €2.7 billion, especially in the French and international networks, thanks to new EMTNs and formula funds.

In France, positive inflows of €1.3 billion medium/long term (MLT) assets in the

‘Structured products are much better adapted to a final retail client,’ Baudson said, speaking during the presentation of the results on 8 February 2022. ‘My feeling is that in 2023 structured products will go on being an important part of the offer, at least for the beginning of the year, because retail clients will remain averse to risk in this still uncertain current environment […] we will go on delivering such solutions for networks in the near future, and we'll see how the year is going,’ she said.

The potential introduction of an EU inducement ban will have limited impact on structured products, added deputy CEO Nicolas Calcoen.

‘Typically, in our distribution contract, we have a general clause in case of significant change of regulation, according to which

Amundi issued 47 structured products worth an estimated €5 billion in France during 2022 – up almost 22% by sales volume from 2021 when €4.1 billion was collected from 35 products.

In the first three quarters of the year, products were exclusively linked to single indices, including, among other, the Eurostoxx 50, Euronext France Social Decrement 3.75% Index, Euro iStoxx 50 Carbon Adaptation GR Decrement 5% Index and the Euronext CDP Environment France EW Decrement 5% Index.

However, in Q4, apart from 10 regular equity index-linked structures, the company also launched three interestlinked structures that were worth an estimated €1.1 billion. They were the first interest-linked products from Amundi since the launch of the SRP France database in 2004 and included Obligation LCL Select AV (Nov 2022), a 10-year unit-linked insurance plan which is callable from the end of the fifth year onwards.

Structured products are much better adapted to the final retail client

UK fintech rolls out retirement income platform

Socius Technologies has launched a new retirement income platform targeted at insurance and pension providers, wealth managers, and advisers who service the needs

of individuals approaching and in retirement

tailored to each individual’s unique circumstances’ in what represents a significant shift in terms of the options offered to individuals to provide an income in retirement’.

The platform has been designed in response to changes in the pension landscape in the UK, across Europe, the USA and Australia which give individuals more choices in retirement.

“The platform is agnostic as to what the underlying investment theme is – the key development here is the individualisation,” David Macdonald (pictured), CEO of Socius Technologies Group Limited, told SRP.

restricting other more structured investments to sit within the portfolios.”

According to Macdonald, the personalised ‘strategy’ that the platform facilitates takes into account the individual’s personal circumstances - size of pension pot, age, attitude to risk, critical income needs etc. - to determine, for example, the mix of drawdown income versus annuity income.

“The key shift here is moving away from large ‘cohorts’ of retirees all being treated the same,” he said.

SPERO, an acronym for Systematic Platform for Enhanced Retirement Outcomes, will offer dynamic retirement income solutions ‘that are fully

“The underlying investments will likely remain as funds-based solutions (equity and bonds) although there is nothing

The platform is aimed at filling a gap around retirement products or services and help guide retirees and their advisers to dynamically combine income drawdown and annuities to meet their retirement income goals based on their current situation.

DDV - structured products firmly

established in portfolios

The German market for structured products closed 2022 with a market volume of €80 billion, an eight percent higher than at the end of 2021 and the highest year-end value since 2014.

‘The increased market volume shows that structured products are firmly establishing themselves in seurities portfolios,‘ said Christian Vollmuth, CEO and Member of the Board of the German Derivatives Association (Deutscher Derivate Verband, DDV). ‘The difficult market phases in 2022 have resulted in structured products being used by more and more investors for risk reduction, diversification, and capital protection.‘

Investment products represented 96.9% of the total market volume of structured products in Germany at the end of 2022 with non-capital protected accounting for almost 60% of the total market volume and products with full capital protection totalling around 40%.

‘Investors often invest conservatively. The majority choose strategies with a risk-reducing buffer or rely on one hundred percent capital protection,‘ said Vollmuth (right).

Interest rates (40%), indices (37%), and equities (21.5%) were the underlyings with higher demand. Leverage products

accounted for around 3.1% of the total structured products market volume at the end of 2022, with the most popular underlyings for these products being equities (57.7%) and indices (31.8%).

The DDV also said that its latest survey of issuers shows that investment products are usually purchased after the investor has received advice, either via an exchange or directly from the issuer and are often held for several months, if not years. Investors in leverage products, on the other hand, typically do not receive advice and the holding period for leverage products is usually a few weeks or days.

Natixis, Solactive expand partnership into direct indexing

Solactive and Natixis Investment Managers Solutions have expanded of their partnership to offer more access to direct indexing separately managed account (SMA) strategies in the US market.

investors, particularly in the US. With this tool, investors can allocate their assets to a tailored portfolio with a Solactive benchmark as a starting point, applying numerous kinds of filters according to their needs and world views,’ said Timo Pfeiffer (pictured), CMO, Solactive.

24 emerging markets. These indices can either be used directly in a product, as a benchmark, or as a starting universe of a developed index.

Natixis IM Solutions will be using 31 of the German index provider’s indices, among them 11 that belong to the Solactive Global Benchmark Series, and 16 that are part of the Solactive Factor Series.

‘Direct indexing has been progressively gaining popularity to a larger group of

According to Pfeiffer, as equity trading fees fall, and with the introduction of fractional share trading, ‘direct indexing’s ability to allocate assets in a customized fashion to align with the client’s values and financial goals make it an increasingly important solution for many retail investors’.

The Solactive Global Benchmark Series (GBS) includes around two thousand equity indices, covering the global stock market, comprising benchmark indices for 24 developed markets countries and

The Solactive Global Factor Series (GFS) is designed to provide investable access to the most important risk factors. The GFS heavily relies on academic research and is based on a straightforward methodology that offers clean exposures to six individual factors: value, quality, momentum, low size, growth, and low volatility.

‘Our direct indexing business has been growing rapidly as there has been very strong demand in the market for these kinds of highly customised investment strategies,’ said Curt Overway (pictured), co-head of Natixis Investment Managers Solutions.

US wholesale distributor partners with advisory platform in structured notes push

partnership with financial advisor platform Carson Group, ‘to bring a wider range of financial solutions to clients in the structured notes space’.

Under the partnership Carson will make available a range of structured product solutions and ‘bring structured notes to a wider audience of investors’, according to Joe Powell, president of Barnabas Capital.

financial goals,’ said Jamie Hopkins (pictured), managing partner of Wealth Solutions at Carson.

According to Barnabas Capita, structured product deposits in the US market crossed US$100 billion for the second year in a row in 2022, ‘which demonstrates the demand from investors for protected investment solutions’.

Barnabas Capital, a premier structured notes wholesale and distribution company, has launched a strategic

‘The strategic alliance with Barnabas Capital will allow us to offer our clients a wider range of financial solutions and provide them with the tailored investment solutions they need to meet their unique

Barnabas Capital’s affiliate company, Financial Independence Group (FIG), formed a strategic partnership with Carson in 2021 to power the company’s insurance solutions business.

Fixed indexed annuities grow by 25% YoY, Rilas up 6%

Unprecedented long-term market volatility in 2022 pushed retirement investors towards the protection offered by fixed annuities, propelling a record-high US$312.8 billion in total US annuity sales.

According to Limra’s 2022 Individual Annuity Sales Survey, total 2022 annuity sales increased 23% over 2021 results and were 18% higher than the previous record of US$265 billion set in 2008.

‘The interest rate dip in December spurred investor demand looking to lock in the favorable rates before they dropped further,’ said Todd Giesing, assistant vice president, LIMRA Annuity Research.

In the fourth quarter, bank sales more than doubled (117%) to US$21.8 billion. In 2022, bank sales were a record US$73.7 billion, 69% higher than in 2021. This is the first-time banks have led total annuity sales since 2004, accounting for

24% of the US annuity market in 2022, according to Limra.

Fixed indexed annuity (FIA) sales also had a record quarter and year. In the fourth quarter, FIA sales were US$22.3 billion, a 34% increase from the prior record set in the fourth quarter 2021. For the year, FIA sales were US$79.8 billion, up 25% from 2021, and 9% higher than the record set in 2019.

Registered index-linked annuity (Rila) sales were US$10.1 billion in the fourth quarter, down 2% from the fourth quarter 2021. Despite lower fourth-quarter results, total Rila sales reached US$41.1 billion in 2022, six percent higher than prior year and a new all-time high for the product line’s sales.

Traditional variable annuity (VA) sales continued their downward trend. In the fourth quarter, traditional VA sales fell 41% to US$12.7 billion. In 2022, traditional VA sales totaled US$61.8 billion, down 29% from 2021 results.

Halo gets green light from Abu Dhabi regulator

Halo Investing has received its Financial Services Permission (FSP) from Abu Dhabi Global Market (ADGM)’s Financial Services Regulatory Authority (FSRA), effective 19 January 2023. The US firm’s ‘dedicated office and expanded regional presence will help drive the growth of Halo Investing’s international footprint in the protective investing landscape’, stated the firm in an announcement.

The FSP authorized Halo Investing MEA to conduct regulated activities in the ADGM, including arranging deals in investments and dealing in investments pursuant

BMO deploys new leveraged gold ETNs via RexShares

to the Financial Services and Markets Regulations 2015 (FSMR).

The Abu Dhabi team will pursue Halo’s objectives of fundamentally disrupting the structured products industry and creating more efficient markets, according to Jason Barsema, president at Halo Investing.

‘The introduction of Halo’s holistic products and services that serve this very need is a testament to the international companies Abu Dhabi’s economy is attracting and its focus on financial innovation,’ said Arvind Ramamurthy, Chief of Markets at ADGM.

Rex Shares has launched two new MicroSectors Exchange Traded Notes (ETNs) issued by Bank of Montreal (BMO), linked to the performance of the SPDR Gold Shares ETF – the MicroSectors Gold 3x Leveraged ETNs and MicroSectors Gold -3x Inverse Leveraged ETNs are available for trading on NYSE Arca.

The demand for hedging and trading tools tailored to specific market sectors, including gold, tech, energy, travel, and financials, is constantly changing, according to Scott Acheychek (pictured), CEO of Rex Shares.

With the launch Rex Shares expands its gold related offerings beyond the pair of gold miner ETNs with a new pair of leveraged and inverse leveraged ETNs linked to an exchange traded fund that invests in physical gold. Rex Shares’ MicroSectors range of ETNs will include 3X leveraged and -3X leveraged inverse exposure to both physical gold, and gold miners, through the Rex Shares GDXU and GDXD ETNs.

‘We hope that sophisticated investors will use these trading products as a way to tactically trade gold,’ said Acheychek.

US broker dealer hit with penalty over structured product sales

The Securities and Exchange Commission has announced that Centaurus Financial Inc., one of its branch managers and a registered representative had reached a US$1 million settlement in connection with unsuitable sales of ‘complex structured products to dozens of clients’.

Centaurus Financial is a large independent broker-dealer based in southern California with 375 branch offices and 615 brokers and financial advisors known in the retail brokerage industry for selling alternative investments.

According to the SEC, from June 2016 to July 2019, a Centaurus broker and seven other registered representatives from the Lexington, South Carolina, branch office ‘made recommendations of [variable interest rate structured products] to ninety-four retail customers for whom the recommendations were unsuitable in light of each of the specific customers’ financial situations and needs.

Centaurus failed to implement and follow customer-specific suitability procedures, and also violated the broker-dealer books-and-records provisions of federal securities laws, the SEC said.

Centaurus Financial agreed to pay a civil penalty of US$750,000 and disgorgement of almost US$5,000; while the branch manager was charged with a civil penalty of US$206,000 and disgorgement of US$105,000, including interest, and to serve a six-month suspension as a supervisor. The sales representative agreed to pay a civil penalty of US$35,000 and serve a six-month suspension.

MSCI targets US annuity market with new vol control indexes

MSCI has announced a collaboration with Salt Financial to create risk-controlled index solutions for insurance companies using Salt's patent-pending truVol Risk Control Engine (RCE).

‘Our common ambition is to deliver innovative index solutions designed to address investors' needs and investment targets," said Stephane Mattatia (pictured), global head of thematic indexes and derivatives licensing at MSCI. The partnership seeks to respond to increased demand for indexed retirement products fuelled by an aging population, volatile and uncertain markets, and investors' desire for principal-protected products.

The new indexes will use of historical intraday data for volatility forecasting from truVol which is designed to help increase volatility targeting accuracy and responsiveness for risk control indexes. The parties intend to create new ‘differentiated risk control indexes’ for the indexed annuity market.

Tony Barchetto, CEO, Salt Financial, said the truVol Risk Control Engine (RCE) is a risk management toolkit designed to target volatility in risk-controlled index strategies using historical intraday data to help ‘increase targeting accuracy and responsiveness, aiming to improve product participation rates and outcomes for annuity investors’.

BMO completes Bank of the West acquisition

BMO Financial Group received all regulatory approvals required to complete the acquisition of Bank of the West which was previously owned by BNP Paribas. The transaction closed on 1 February 2023.

BNP Paribas said the final financial impacts of the sale will be provided on 7 February 2023, together with the publication of the bank’s 2022 Annual Results.

The sale of the US retail bank does not alter BNP Paribas’ plans in the US market which will be driven by the bank’s

Corporate & Institutional Banking franchise which has been recently reinforced. BNP made several senior appointments in its global markets Americas division as part of its plans to grow its global equities, global credit and global macro franchises in the region, following the reorganisation of its global markets business.

Bank of the West has been BNP Paribas’ main outlet for retail structured products in the US market since 2010. The French bank marketed close to 100 marketlinked certificates of deposits (MLCDs) with an estimated value of US$605m..

US insurer adds structured outcome investments with an ‘active approach’

Annuity provider Corebridge Financial has added two hedged equity funds to its Advanced Outcomes Annuity, a variable annuity that includes structured outcome investments.

achive returns while seeking to limit downside market exposure.

The new hedged equity funds from Milliman Financial Risk Management (Milliman FRM), Milliman-Capital Group Hedged U.S. Growth Fund and MillimanCapital Group Hedged U.S. Income and Growth Fund, are structured outcome funds that take an active approach to

The funds are based on a portfolio of securities using an options overlay designed for quarterly resets. The ‘capturereset-reinvest’ capability is part of each Advanced Outcomes Annuity and was designed to give financial professionals and investors ‘the opportunity to capture investment gains, refresh upside potential and downside protection, and reinvest in a new strategy with a different targeted outcome’, according to Bryan Pinsky (pictured), president of individual retirement at Corebridge Financial.

A recent Greenwald Research survey commissioned by Corebridge revealed that financial professionals want to invest in protection with the potential for upside growth. Amid stock market volatility

and interest rate increases, 4 in 10 financial professionals reported they are increasingly using structured solutions that offer targeted downside protection.

‘In this challenging investment environment, financial professionals want to capture growth through equities but are wary of market declines,’ said Adam Schenck, Principal, Managing Director and Head of Fund Services, Milliman Financial Risk Management. In addition to the new hedged equity funds, Advanced Outcomes Annuity recently added a trigger strategy to the structured outcome funds managed by Milliman FRM. The trigger strategy targets predefined growth when the referenced index performance is either flat or positive and provides targeted downside protection using a buffer against market losses over the six-month fund term.

The Index Standard launches new FIA forecast credits and model allocations

the FIA Forecast Credits and FIA Model Allocations, two new data-driven tools designed ‘to help financial professionals understand and compare the indexlinked crediting strategies in fixed index annuities (FIAs)’.

The tools are aimed at helping financial professionals to understand and compare the wide range of choices of socalled crediting strategies linked to the performance of one or more indices.

‘The complexity of indices and crediting strategies and the lack of resources to better understand them have been a huge

barrier for financial professionals and their clients when considering FIAs in retirement planning,’ said Jay Watson (pictured), head of analytics at The Index Standard.

FIA Forecast Credits provide expected rates of return of individual crediting strategies in FIAs; while FIA Model Allocations offers suggested allocations to the crediting strategies in an FIA most likely to generate the highest long-term returns, while diversifying risk.

The Index Standard offers two algorithmic allocations - Balanced Blend and Boosted Blend.

The Index Standard has expanded its insurance coverage with the launch of

China proposes tightened rules on structured notes

The guidance (《证券公司收益凭证发 行 管理办法（征求意见稿》) is open for comments until 8 February after the Securities Association of China (SAC), a regulatory body under the China Securities Regulatory Commission (CSRC) sent the circular to local security houses on 13 January, SRP has learnt.

The rules apply to private notes issued by security houses, known as ‘beneficiary certificates’ in China, which are classified into fixed income and floating income by interest payment. The former account for over half of the issuance in the country while the latter namely structured notes have grown rapidly in the past three years.

In 2021, there were approximately 44,100 beneficiary certificates issued by security houses in China, which accumulated traded notional of CNY1.02 trillion (US$150.5 billion).

As of the year-end, around 16,000 beneficiary certificates were live with an outstanding balance of CNY414.2 billion, according to the SAC.

Following the trial regulations on beneficiary certificates (《证券公司

开展收益凭证业务规范（试行）》)

introduced in 2014, the new guidance comprising six chapters introduces new specific measures on debt financing instruments mostly around issuance eligibility, sales practices and risk management, according to the proposal seen by SRP.

Under the new rules, issuers must adopt a tiered management on the outstanding balance of their beneficiary certificates, which will be effective in six months. Specifically, the balance shall not exceed 60%, 50%, 40%, 30% and 20% of the firm’s net capital if the issuer’s latest rating is A, B (BBB), B (BB), B(B), C or below by the CSRC, accordingly. The proportion is set at 60% for all issuers as required by the 2014 regulations.

Issuers will be required to scale down its outstanding balance within six months and stop issuance until its balance meets the requirement if there is a rating downgrade next year.

For structured notes, the underlying assets will be required to be priced at fair value and have ‘reasonable liquidity’ covering stocks, equity

indices and commodities. Products in this category shall not be tied to private asset management products (资管产品) or over-the-counter (OTC) derivatives, such as private funds, asset management schemes.

At the same time, the coupon offered by fixed income notes must not exceed 140% of benchmark interest rates, according to the proposal.

In addition, issuers must hold a derivatives trading license and meet the regulation’s criteria on core risk management indicators including net capital, risk coverage ratio, liquidity coverage ratio and net stable funding ratio over the past two years.

Under the new rules, security houses will be prohibited from issuance if it has failed to ‘deliver repayment of beneficiary certificates, severely defaulted on other debt, or severely breached other legal obligations’.

The minimum investment duration for structured notes will be seven days and the first knockout observation date must be seven days or longer after the strike date.

Domestic regulator spells out measures on structured notes around issuance eligibility, sales practices and risk management in a new set of rules that will fully come into effect in 2024.

For structured notes, the underlying assets will be required to be priced at fair value and have ‘reasonable liquidity’

Maybank: structured deposits offset fall in structured notes activity

Maybank Singapore, which saw a 30% increase

in trading volume of structured products

in 2021, started 2022 with a plan to scale up its structured

directional dispersion warrants.

2022 performance and outlook for the new year.

2022 was generally a challenging year for the structured products business as a result of the ongoing Russia-Ukraine war and falling equity markets with investors being “hesitant or apprehensive to invest in structured products which are not principal protected on maturity in an uncertain macroeconomic environment”.

products business with non-

currency pairs sometimes with an early termination (callable) feature.

Malaysian investors are leaning towards shorter tenor and principal protected structures – namely callable fixed rate notes, as well as bullish/bearish shark fin structured notes, said Tan, adding that shark fin notes gained traction because they protected the capital invested and allowed investors to bid on the upside performance (for bullish view) or the downside performance (for bearish view) of equity indices, subject to the participation being terminated if the asset price breaches a certain level.

The new warrants business was launched as a response to demand from investors seeking to explore other yield enhancement solutions beyond autocallable structures. With an open architecture model, Maybank Singapore currently works with a list of more than 10 investment banks active in the structured products market.

In Q3 22, Maybank Investment Bank entered Thailand’s structured products market with its first structured note on 23 August to end the year with almost 30 structured notes issued worth US$5.8m-equivalent.

In the meantime, the investment banking arm expanded its offering with a range of long/short structured warrants on Bursa Malaysia, tracking eight Hong Kong-listed stocks.

SRP spoke to Alice Tan (pictured), head, private and head of products and investment solutions at Maybank Singapore, to recap on the bank’s

“Structured notes volumes in 2022 declined in line with the industry by around 50% to 70%. That said, Maybank Singapore’s tranche series of structured deposits with principal protection rolled out last year, were well-received by retail investors as they were all fully subscribed.”

The bank offset the decline in structured notes activity with its range of structured deposits which resonated with Malaysian investors as they offered full protection on the capital invested and offered a fixed coupon as well as a variable bonus interest linked to FX

“We were positioned defensively in equities for a large part of 2022, seeking shelter in Asean markets such as Indonesia, as well as sectors including consumer staples and healthcare that are more resilient,” said Tan.

According to Tan, since the start of 2023 the bank has maintained an underweight stance on equities but is looking “to turn more constructive on risk assets once a point of inflection is reached - in terms of inflation, rates and growth”.

Tan also noted that because of the difficulty to time the market bottom during a transition phase, investors can use relevant structured products to participate in the potential upside rebound, while enjoying some downside protection.

“We see some pickup in interest in structured products in the first half and expect to see a stronger recovery in the second half of the year,” Tan said. “In 2023, we would continue to focus on structured solutions with principal protection features given the lingering macro uncertainties.”

We expect a strong recovery in the second half of the year

UOB reports stable growth, deploys new payoff structures

United Overseas Bank (UOB) is working on a new suite of payoffs for its retail structured products after the business ended 2022 with stable traded notional despite the equity market correction.

showed that almost 50% of investors are looking at capital appreciation alongside two other options – capital preservation and income generation.

“It shows that investors’ willingness to take opportunities has improved from 2022,” said Lau.

Year-on-year, the bank saw “insignificant change” in terms of traded notional of structured products, which comprise structured notes, structured deposits and UOB’s equity portfolio.

2020 [which] is focusing on new-towealth and new-to-product customer growth.”

In 2022, equity underliers accounted for 15% to 20% of the total structured products traded notional, a significant fall from the 90% commonly seen in prior years.

“FX and interest rates were almost equally split, together making up the majority of the volume, with the remaining coming from credit or indexlinked solutions,” he said.

One of the payoffs developed by the bank is a vanilla ‘trading discipline strategy’ that corresponds with the bank’s Q1 investment theme ‘get paid while you wait’.

“It allows investors to earn an income on the principal, which is systemically unlocked and participates as the market corrects,” John Lau (pictured), head of wealth management, treasury at UOB, told SRP. “It’s a dollar cost averaging plus income strategy and was launched in late January.”

The Singaporean bank is also seeking to tweak product parameters - from a worst-of option to average in terms of knock-out or to a best-of option, in order to better manage downside risks.

“In 2023, we [have] noticed some changes even as the defensive and funding play is still going on - customer investment sentiment has also started to shift.” said Lau.

At an investment forum UOB held for its clients in early January, a poll

Investment sentiment has started to shift

Structured notes dominated the volume by accounting for more than 70%.

Moreover, the traded notional was even higher in H2 22 year-on-year with assets under management (AuM) growing by 20% as at the year-end.

“Our customer base also grew, which is a very happy scenario for us,” said Lau. “This demonstrates how we’ve successfully pivoted to diversification, a strategy we’ve been working on since

“For credit, we’re more active in the cash bond space. I think we should use any financial asset that can be leveraged on each other and continue to drive cross-sell synergies serving the interest of our customers.”

Lau also noted that as a consumer bank, UOB favours underlyings that are easy to explain to retail investors and access to some assets like commodities are offered “via simpler and direct solutions such as our gold savings account and spot gold (XAU) capability”.

According to Lau, the bank also set up a catalogue of payoffs including double no touch, wedding cake, range accrual, capped floored floater and other structures as part of the preparation for its diversification strategy.

“Our annual product training for sales advisors ensured they are already ready to deploy suitable solutions serving customer needs, sentiment and market condition,” he said. “We needed to learn how to encourage our customers to stay invested even when market goes through a different cycle.”

DBS PB introduces new covered call play via structured notes

DBS Private Bank is gearing up to launch its first ever minimum redemption of principalat-maturity notes linked to an in-house fund.

large contribution to total returns over the long term,” said Jaisingh.

DBS remains optimistic about the performance of risk assets in 2023 in anticipation of a bounce following a “precipitous decline” in the market last year.

we'll focus on downside protection including features like look-backs, lock-ins and deep airbags,” said Jaisingh.

The past year ended with a rare confluence as both equities and bonds performed very negatively.

With an investment duration of two or three years, the notes will track the performance of the DBS CIO Barbell Income Fund, which was launched in February 2021.

“We’re speaking to a few hedge providers,” Rohit Jaisingh (pictured), managing director, head of capital market products at DBS Bank told SRP.

“This will be our first minimum redemption of principal-at-maturity notes linked to an in-house fund. It articulates our barbell approach to investing –investing in high growth secular winners and high dividend yielding stocks with a focus on income-generation.”

DBS CIO Barbell Income Fund uses a covered call to enhance income generation in addition to traditional credit and dividend strategies.

“We believe that high dividend yielding stocks are resilient – the dividends have a

“The main risk factor is still inflation and policymakers’ reaction to this,” said Jaisingh, adding that the issues that plagued supply chains earlier in 2022 were resolved over the second half of 2022 and energy prices like natural gas have come off their peaks.

“Hence, we're hopeful that the Fed pivot will happen sooner rather than later, and that inflation and rate hikes will not be a continuing concern for much longer.”

According to Jaisingh, China’s re-opening in early January has added confidence for investors and some sectors, particularly technology, have been performing well since then.

The bank believes that quality companies, which are defined as firms with the three Cs - consistent growth, consistent cash flow generation and return on capital, will re-emerge as secular winners.

“If that turns to be the case, we will go back to offer yield enhancement and growthoriented structured products linked to these stocks. If the high volatility persists,

“Clearly this had an impact on structured product markets as it led to a huge risk-off mood globally. In Asia, we saw a large asset class rotation. Equity underliers had been the key driver of growth in Asia up until 2022 declined in popularity,” he said.

Meanwhile, the price volatility in foreign exchange (FX) markets lifted and commodity turned the only asset class that delivered a positive return led by energy, gold and silver through 2022.

The total traded notional of equity-linked structured products at private banks in Singapore and Hong Kong SAR decreased between 40% and 60% in 2022 year-onyear. FX-linked structured products rose almost 100% YoY while rates and creditlinked structured products moved up almost 50% in terms of traded notional, noted Jaisingh.

“I reckon that it's been more of an even split across FX, fixed income and equities by traded notional of structured products for the private banks, unlike in the previous years where equity was two to three times FX and fixed income,” he said.

This will be our first minimum redemption of principal-at-maturity notes linked to an in-house fund

CS deploys RavenPack AI via structured fund in Japan

Credit Suisse has partnered with T&D Asset Management to launch a retail structured fund tracking the Credit Suisse Ravenpack Macro Trend JPY Index, which went live on 13 January.

thus making principal protection in Japanese Yen challenging, especially for shorter term products," Tomoyuki Sasai (pictured), head of solutions for Japan at Credit Suisse, told SRP. "Until not so long ago, 10 years was the shortest tenor for principal-protected funds in Japanese Yen."

As Japanese swap rates climb and credit spreads widen from 2022, principalprotected structured funds with a typical five-year tenor have gained traction in Japan, Sasai added.

(US$21.9m) and [we expect] to scale up for further tranches," said Romain Barba, head of investment solutions structuring for Japan at Credit Suisse.

The Swiss bank has been "a key player" in the Japanese structured fund market over the last decade, with capacity to launch offshore fund through its own platform Credit Suisse Universal Trust as well as via partnerships with onshore fund managers for domestic funds, said Barba.

With a three-year tenor, the Credit Suisse Corporate Bond/Big Data Multi Asset Strategy Fund (クレディ・スイス社債/ビ ッグデータ・マルチアセット戦略ファン ド) will be traded on 31 March following a one-month sales window. It will invest in JPY-denominated bonds issued by Credit Suisse and offers a fixed coupon on a yearly basis as well as a conditional coupon linked to the cumulative return of the reference index upon maturity.

The product offers 100% capital protection unless the bond issuer default or early redemption occurs.

"Interest rates have been very low in Japan for an extended period,

The fixed coupon is projected to be 1.15% to 1.35% pa. and will be decided on 31 March with the fund aimed at making distributions of 0.633% to 0.833% pa. before tax for end investors following the fund’s fee deduction. The conditional coupon will be zero if the underlier's cumulative return turns negative, otherwise, it will strive to have a 1:1 participation in the index growth.

T&D Asset Management and Sumitomo Mitsui Trust Bank act as fund manager and trustee, respectively. Credit Suisse Securities, Chibagin Securities and NishiNippon City Tokai Tokyo Securities will distribute the new fund.

"For the first tranche, we have set a reasonable target at JPY3 billion

Barba noted that the Premium Carry Strategy Fund (プレミアム・キャリー 戦略ファンド), which was launched in November 2022 and sells put options with a period of around one month on the S&P 500 index, has been a "topseller". SMBC Trust Bank acted as the fund's trustee.

According to SRP data, there are 52 structured funds managed by T&D Asset Management in Japan with a combined traded notional of US$3.1 billionequivalent.

Launched on 13 January 2023, the Credit Suisse Ravenpack Macro Trend JPY Index is a multi-asset allocation index with three percent volatility target, deriving from the Credit Suisse RavenPack Artificial Intelligence Index.

Until not so long ago, 10 years was the shortest tenor for principal-protected funds in Japanese Yen

KGI Asia Sage goes the Extramile

advisors to combine bespoke services and investment insights to provide clients in Asia with wealth management solutions with ‘the ability to offer unrivalled structured products solutions based on clients' need anytime, anywhere’.

UOB debuts fund of structured products in Malaysia

Hong Kong-based fintech Goldhorse Capital Management has announced that KGI Asia has onboarded its Extramile structured products platform as it seeks to ‘strengthen its provision of structured products and wealth management solutions’.

KGI Asia said the use of Goldhorse’s Extramile platform will enable its

‘KGI Asia is committed to providing better wealth management services to our clients, and structured products is an important part of our wealth management portfolio,’ said Kevin Tai, head of International Wealth Management of KGI Asia.

‘This partnership with KGI Asia is another important vote of confidence by leaders in the private wealth management ecosystem in APAC, in our innovation as well as the value of the Extramile Community,’ said Long Lee (pictured), chief executive officer of Goldhorse Capital.

India’s first sovereign green bond indices launched

The National Stock Exchanges (NSE’s) index services subsidiary, NSE Indices, has launched India’s first ever sovereign green bond indices. The new indicesNifty India Sovereign Green Bond Jan 2028 Index and Nifty India Sovereign Green Bond Jan 2033 Index, follow the target maturity date structure.

The Nifty India Sovereign Green Bond Jan 2028 Index has a maturity date of 31 January 2028 and includes Government securities (G-Secs) issued under the category of sovereign green bonds (SGrBs) maturing during the six-month period ending January 2028. The Nifty India Sovereign Green Bond Jan 2033 index, on the other hand, has a maturity date of 31 January 2033 and tracks G-Secs issued under the category of

SGrBs maturing during the 12-month period ending January 2033. The indices seek to capture the performance of Indian sovereign green bonds that finance green infrastructure, said Mukesh Agarwal, CEO, NSE Indices.

‘These indices are expected to act as a benchmark for asset managers and be a reference index tracked by passive funds in form of exchange-traded funds (ETFs), index funds and structured products, which can provide fixed income investors efficient and cost-effective access to the Indian sovereign green bond market while making a positive impact on the society,’ he said.

Both indices have base date of January 27, 2023, and a base value of 1,000. The indices will be reviewed monthly.

UOB Asset Management (Malaysia) has launched the United Closed-End Series - Strategic Recovery Fund (UCSSRF), the first fund of structured products offered by the asset manager in the country.

The UCSSRF seeks to provide income and capital preservation by focusing its investments predominantly on a structured product as its underlying asset – the fund aims at achieving its investment objective by investing its net asset value (NAV) into a structured product comprising a basket of selected stocks. In addition, the NAV is also invested in derivatives, money market instruments, deposits and/or cash.

The strategy offers potential income, but investors could also benefit from short-term capital appreciation by the selection of a basket of stocks and exchange-traded funds (ETFs) listed in major exchanges globally, according to Lim Suet Ling (pictured), chief executive officer, UOB Asset Management (Malaysia).

‘While most investors are seeking low volatility returns, the retail market for structured notes with principal protection has been growing in the past two years. The shift in this investment behaviour is due to a highly volatile market impacted by the pandemic outbreak and ongoing geopolitical tensions,’ she said.

International Women’s Day: banking on women

SRP is celebrating International Women’s Day by highlighting senior women in the structured products industry and asking them about progress made and the obstacles still to overcome.

International Women’s Day was born in the New York sweat shops, where female textile workers suffered crowded, unsanitary conditions, long working days, and poverty wages. Highly skilled women were often trapped in a category known as ‘learners’, earning a fraction of the wages of the semi-skilled, and a pittance in comparison with the almost exclusively male pattern-makers and cutters. On 8 March 1908 hundreds of these women decided enough was enough. They gathered in Rutgers Square on Manhattan’s Lower East Side to form their own union and to demand the right to vote.

These days, as we celebrate women’s achievements on 8 March, we remain mindful that for all our progress, those textile workers’ aspirations for gender equality have still not been fully realised in any industry, not least in financial services, despite genuine advances and outstanding examples like Norway’s DNB Bank and Bank of America (US).

Price Waterhouse Cooper remarked in its 2022 report on the gender pay gap in UK financial services that the sector, “has one of the highest pay gaps of all UK sectors and progress being made in closing this gap… has been slow.”* Reuters’ analysis of pay gap data from 21 major financial institutions in April 2020 thus showed an average mean gender pay gap of 32.1%, far wider than the general UK average of 14.9%. Investment banks were among the worst offenders, despite often having high profile in-house programmes to address workplace gender inequality. The UK arm of Goldman Sachs International, for

example, had the widest gender pay gap among the firms Reuters surveyed, with men earning an average 51.3% more per hour than women.**

Across the broader financial services industry, the inequality reflects the predominance of women in in clerical and auxiliary roles, as well as what has been called the ‘broken first rung’ of the career ladder, which sees women fail to make it into managerial grades. In this environment, even advances in working practices can be disadvantageous to women.

For example, a slew of recent studies by institutions as varied as The Female Lead and King’s College, the Chartered Management Institute, and Deloitte, show that despite its obvious advantages for women juggling careers and domestic duties, hybrid working can compound workplace gender inequality, causing women workers to become invisible or hit a ‘hybrid career ceiling’.

Naturally, the structured products industry does not escape this inequality. We have, however, our own pioneers – women who have led teams through business transformations, and on ground-breaking deals, who have smashed the glass ceiling at a young age, who have provided crucial services to manufacturers and distributers, and who are leading in-house efforts to reduce inequality and promote diversity.

We only have the space to hear from five of them – but we celebrate them all.

What achievement are you most proud of within the structured products industry?

Isabell Millat: “When I was working at SG in New York we teamed up with a few female colleagues to re-launch the SG Americas Women Network, which organised networking events with peers from the industry in order to showcase women leaders -- events that welcomed both women and men! Most recently, I’m proud that I was able to make sustainability an essential component of our Global Markets division’s strategy; I’m convinced that creating a role to embody our Sustainability ambitions has helped focus the effort and grow engagement with our clients on their sustainability needs, a critical element success.”

Diana Van Maasdijk: “Setting up Equileap – I realised that when I looked at ESG investing, no one was talking about gender equality, and measuring it in a way that would allow investors to support companies that were striving for diversity, from the leadership levels to the supply chain. At times, it has been a battle to get people to include gender equality in ESG strategies, but now there are numerous products and institutional investors that incorporate our data into their responsible investing strategies, and we are channelling billions into companies that are striving to do the right thing. There is a long way to go, but I’m proud of how my team is a catalyst for positive social change when it comes to promoting global gender equality in the workplace.”

Anna Pinedo: “Having built a strong diverse derivatives and structured products team that has come to be known for its breadth and depth and for expertise with innovative products.”

Maryline Mertz: “I think, overall, having managed to consolidate and centralise our entire origination and issuance activities globally and across equities and FICC, and front to back, is something I'm very proud of and that is unique to Goldman. Once we had achieved that we were able to cater for all clients' needs, retail or institutional. It has increased not only the quality of execution for clients, but also allowed us to respond in a more efficient manner to the increased regulatory activities we have seen in the sector. Mifid II and Priip Kids, for example, have been a very large project. We're happy with how Goldman took a lead on this project, helping form solutions for the entire industry.”

Armelle Loeb: “Most recently I was appointed as a member of the STOXX Management Board, which is a personal achievement I’m very proud of. At a product level, I would probably mention some strategies we have developed as part of our range of indices designed for structured products, which have marked turning points in our industry like low volatility/high dividend optimised indices, decrement indices or more recently single stock decrement indices.

STOXX launched the very first decrement index back in 2014. Initially, we received criticism from some market players as well as questions and concerns from regulators, and even internally. It was not easy to get the point across, but we were convinced decrement was a good concept that would add value to investors because it improved the level of protection and performance of

structured products. We stayed firm in our conviction and made the effort to explain the concept. Decrement indices are now seen as one of the most recent innovations in the structured products market and the market seems to have proven us right!”

*Price Waterhouse Cooper, March 2022: Gender pay gap and diversity in financial services – what’s changing? Updated year 4 Gender pay gap reporting 2020-21.

**https://www.reuters.com/business/sustainable-business/mostbanks-narrow-uk-gender-pay-gaps-ubs-deutsche-bank-go-intoreverse-2022-04-04/

INDEXING FOR CHANGE

Diana Van Maasdijk, CEO, and fellow philanthropy and women’s rights expert Jo Andrews launched workplace gender equality data provider Equileap to a chorus of scepticism back in 2016. What a difference six years makes… In June last year the company was chosen as one of seven data providers for Nasdaq’s new ESG Hub.

Equileap assesses more than 4,000 companies globally on criteria including gender balance, pay gap, parental leave and anti-sexual harassment policies. Its data is used for ESG integration, portfolio analysis, stewardship and managing reputational risks.

Among the indices based on Equileap’s data is the Eurozone Gender Diversity Select 50 index, which will surely be used as a structured products underlying. Diana says it has attracted a huge amount of attention from different parties in the industry following its joint launch with Euronext last month.

She says, “We’re in conversation with several asset managers who are actively looking into it. It's very early days, but relative to other launches of this nature, the signs all indicate that take-up will be strong.”

And does she think such indices can have a role in themselves in promoting gender equality in financial services? “Absolutely, yes,” she says. “The indices that define ‘best in class’ for gender equality are an incentive for companies in financial services and all other sectors.”

She says the indices, “encourage companies to raise their game, promote fairer working conditions, and better gender balance,” explaining, “Companies want the validation such an ESG index provides as well as the recognition they get from investors. Also, they know investors are recognising clear links between better gender equality and better financial performance/ lower volatility.

International Women’s Day: banking on women (Part 2) – men must be on board

In the second part of these feature, female executives talk about achievements and challenges, as well as the culture changes needed in the financial industry to allow more women to advance in their careers and take on senior management positions dominated by men.

Are there any women currently in the structured products industry you would like to mention for their achievements, successes or attitude?

Maryline Mertz: “The structured products industry is not short of talented women and I'm particularly glad to host the panel at the SRP conference on International Women's Day. It’s a cause I care about. The other women on the panel definitely deserve a shout out. Being a French citizen, I've always looked up to Christine Lagarde as a role model that has had an amazing career (and I feel closer to her because I am French). But my top heroines are typically outside banking, simply because this is how you get motivated and inspired. One of the people I have taken a lot of inspiration from is Serena Williams. I had the pleasure of playing with Serena once at a charity event. And she's amazing for a personality trait you will recognise a lot in the financial sector, which is that she does not stop when she gets a trophy. She wants to know what comes next. When she wins the Roland Garros, she wants to know how she's going to win Wimbledon. Obviously now she's retired, but you can already see that she continues to be inspiring in the venture capital market.”

Isabelle Millat: “I’ve worked with many inspiring women and

can’t quote them all. I will choose to single out my colleague Veronique Sabbah, who spearheaded SG UK’s signature on the Women in Finance Charter. And I would also like to pay tribute to the younger women I now have the privilege to manage or mentor: with their talent and potential, they are the future of our industry!”

Anna Pinedo: “There are quite a number of notable women in derivatives, especially in the legal departments of banks, and there are structured products teams led by women, like Vanessa Simonetti at TD Securities.”

Armelle Loeb: “I would not choose just one role model because I have had many, and this has been a collective effort. Nowadays, many women have broken glass ceilings and are now part of boards and hold senior decision-making positions. As a matter of fact, I'm working with more and more women on a daily basis on the client side and they are very good at their jobs.”

And a question just for Maryline – did Serena win?

“Yes, actually she did win! Like she has 23 Grand Slams! So, this as well is very interesting. Everyone is very focused on debating whether Federer, Nadal or Djokovic should be regarded as the greatest of all time. The fact is the person with the most Grand Slams in the Open Era is Serena Williams, but we completely forget to mention that there is a woman who has actually done it before the man.”

SRP is celebrating International Women’s Day by highlighting senior women in the structured products industry and asking them about progress made and the obstacles still to overcome.

I have had many [role models], this has been a collective effort.

Armelle Loeb, Qontigo

How much harder do women have to work in banking and financial services to achieve the same as men? Do they need extra superpowers?

Diana van Maasdijk: “Well, we deal in data - If you look at the lack of gender balance particularly at high levels of financial services you have to conclude that women have a harder time to make it to leadership in this sector. Our global report last year showed that there is a leaky pipeline in financial services – the more senior you go the less women there are till just 19% of executives are female. These numbers might be improving but it’s going far too slowly. So, it’s a statement of fact that women that make it to senior positions are doing something to defy the odds and should be congratulated on that.”

Isabelle Millat: “In spite of the progress made, women in most industries still feel they have to achieve more than men to demonstrate their worth, or that they’re not granted the benefit of the doubt. We must be relentless in our fair promotion of women to leadership roles and in our mentoring efforts, both to level the playing field, and also to make sure we encourage women to continue asking for more responsibilities and promotions, as well as to voice their vision for the company. In fact, I believe than standing out in the crowd (or maybe just out of a conference panel!) because of one’s differentiating characteristics, for instance one’s gender, can be turned into an advantage, to make one’s messages heard and remembered!”

Anna Pinedo: “Over the years, the environment and the opportunities have improved and it is wonderful to see many more women in the legal departments of investment banks supporting the derivatives and structured products trading desks, and the structuring teams. There also are more women on the trading desk, on the structuring team, and involved in sales and distribution. Likewise, there are a number of women involved with the structured notes platforms in the US. Women in banking and financial services will continue to have to work harder given that they are still in the minority, and there are fewer existing formal and informal networks within the sector.”

Maryline Mertz: “I think it's not so much that you have to work

harder. It's also that your performance is assessed, no matter how hard you work, against criteria that have been established by men. Let's take a concrete example. If you were asked to do an analysis of a certain trend, very often your performance will be evaluated against the summary, and against your ability to present this summary. So, do you have the ability to speak up? To not be shy in front of an audience? Your performance will probably not be measured against the thirty hours spent before arriving at the conclusion: collecting the data, analysing and understanding the correlations and different trends and different analyses; all that prep work will often be undervalued. But unfortunately, if you don't have this prep work, you don't have the conclusion as well.

So long as women don't reach a critical mass, you're still going to have this bias. So it's also about educating the men. They need to be on board. They need to feel the value. One trait that I have often recognised is you will not find a man more ready to fight the diversity code than a man who has a daughter.”

Armelle Loeb: “I've never really had that feeling myself, but I think this happens a lot to women. In my case, I always have had the support of senior managers, which happened to be mainly men, and some have been real mentors, not just managers. But some barriers are still there, and women sometimes must demonstrate twice as much value as a man just because we are still in a male-dominated environment.”

Has it become easier for women to succeed during your career span?

Maryline Mertz: “Easier? I don't know. Is it a different environment? Yeah. Twenty years ago, I remember very well joining a team of close to 20 people where there was only one woman. And I remember that sole woman telling me I should choose Goldman over other offers because she needed female support. Then ten years ago we moved into a phase where you had more support, first for gender diversity, then for other types of diversity, ethnic diversity and disability champions. There are now also questions about are we doing too much in diversity. I think it's all a question of feedback. We will not always get it right. But what's important is that we listen to feedback and that we measure

Our global report last year showed that there is a leaky pipeline in financial services –the more senior you go the less women there are till just 19% of executives are female

Diana van Maasdijk, Equileap

Is it a different environment now? Yeah.

and take accountability for it. And over time, we will get better. It's like career success -- it doesn't actually progress in a straight line.”

Armelle Loeb: “The culture of companies is changing and a choice between a man and a woman at the same level is less and less done based on the gender but rather on experience, achievements and skills. Companies value the talent women bring to the table and the pay gap is increasingly being addressed. There is much more understanding and support, and this is helping women to progress in their careers in a way it was not possible before. I have worked very hard and smart for 27 years and believe I’ve been rewarded because I have done a good job. However, I am sure that is very common that more high performer females experience imposter syndrome in comparison to men. I would tell any young woman that is absolutely possible for a woman to have a successful career in finance. It is a very competitive industry and that can be difficult, but I don't think it is more difficult for a woman than it is for men. The only difference is that the work-life balance might be a bit more challenging if you have kids – especially

ALL FOR ONE, ONE FOR ALL

during the first few years. However, most companies now provide the support that women need, whereas in the past women had to give up their careers to dedicate to their time fully on family.”

Isabelle Millat: “In the span of my 16+ year career in the financial industry, I am happy to report that I have seen the environment becoming more conducive to the promotion of women to leadership positions; we must however continue to strive to achieve a lot more, not only for gender diversity, but for all types of diversity, too. When exchanging with women about their definition of success, the words “making an impact”, “acting for people’s development”, or “being useful to others” tend to be a staple; these goals may be linked to women’s prominent role in sustainability positions, and they are for sure an asset to the organizations that employ them.”

Anna Pinedo: “The culture and environment at workplaces has changed in the last thirty years, and also how people view work and define success has changed.”

As well as highlighting how hard they had worked to achieve their in their careers, the women we spoke to were keen to attribute their success to those they had worked with, and in particular role models within and outside their industries.

Mayer Brown partner Anna Pinedo stressed, “To the extent that I’ve been fortunate enough to work with many of the largest financial institutions and on many novel products and structures, I attribute this to very loyal clients—for which I am grateful.”

Pinedo always appreciates the opportunity to work with clients on creative solutions and partner with them to find approaches that work, adding, “I’ve had excellent examples of what it means to be resilient, service-oriented, and practical, and I try to live up to those examples, and take setbacks in stride, and just stay with it.”

Twenty years ago, I joined a team of close to 20 people where there was only one woman. I remember that sole woman telling me I should choose Goldman over other offers because she needed female support

Maryline Mertz, Goldman Sachs

Banking on women (part 3) – gender equality means better performance; diversity fosters productivity, innovation

SRP is celebrating International Women’s Day by highlighting senior women in the structured products industry and asking them about progress made and the obstacles still to overcome.

In the third part of a feature celebrating women in structured products we look at some of the myths and stereotypes around diversity, and what companies must do to promote diversity and gender inclusion to entice young women to join their ranks in the financial industry.

What difference have women made to broader working practices and culture in structured products and banking and financial services?

Armelle Loeb: “I wouldn’t say male and female executives are better at specific roles or functions, but they would definitely do them differently. And this is precisely what it is interesting. You don’t want everyone in the company to think the same way. Diversity is also something we should all embrace because it breaks traditional cultural biases and adds new approaches and views to problem solving, strategy, etc. which you would not have otherwise.”

Isabelle Millat: “Studies show that any type of diversity is beneficial for a more productive and innovative workplace, and one that’s a great place to work, too. In that sense, growing the number of women has simply worked to the benefit of financial markets activities, whilst also making them more representative of their customers. But we still have a long way to go! We should eventually seek balance, and not favour one group against another, even if getting

there requires strong actions initially, to help us catch up within an acceptable timeframe.”

Anna Pinedo: “As so many academic studies have shown, women tend to bring a diversity of thought to workplaces, and a certain degree of balance in how they approach problems, make decisions, approach risk and all of that is very helpful in the financial services sector.”

Diana van Maasdijk: “I have been an entrepreneur for over a decade so it’s hard to comment on what’s going on inside the industry. However, it must be said that women in structured products do seem to have a low profile relative to other sectors. It’s rare, for example, to see female speakers at structured product events. I have experienced many structured products events where panels include only men, and the vast majority of the audience is male. It is a missed opportunity for an important and exciting industry that would benefit from better gender balance.”

Maryline Mertz: “I think that brings me back to tenacity and adaptability. I'm not saying that you will not find these attributes in males – you certainly find them in males as well, but you will find women capable of climbing walls and literally not giving up and showing extreme tenacity. Their job is not done until the job is done. And it's not just a question of, you know, giving the right impression or leading in the right direction, but feeling the project from A to Z until it's completely closed.”

Diversity is beneficial for a more productive and innovative workplace Isabelle Millat, Société Générale

Banks and wealth managers tend to appoint women to spearhead their sustainability programmes and other more ‘touchy-feely’ areas. Is that a form of sexism in itself?

Isabelle Millat: “The higher percentage of women in sustainability roles vs the industry average may indeed have been induced by stereotypes that tend to assign to women the desire to promote societal good. Now that sustainability has moved to the core of financial institutions’ business agendas, as an instrumental component of their future performance and even licence to operate, it’s crucial that women remain promoted to leadership sustainability roles and seek to ensure gender balance in their teams.”

Diana van Maasdijk: “ESG is a growth area that is important on many levels for our future as well as an investment approach. So, if it’s an area where there is better gender balance that’s great news, as there is a growing body of evidence from organisations like McKinsey, Morgan Stanley and CFA Institute that better gender equality means better performance. That aside, it's true that you do see more women in areas like HR, Comms and CSR and it probably is a form of sexism not to have more women in areas of business such as finance, sales, etc. that affect the bottom line directly. Again, a lack of gender balance at all levels of a company is a missed opportunity for everyone.”

Maryline Mertz: “I must say I was surprised by the question. The head of sustainable finance group in our executive office is actually a man at Goldman. I wondered whether this is not just two topics which emerged in the market at the same time. We definitely have a diversity agenda that was pushed much more heavily over the past five years. At the same time, climate change also came to the top of the agenda after the Paris Agreement.”

Anna Pinedo: “No—if these are areas that are interesting to women, then, absolutely not. There is a lot of opportunity in ESG, in sustainability, and there is the possibility to make a mark in a new area.”

What do investment banks and financial services companies need to do to attract female talent?

Isabelle Millat: “They need to promote women to leadership positions, so that incoming female talents have aspirational models. They need to reach out to young women in schools and universities deliberately and systematically and showcase testimonies of junior women they employ. They need to set and communicate on diversity targets, and to walk the talk with management-sponsored policies, to achieve these targets.”

Diana van Maasdijk: “I believe there are two main things companies can do to improve their gender balance. First, companies need to be transparent about where they are today on gender equality. What are the percentages of male and female employees at all corporate levels? What is their gender pay gap? What policies do they have in place, such as parental leave for both genders and flexible work, in place to promote a culture of equal opportunity and diversity? Second, the leadership of a company needs to put targets in place, at all corporate levels, to reach gender balance, meaning 40-60% of each gender in all teams.”

Armelle Loeb: “I don’t think the solution should be positive discrimination or a quota system because you want people to be promoted on merit.”

Maryline Mertz: “I mentioned already that measuring and tracking are very important for accountability. Engagement is very important. If you want to attract more women, you need to be very engaged: it takes more time, it takes effort, takes sponsorship, and also coaching. And finally, once you've attracted them it's very important you retain and develop their talent. Coming back to my initial point about Serena Williams, it's not just about giving women an award or a promotion or title. You need to have a plan to make them win Wimbledon.”

Would you like to highlight any resources designed to improve gender equality, in your own workplace or more widely?

At this point, most banks have mentoring programs and formal diversity and inclusion programs

Anna Pinedo, Mayer Brown

FEATURE: INTERNATIONAL WOMENS DAY

Anna Pinedo: “At this point, most banks have mentoring programs and formal diversity and inclusion programs—all of which are helpful.”

Isabelle Millat: “Women in ETFs; the Women in Finance Charter (UK); The London Women’s Forum (UK); Financi’elles (France); SG’s Global Markets Division is active on that front, too, with Women in Capital Markets, Women in Quant, and our Women in Markets Mentoring Programme.”

Diana van Maasdijk: “Mentoring tends to help individuals but turning things around in terms of diversity and inclusion often requires structural change within a corporation. Our experience is that mentoring can be a great support and help, but to really help diversity and inclusion, we should look to company leadership and pressure from investors and governments to set the targets that drive systemic and cultural change.”

Maryline Mertz: “Obviously, we have a women's network, and other firms will have similar initiatives. We have one for the division and one firm wide as well. One of the programmes I have personally benefited from is called the Women’s Career

Strategies Initiative (WCSI), which helps prepare talented female associates to take their next career step. You get to have speaking engagements, teaching courses, and you get to interact with senior leaders of the firm. Ultimately, what women probably are most shy about is networking. It's easier to network with other women than networking with other men and given we're not yet at critical mass you end up shying away from networking opportunities. And this type of programme helps to put women on the spot and forces them to learn how to network.”

Armelle Loeb: “We have made a lot of progress in the last decades, and you can see the difference across companies and functions. The different industries have realised that the real capital is the people, and this shift has been supported by government policies in many countries to promote male/ female equality and race diversity that reflects the composition of society. We are a transition generation, and I expect the next generation will be able to have a level playing field for men and women. Men will also have to adapt and change their attitudes towards work and family, as the gender gap closes.”

Advancing Women in Structured Products (Wisp)

Anna Pinedo is a partner in Mayer Brown’s New York office and co-leader of the Global Capital Markets practice. She concentrates her practice on securities and derivatives, representing issuers, investment banks/financial intermediaries and investors in financing transactions, including public offerings and private placements of equity and debt securities, structured notes and other hybrid and structured products.

Armelle Loeb is head of index EMEA sales, Qontigo where she is in charge of the promotion and distribution of innovative STOXX and DAX index solutions to institutional clients. Prior to joining Qontigo, she held different senior positions in the ETF industry with iShares, and then HSBC and Credit Suisse ETF, as head of sales. Armelle started at Lehman Brothers before joining Deutsche Bank in fixed income trading and then MSCI where she was sales responsible for the French speaking market.

Isabelle Millat is head of sustainability in Société Générale’s Global Markets division. Hers is a newly created position reporting to the head of financial engineering for Global Markets. Leveraging on the bank’s financial engineering prowess, Millat coordinates sustainable and responsible investment initiatives across asset classes, developing and extending the bank’s range of ESG investor solutions. Millat was previously chief operating officer for SG’s Cross Asset Structured Products business in New York.

Diana Van Maasdijk is founder and CEO of Equileap, an ESG data provider specialising in gender data. Diana worked previously as head of philanthropy at ABN AMRO Private Bank and as director of development at international women's fund Mama Cash. Equileap ranks public companies globally based on the organisation’s proprietary Gender Equality Scorecard. Its regular reports highlight the extent of gender equality within companies in specific regions and address various gender equality themes.

Maryline Mertz is global head of origination across equities and FICC for Goldman Sachs, where she spearheads the Global Markets Division's structuring efforts across various delivery mechanisms, including securitized derivatives products, structured OTCs with third party issuers, special purpose vehicles and fund vehicles. She is a champion for the firm’s Disability Network and serves as culture captain driving the Global Markets Division Leadership Forums.

Monex: we must leverage technology to grow the market

SRP spoke to Damian Vera (pictured), co-heads of derivatives sales and structuring at Monex alongside Louis de Winter, about last year’s activities, market trends and the need to digitalise processes to grow the market.

“We have seen an 18% fall in volumes year on year up until the end of Q3. However, this is not bad news for us because despite the falling volumes we have increased our fee revenues by 20%,” said Vera.

All in all, Monex’s performance is similar to that of 2021, but the higher rates environment has allowed the product provider to offset the fall in activity.

“Our growth over the last few years has been above our expectations and our ten-year performance has been stellar with just a few periods were growth was lower,” said Vera.

In 2022 the focus was mainly based on two product linesdual currency notes and range accruals.

Dual currency notes drive higher volumes in high vol environments but tend to fall when volatility comes down - when vol is high the spot price is high and investors tend to buy notes in USD; when the spot is high demand for USD-denominated notes is higher and when the spot is low investors shift to MXN-denominated notes, according to Vera.

“Regardless of the market environment, demand for these products remains high and is a very profitable product for distributors,” he said.

PRODUCT TRENDS

Dual currency notes remain Monex’s flagship product but had to adapt since the beginning of the Covid pandemic when interest rates in Mexico went down from 8-9% to 5% or so although not as much as in other markets.

“This triggered a shift from investors towards double no-touch notes which are riskier but offered good value as the spot has remained between the 21-19% range. This product has been the most popular over the last two years alongside the wedding cake structure which is a similar payoff structure but with three [barrier] levels.”

During 2022, with lower volatilities, the performance of these products has suffered somehow, said Vera, and the spike in interest rates triggered a shift towards risk free fixed income products which can offer up to 10% returns in Mexico.

“That also had an impact on the dual currency notes business,” said Vera. “However, the increase in interest rates allowed us to revive the range accrual pay off which was a big success at Monex about 6 years ago.

“Investors see these products as less risky, so we registered a significant shift because the range accrual also priced well with USD-denomination. Range accruals revived in 2022.”

Vera notes that this type of structure is not viable with low interest rates as the issuer pays a higher premium than with a double no-touch note.

“For a while we did these products as a service to our clients

Monex retained its crown as the top issuer of structured products in Mexico and has now captured a 60% market share consistently over the last two years.

because you could only get 10bps but with the current levels you can offer good returns and charge 60 bps which makes it viable for the business,” he said.

THE BIG SHIFT

The shift towards capital protection is also happening in Mexico as the product mix aligns with the macro environment.

“We have now started to issue products linked to the Tasa de interés interbancaria de equilibrio (TIIE) again after a few years of no issuance of products linked to the Interbank Equilibrium Interest Rate,” said Vera.

This is new territory for Monex as “there was no real demand from our clients”.

However, some of the company’s intermediary affiliates like Actinver and other banks started to request this product and is proving to be “a big success”.

“In just a few months we have seen demand and volumes increasing significantly because it allows investors to express their view on the TIE,” said Vera. “These products are more opportunistic, so we have focused on short terms of three to four months. The range is not static and we staircase them to reflect the bids and expectations of analysts on what the Bank of Mexico and the Fed are going to do.”

According to Vera, this product does not make much sense when you have low interest rates and the markets are also low because again “as an issuer you pay a high premium”.

“However, in the current rates environment we expect demand for this product to remain high because we all know that interest rates are going to go up and there is opportunity for investors to capitalise on those moves,” he said.

MARKET HURDLES

Regulatory constraints in Mexico continue to impact the ability of product providers to bring new structures and ideas to the market.

“The issuance process is painstakingly slow and bureaucratic which limits how much you can issue in one day - we have now

very short trading windows to launch our products,” said Vera. “The paperwork makes the process costly and we had to make adjustments to make it efficient.”

Vera believes that the industry “must find new ways to simplify the process for the industry to leap forward and grow the market”.

“We think it is important to have a strong disclosure and reporting framework but at this time and age we must leverage the digital tools at our disposal and take advantage of technology to make processes cost efficient and paperless,” he said.

Vera also noted that there is also a need for the regulator to differentiate the different types of issuances and products as “you cannot put in the same bucket a five-year product with MXN800m volume and a one-week note with MXN10m”.

“It does not make sense and limits our ability to deliver these products as well as the investor choice.”

INTEREST RATES, FX ONLY

The market for equities in Mexico remains almost symbolic with the focus being on interest rates and FX.

“We have done equity products mainly linked to indices in the past, but it was too expensive, and the demand did not justify the fees we had to pay the index provider,” said Vera. “If we had demand for a particular equity product, we usually go to other issuers.”

With equity products being marginal in Mexico the scope to introduce custom strategies is very limited, also because the type of investor in this market is not familiar with the equity markets but very well acquainted with interest rates.

“Mexican investors are familiar with the interest rate as it resonates with them - it is an asset people speak about all the time,” said Vera. “For us to put an investor on a note linked to a proprietary underlying it would be an unnecessary risk. Our target market is not as versed on equity markets and it would be wrong to expose them to something they don’t really understand.”

If we had demand for a particular equity product, we usually go to other issuers.

Mayer Brown: regulatory focus, a reflection of the market growth

As the US retail structured products market continues to grow regulators have turned their attention to complex products and disclosures.

The Financial Industry Regulatory Authority (Finra) has added a reminder about registered indexedlinked annuities (Rilas) to the variable annuity section of its examination and risk monitoring priorities for 2023 report - the regulator is asking financial firms to be ready to show examiners their disclosure practices at the point of sale and wants to know if the products’ disclosures address buffer and cap rates, as well as market value adjustment risks.

The Finra updates comes as the bill to streamline regulatory paperwork for index-linked annuities approved by the US Senate is now waiting a vote in the House of Congress which has already raised questions about the moves from Finra and the SEC to introduce new rules covering the retail sale of complex investment products.

“There has certainly been a lot of focus by regulators in the last year on complex products as a reflection of the market growth,” said Anna Pinedo (pictured), partner, Mayer Brown.

Pinedo notes that Finra’s focus on complex products sold to retail investors is on disclosure and appropriateness whereas the SEC has a few areas of particular focus, including additional guidance on Regulation Best Interest (Reg BI) from the SEC Office of Examinations relating to conflicts of interest and the types of relationships that broker dealers and investment advisors have in the context of products that they recommend.

“This is a very important area for our clients in the structured products market because it is a market where many parties are related and participate in the sales as well as the product structuring and product manufacturing process,” she said. “As a result, the SEC concern around potential conflicts of interest with third parties arising in the context of Reg BI is understandable.”

RILAS

According to Pinedo, the recent update from Finra on Rilas does not signal a renewed scrutiny on one of the fastest

Market growth has called the attention of regulators

growing product types over the last two years as the “focus is not so much on Rilas but rather on annuities generally”.

The Finra report discusses annuity sales to retail investors and flags a couple of areas of concern relating to the sale of Rilas.

“This is not new but instead a reminder of Finra’s focus on products sold to retail and it is a continuing area of focus under an old Finra rule - Finra rule 2330, which has been around for a very long time,” said Pinedo.

The reason for including this in the report is the recent market interest we have seen in annuity products which are very retail oriented.”

FINRA wants to make certain that member firms offering Rilas have the right disclosure processes and the appropriate policies and procedures to review their sales process and the training they provide to their registered representatives when making a recommendation, according to Pinedo.

“The focus on product structures and disclosures around ‘buffers’, ‘caps’ and ‘floors’ relates in part to appropriateness and is also the result of the increased interest we have seen in annuity products lately and coincides with an increase in product sales,” she said.

“Finra wants to ensure the right disclosures are in place when making recommendation on products that have different mechanisms and variables that can impact the final return.”

The Rila bill that was approved by the US Senate is now awaiting a vote in the House of Congress, however Pinedo believes “it's very unclear whether that will pass” and that there is “no certainty that the legislation will get adopted”.

HOT TOPICS

Another hot item in the US regulatory agenda as a separate issue is the introduction of new rules aimed at indices as a whole following the launch last year of the consultation on matters related to the activities of certain information

providers, including whether information providers are acting as investment advisers under the Investment Advisers Act of 1940.

The SEC is potentially considering whether index providers and other calculation agents, publishers and administrators of indices should be regulated in the United States.

“We'll see whether that request for comment turns into something this year,” said Pinedo, adding “the SEC has many other priorities in its agenda and has a very full plate in terms of regulation.

“I'm not sure that we're going to see anything on indices immediately,” she said.

Other topics on top of the US regulatory agenda for 2023 which will have an impact on the structured products market include ESG and the lingering Libor rate.

“I think that we will see final rules on climate change from the SEC in April or May, as well as new guidance that will apply to funds that use ESG in their name and claim that they invest in ESG assets,” said Pinedo.

“This could have an impact on structured products as many link their payoffs to the performance of ETFs or funds that have ESG investments embedded.”

According to Pinedo, the market has reached a point where there is a need for clarity about how people think about and use ESG in their investments.

“We also have seen some enforcement actions from the SEC against companies and funds that have allegedly misled investors with products that are ESG related. This will continue,” said Pinedo.

Libor will also remain on the agenda in 2023 although the discussion has moved towards CMS linked notes or notes tied to indices where Libor is a leg of the index.

“Libor is still relevant and part of the discussions with clients,” said Pinedo.

Q&A: MAYER BROWN

The final rules on climate change from SEC could have an impact on structured products

Capturing tail risk: from uncapped variance swaps to VoKos

Trading desks dealing with derivatives and listed options are having to manage different types of exotic flow coming through the derivatives and structured products markets.

There's lot of activity to extract value from [autocall] risk

Volatility knock-out (VoKo) products were deployed in 2022 to extract value from the low volatility downwards trajectory of the markets. SRP spoke to Kris Sidial, co-CIO at Ambrus Group, about the market dynamics around risk repackaging and transferring over the last 10 years, and how volatility strategies are looking at ways to extract value from the risk coming from the structured products market.

The Ambrus Group offers a tail risk strategy that specialises in trading volatility and aims at capturing big returns when markets are crashing and a lot of intraday order flow trading if markets are not crashing to run a carry neutral book which has significant convexity to it.

The tail risk fund is designed to provide protection against extreme market events, such as a sudden market crash - this type of fund is intended to be a core holding in an investment portfolio to diversify and hedge against extreme events.

LOOKING BACK

When you look at the derivatives ecosystem, risk can never be

eliminated - It's only transferred, according to Sidial. “If you look back at the environment in 2015 - 2017, there was a narrative around volatility selling - it was almost like if you were buying volatility, you were the crazy guy,” he says. “Nobody thought buying volatility could provide a source of returns.”

At that time, many hedge funds but also certain bank desks sold variance swaps - outside hedge funds and market makers there are certain international arms of certain investment banks that can take on this kind of risk via their prop desks.

“Issuers of structured products engage in this as well and we saw this a lot when Covid hit and a lot of the deleveraging came from these desks selling variance swaps, and some of these issuers got wiped out,” says Sidial.

Then, in 2020, the market saw the huge growth of autocalls in South Korea which brought new risk to the market.

“A lot of that flow came over to the US as well with many hedge funds and vol traders taking interest in the risk brought to the market by these autocalls,” says Sidial. “In 2020-2021,

there was a lot of risk in the market from those products and a lot of activity to extract value from that risk.”

According to Sidial, some things have changed in the variance swap market now. “One, you cannot get uncapped single name variance swaps anywhere, and that's a really big thing - you can only get uncapped on indexes, so people do not sell uncapped single name variance swaps,” he says.

“When you look at these variance swaps, they are done OTC which means the market is even more illiquid now because nobody wants to sell those.”

NOW, FAST FORWARD TO 2022

The dynamic in 2022 was that new issuances of autocallables kept increasing despite the spot down / vol down dynamic.

“One thing we noticed during this time was that some of the insurance companies and pension funds that would run these overlays - the OTC risk of knock in and knock out notesturned their attention to the equity market and to other ways to implement strategies to capture the tail risk,” says Sidial.

These firms are now trading significant amounts of knock in and knock out notes because they have become much more cost effective on their books. However, on the other side, banks that are issuing these knock out notes are not equally hedging their exposure.

“If they were hedging these notes with whatever neutrality you want to look at it, the skew profile of the S&P complex would not be as flat as it is, specifically in the six month/oneyear timeline where you'd see more of a beating if issuers were selling those VoKos and then going right into the S&P complex and hedging their exposure, but that's not the case,” says Sidial.

“There's a certain amount of Vega that's going through on the retail side and that risk is not being transferred.”

According to Sidial, here is another situation where “this sort of risk is ballooning a little bit more for some of these banks because the hedges are being done equivalently in the way most people think that they're being hedged”.

HEDGING MISMATCH

The problems with the mismatch are really the reflexive implications that could occur if the market starts to crash, because if banks are not hedging that exposure the way it should be and are completely tied up on that exposure.

“If the market crashes and vol is really going through the roof, they will be hit,” says Sidial. “Our research shows a very weak spot vol beta relationship when the VIX was in the 20s to 30s - it is as it has a spring attached to it and if it gets to the 60s then it could move to the 80s within a day because of this sort of hedging that could take place during a time of distress. It is really important to be aware of these risks.”

The Ambrus Group’s view is that the mispricing of the tails, when you're faced with a market crash, will be much more extreme going forward because of the way how the US derivatives ecosystem is changing and some of the risk dynamics coming from the structured products market.

PLAYING THE MARKET

When you think of 2008, there were two big changes that came about during the GFC that changed the entire spectrum of the US market - Dodd Frank and Basel III, notes Sidial.

“The reason why they implemented this was because they didn't want a situation where you had everybody rushing to the exit door at points of market distress and amplify the damage,” he says, adding that those two implementations changed the market because banks can no longer inventory some types of risk.

“We could see back into play that sort of all at once type of dynamic, especially if banks are not hedging properly.”

Sidial concluded that these dynamics provide opportunities to play that tail risk “to extract value and offer a more appealing payoff profile for our clients from dynamics happening on the back of the structured products market”.

“We're playing the value that we see in the tails where banks are not hedging that exposure,” says Sidial. “We think that there's a repricing of risk that could happen in the tails and we want to be buyers of some of those tails that could increase substantially during a crash.”

There's a repricing of risk that could happen in the tails and we want to be buyers of some of those tails

Crypto news

All the latest developments in digital assets from across the globe

CME Group to introduce event contracts on Bitcoin futures

The Chicago-headquartered derivatives exchange will expand its suite of event contracts to include Bitcoin futures on March 13, pending regulatory review.

‘These contracts, which track the daily price moves of our deeply liquid benchmark Bitcoin futures, offer an innovative, lower-cost way for investors to trade their views on the up or down price moves of bitcoin,’ said Tim McCourt (pictured), global head of equity and FX products at CME Group.

First launched in September 2022, the contracts will allow individuals to trade their views on daily up or down price moves in some benchmark futures markets, beginning with E-mini S&P 500, E-mini Nasdaq-100, E-mini Dow Jones Industrial Average, E-mini Russell 2000, crude oil, natural gas, gold, silver, copper and Euro FX.

Valued up to US$20 per contract, these daily options on futures enable participants to know their maximum profit or loss when entering a trade.

Spirit Blockchain strikes partnership with Valour

Spirit Blockchain Capital, a Canadian provider of digital asset structured products, has tapped Valour as the lead order in the private placement currently being undertaken by the Company.

Valour is a public blockchain-focused technology company that aims to bridge the gap between traditional capital markets, Web3, and DeFi with three business lines - Valour Asset Management, Valour Ventures, and Valour Infrastructure.

Olivier Roussy Newton (pictured), CEO of Valour, intends to

seek a seat on the Spirit board following the closing of the private placement.

In addition, Spirit CEO Lewis Bateman will join the board of directors of Valour and guide in its product development. Over the following six months, the two firms will also establish objectives, key results and performance indicators for the spartnership and execute definitive agreements.

‘This partnership symbolizes Valour’s commitment to building the leading decentralized digital asset management firm in the world,’ said Newton.

Credit Suisse leads Taurus’ blockchain funding round

Taurus, a digital asset infrastructure provider for financial institutions in Europe, has secured US$65 million in a Series B capital raise from strategic investors.

The Series B round was led by Credit Suisse and includes participation from new institutional investors such as Deutsche Bank, Pictet Group, Cedar Mundi Ventures, as well as from Series A investors, Arab Bank Switzerland and Investis, a stock-listed real estate group.

The funds will be used to support the company’s growth strategy across three main priorities including the expansion of its work force with top engineering talent to further develop its platform, as well as sales to expand the reach of its infrastructure solutions across Europe, UAE and soon in the Americas and South-East Asia. Some of the capital will be used to implement ‘the most stringent security, risk and compliance requirements across product lines, processes and organizations’.

According to André Helfenstein (pictured), CEO, Credit Suisse (Switzerland), the strategic partnership with Taurus is ‘a cornerstone of the Swiss Bank division's digital assets strategy with the ambition to become the leading Swiss bank in that space’.

‘We continue to embrace new and innovative technologies

and expect to soon launch several digital asset services for clients both on the issuing and the investment side,’ he said.

Taurus’ digital assets platform offers custody via TaurusPROTECT which provides ultra-secure storage and transfer of hundreds of digital assets including support for staking, decentralised finance (DeFi), tokenised securities, and digital currencies; tokenization via Taurus-CAPITAL which enables issuance, deployment, and lifecycle management of any type of tokenized assets (equity, debt, structured products, physical assets, NFTs); as well as a regulated marketplace allowing the trading of tokenized securities on the company’s T-DX platform.

Taurus already works with more than 25 financial institutions and corporate clients in eight countries and three continents, including systemically important financial institutions, retail and online banks, private banks, crypto-banks, investment banks, and broker-dealers, said Lamine Brahimi, co-founder and managing partner of Taurus.

‘Raising USD 65mn in the current market environment tells a lot about the quality of Taurus' people and products,’ he said.

SynOption launches portfolio risk management solution

The Singapore-based digital assets trading firm has rolled out its platform for portfolio management in February, which allows ‘institutional and sophisticated investors to view their risks in a modular, efficient, and metricized manner specifically on non-linear products such as options, exotics and structured products’.

‘Clients have increasingly bigger OTC portfolios, and SynOption provides a solution to view risk across exchanges and OTC, static and dynamic portfolio risk analytics, OTC trade booking and lifecycle management and dynamic portfolio setup,’ said Says Anchal Jain (right), CEO of SynOption.

The platform provides portfolio views, market data, trade booking, all via a GUI or API based access. The lifecycle management module gives the user the ability to book deals, exercises, expiries, as well as to manage fixings and barriers. The administrator module allows for customized configuration of portfolios and provides rights to view or edit portfolios.

‘The initial product covers FX and digital assets markets, executed via OTC or exchanges, and products starting from simple cash trades to vanilla options, exotic options, and structured products. We intend to add more exchanges, commodities, and other product types in upcoming releases, according to Gurpreet Chhatwal, COO of SynOption.

WeQuant introduces AI-powered cryptocurrency trading platform

WeQuant has launched a platform designed to provide global crypto trading users with strategies 24/7 using artificial intelligence (AI) technology, including classical grid, martingale, channel oscillation, and AI-based strategies.

Developed by WeQuant, a US crypto infrastructure provider, the platform uses AI-driven big data research to quantify and model different data sources, such as K-line patterns, macro data, derivative data, and on-chain data.

This information is then filtered through AI algorithms to develop the convenient trading strategies, reducing the impact of human emotions on investment decisions.

The company has also undergone ‘extensive preparation and internal testing’ to provide high-frequency trading and quantitative arbitrage strategies for cryptocurrencies and other financial derivatives.

Cumberland Labs launches Hashnote to streamline structured products

As ‘the first fully regulated, institutionalgrade investment management platform for DeFi’, Hashnote is backed with US$5m of investment from Cumberland Labs, a blockchain incubator formed by trading firm DRW and its crypto asset arm Cumberland in 2022.

The platform offers full regulatory and KYC/AML compliance for a range of investment structures including yield generation, downside protection and leveraged upside products.

It aims to simplify the complexities of DeFi while ensuring verified transactions with every counterparty by combining the familiarity and regulatory compliance of existing traditional finance fund infrastructure with on-chain security.

‘Accessing crypto markets and structured products through DeFi is currently overly complex, typically unregulated, and rife with useability and platform risk,’ said Tama Churchouse (pictured), head of strategy and business development at Cumberland Labs.

‘Given the multiple setbacks that have characterized the space in the past twelve months, we believe the market needs a solution like Hashnote. Coming from a TradFi derivative structuring background, I know this is a sorely needed product and am onboarding as Hashnote’s first client.’

Marex makes first foray into DeFi products

Marex Solutions - a division of Marex specialising in the manufacture and distribution of customised derivative products – has entered into a partnership with MEV Capital, an EU-based digital asset manager specialised in finding and extracting value from the burgeoning Decentralised Finance (DeFi) market.

Under the collaboration agreement, the two companies have designed and deployed new digital assets products to provide on-chain solutions for professional clients.

Marex’s choice of MEV Capital was driven by the firm's expertise and proven track record in the DeFi market, as it seeks to ‘bring new and exciting opportunities for clients looking to diversify their portfolios and capitalise on the growth of digital assets’.

‘Manufacturing innovative derivatives with MEV Capital's expertise will allow both parties to create new products that combine the best of centralised and decentralised finance,’ said Harry Benchimol (pictured), co-head of derivatives engine, Marex Solutions.

Laurent Bourquin, managing partner of MEV Capital, said: ‘Our collaboration with Marex is a real leap forward for the institutionalisation of DeFi. It will facilitate its access and anchor the positioning of digital assets as a new asset class for the years to come.’

Yield App acquires US structured product provider

Digital wealth platform Yield App has acquired Trofi Group, a crypto platform that offers structured product solutions, to capitalise on ‘growing investor demand for enhanced yield investment opportunities’.

Yield App adds four new structured product strategies offering the opportunity to ‘capture upside across a range of market conditions’. These include dual currency structures which can help acquire a cryptocurrency at a lower price at a predetermined point in the future, while also earning yield; a range structures to generate yield with a view that markets will remain within a specified price range; sharkfin structures targeted at investors with a moderately bullish view on future prices, which will pay a guaranteed minimum coupon with the potential to generate a high yield at maturity; and target

products designed for investors with a bullish view on the future price of a cryptocurrency.

Following the acquisition, Yield App will be launching ‘Trofi, powered by Yield App,’ a beta version of a dedicated investment app which will allow access to Yield App's first crypto structured products.

‘Structured products have been a core offering under wealth management for years. But in crypto, structured products have not yet gained the prominence they have in traditional finance,’ said chief investment officer of Yield App, Lucas Kiely (pictured). ‘As cryptocurrency markets mature, we find ourselves at a perfect inflection point to introduce digital asset structured products that are built with the same methodology and benefits as an exciting alternative for investors with different risk appetites and objectives.’

Trofi Group was founded in 2021 by Andrew Lam, a former FX Options Trader at HSBC Global Banking and Markets.

Coinbase and GenTwo Digital announce partnership for custody and execution

GenTwo Digital, the Zug-based subsidiary of GenTwo, has partnered with publicly-listed cryptocurrency platform Coinbase, to expand the investment universe on digital assets available for professional investors.Under the partnership Coinbase crypto assets to be wrapped in bankable financial investment products to enable financial intermediaries to issue passive and actively management certificates (AMCs) - any financial intermediary can create white labelled investment products in collaboration with GenTwo Digital and execute via Coinbase’s platform.

Coinbase Prime is a fully integrated platform built specifically for institutions to support the entire transaction lifecycle including advanced multi-venue agency trade execution for 200 assets, custody for more than 360 assets, financing, staking and staking infrastructure, data and analytics, and reporting.

Institutions can access Coinbase Prime directly via a user interface or as an integrated platform via APIs to offer crypto related products such as ETPs and ETFs, custodial solutions, or brokerage for their institutional, private wealth, and retail clients.

‘These instruments will benefit from execution services through Coinbase multi-venue execution platform, and assets will be held 1:1 in segregated cold-wallets for optimum security,’ said Guillaume Chatain, head of Emea institutional sales at Coinbase.

Coinbase Institutional powers several institutions including involved in the digital assets market including BlackRock, Google, Wisdom Tree, 21 Shares, Grayscale, PIMCO, Brevan Howard Digital, Invesco, GSA Capital, Lakestar, and Millennium Global.

StructrPro: worst performing structures in US beat reference underlyings

Table 1: Worst performing structured product underlyings over 12 months (Structrpro.com) up to 30 Dec 2022. Qualifying assets are linked to at least 100 structured products on Structrpro.com. The table also shows the average annualised performance of both live and matured structured products linked to each underlying.

*Qualifying assets are linked to at least 100 structured products on Structpro.com. The table also shows the average annualised performance of both live and matured structured products linked to each underlying. Source: StructuredRetailProducts.com

Underlying performance (index, stock or other asset class) is a key driver of product returns. Structured products are often positioned as a lower risk way of gaining exposure to underlyings. By looking more closely at product performance for those underlyings that have not performed well over a period it will be interesting to see if the structured products provide protection to investors compared to direct investment in the underlyings. The performance statistics shown here were taken from the US structured product analysis service Structrpro. com, which can be used to analyse live and matured products from the SRP database using analytics powered by FVC.

For this study we have restricted results to underlyings linked to at least 100 structured products on the service. It can be seen from the table that four of the five worst performing underlyings of 2022 are individual stocks and the other is the ARK Innovation ETF. The stocks are technology companies with the exception of Tesla although particularly since the Twitter takeover it clearly has had similar exposures.

For all five underlyings their highest level for 2022 was right at the start of the year (3 January 2022). The stock with the worst

performance over the period was Snap Inc. It was down 81% from its level at the beginning of the year. The one-year historic volatility of the underlying is currently 122%.

Most at risk structured products come with a capital protection barrier allowing for capital return at maturity in the case of falls in the underlying up to a certain level. The average barrier level for products linked to Snap Inc on structrpro.com is 55%. Stock price falls of the magnitude seen by all of these underlyings over the past twelve months are rarely going to be caught by the protection offered by such barriers.

However, these performance figures are point to point so given products strike and mature on a rolling basis barriers may well still preserve capital in some cases depending on the strike and final level of the asset.

The historic volatility for these five assets is very high which is unsurprising given their recent performance. In all cases the one-year historic volatility is higher than at this point last year. The one-year historic volatility of the benchmark has increased by more than 85% itself.

Following our recent article about the high performing popular underlying assets in the US equity structured products market we now look at the other end of the performance table, concentrating on those that have had the lowest performance over the past year.

By Suzi Hampson

Table 1: One-year historic volatility for stocks as at 01 Jan 2022 and 01 Jan 2023

Of the five underlyings, Tesla Inc is ranked third worst by 12-month performance however it has the highest returns of this group when looking at structured product returns, both live and matured. The matured products are showing a gain of 15.55% whist the live products are showing a loss of 37.88%.

Figure 1 plots value (both maturity and live) vs time in years for products linked to Tesla. This shows that even over the past year where the stock itself saw huge falls there were structured products returning positive returns. This can be explained by the high proportion (96%) of income autocall products which can pay maximum returns as long as the capital protection and income barriers are not breached.

The outlook for the live products is not so promising, but this is to be expected given that most of them struck at levels prior to 2022 or before the market decline. The average barrier level for Tesla products at strike was set at 52.72%,

current stock levels is now 156.58% meaning significant stock rises are required for these products to repay capital and avoid barrier breaches.

For those products where the coupon is contingent on a certain level as well as capital repayment the equivalent average coupon barrier level is currently 164%. Given that these products have maturities of up to five years there is still ample time for the stock to recover for many of the products.

Overall, the performance of the structured products both matured and still live linked to these underlyings is greater than the performance of the underlying itself over the time period. Structured products usually have some feature or mechanism used to reduce risk compared with the asset they are linked to. However, these can only go so far to protect investors given that to offer high yields the products cannot have full capital protection. In cases of an extreme market downturn investors will

Source: StructuredRetailProducts.com

The big shift: the search for income begins

There have been significant increases in interest rates across all major markets in the last 12 months. This has been caused primarily by inflation concerns causing central banks to raise rates.

As a result, the world has quickly moved into a higher rate environment after over a decade of near-zero interest rates and many commentators wondering they would ever rise again to more normal longer-term levels. While the rise in interest rates is interesting from a macroeconomic perspective it also fundamentally changes the investment landscape.

Until a year ago, cautious investors were having to make a choice between accepting very low yields from any cash-based investment, gaining slightly more returns from a bond portfolio

but with exposure to rate rises or accepting market volatility by utilising equities or equity-linked products.

With the rise in interest rates many income generating possibilities have appeared. The simplest of these are cash and deposit rates that have started to rise, followed by a bond market which has adjusted to higher rate expectations by shedding capital value last year. While both these asset classes offer higher rates than a year ago, they are still around the 4% pa mark in most major currencies such as US dollar and the euro. Many investors are looking for levels in excess of this figure with minimal risk.

Structured products provide a wealth of income generating solutions, divided between capital-protected and at-risk

The increase in interest rates in 2022 has triggered fundamental changes in the investment landscape and the product mix in the structured products market.

By Tim Mortimer

Image: Leeyiutung/Adobe Stock

products. With the rise in rates the capital protected sector of the structured product market has become more attractive in recent months. Although capital-protected products can offer growth (through the classic bond plus option route) the recent increase in popularity has focussed on income.

A year ago, when interest rates were so low the structured product market was one of the few ways to chase higher yield at acceptable risk. The most common product types were the autocallable and issuer callable.

The autocallable has been the dominant income generating choice and when rates were so low some providers also turned to the Issuer callable which provided extra yield because of the optionality for issuers. Issuer callables have significantly fallen away in popularity as higher interest rates mean simpler alternatives are available. This is a frequently observed phenomenon in investments: more complex solutions might be in vogue for a while when direct ways to achieve a basic goal are not viable, but they quickly disappear when fundamentals revert to supporting the obvious approach.

While the autocallable remains popular it has been joined by other simpler solutions, these are the reverse convertible, protected digital and protected fixed income product types.

The reverse convertible started out as the first structured product payoff to provide income at some moderate risk to capital. They have long since been replaced by autocalls as the main high yield structured product strategy partly because the yields that can be achieved by autocalls are often double the yield on the same underlying and maturity. In turn the reason for this is that autocalls in general only pay yield successfully in early years until calling and rarely for the full term.

The autocall has therefore never been a perfect yield vehicle, it is a targeted risk play. Reverse convertibles are much closer to corporate bonds for example since both generally have fixed maturity, capital return target and headline coupon rates. Since both reverse convertibles and corporate bonds are providing higher yields than the risk-free rate there must necessarily be some risk to capital, income or both. Now that rates are rising, the reverse convertible can again offer reasonably attractive fixed maturity yield targets.

Another hybrid offering is the protected digital which pays a fixed amount if the index or underlying is above a target level either per annum or at maturity. The most regular construction is above a level of 90% or 100% of the strike level at a single point at maturity on a three to five-year term. Unlike the reverse convertible it is easy to offer this as a capital protected product however there is uncertainty over the income and in many cases, it is not even regular but just a rolled-up payment at maturity.

In the UK several structured product distributors (for example Causeway Securities, Mariana Investments and MB Structured Investments) have started distributing products that are purely fixed income and only subject to counterparty risk. However, they include a small equity kicker for example paying 0.5% at maturity if the reference index is above its start level. Issuing banks that have provided this type of product include Barclays, Royal Bank of Canada and Goldman Sachs.

This may seem an odd construction as it does little to change the economics. However, the investment bank that issues such products may have internal funding or capacity issues that means they prefer to turn a bond into a derivative back equity linked product. Both the bank trading desk and the distributor that places them may also prefer to keep the product more closely aligned with their regular offerings and revenue streams by utilising this equity component.

There have been repeat issues of such products in the last six months demonstrating that they have been successful, but such a move is undoubtedly counterintuitive. For many years the regulatory burdens that exist around any complex product means that there have been some attempts to move structured product payoffs out of that wrapper. Classing a fund of structured products as a UCITS or fund vehicle is the most obvious example, therefore these deposits seemingly take a step in the opposite direction.

Given trends in interest rates we can expect the structured product market to continue to stay involved and offer new solutions to the perpetual demand for fixed income.

Disclaimer: the views, information or opinions expressed herein are those of FVC, and do not necessarily reflect the views of SRP.

Structured products provide a wealth of income generating solutions, divided between capitalprotected and at-risk products

Spotlight on… capital protection in Europe (Q4 2022)

An estimated €24 billion (US$17.8 billion) was collected from approximately 28,500 structured products in the fourth quarter of 2022 – down 27% by sales volume compared to the same quarter last year (Q4 2021: €33m from 34,000 products).

Some 32% of the notional in Europe during Q4 2022 was invested in products offering 100% capital protection, against just six percent in the prior year quarter, according to SRP data.

The market share of fully capital protected products steadily progressed throughout 2022, starting at the beginning of the year when the two-year USD swap rate surged above two percent and volatility spiked across all markets which meant tenors could be reduced to two-years.

Hence, as early as Q2, some markets started to see activity in short maturity capital protected notes, including the reappearance of Shark notes denominated in US dollars. An example is the two-year 100% ProNote USD on the Swiss Market Index (SMI), which was issued by Credit Suisse in Switzerland.

By July, the market share for capital guaranteed products had increased to 14% after Eurozone rates moved from negative territory to +2.5%, allowing banks to focus on shorter-dated products and with fixed maturities, which carry less risk, while at the end of Q3 it had reached 26%.

The levels of 100% capital protected structures in the individual European markets varied in Q4. In the UK, their market share increased from 3.5% in Q4 2021 to 18% in Q4 2022; in Sweden it was up from 0.8% to 15%; in Germany it went from 2.6% to 15%; and in Belgium

Europe: capital protection by market share (EURm)*

it increased by 51 percentage points: from 47% to 98%. In markets familiar with autocalls, such as France, where the market share of capital guaranteed products increased to 34% (Q4 2021: 2.4%), we now see all the main issuers, including Société Générale, Morgan Stanley, Credit Suisse, BNP Paribas and Citi, offering autocalls with 100% capital protection.

In Q4, 41 such products were issued in the French market, including LCL Pro Capital 100, which is linked to the Euro iStoxx 50 GR Decrement 3.75% Index and BNP Paribas Asset Management’s Apollo

Economie Circulaire II which offers access to the ECPI Circular Economy Leaders NTR 3.5% Decrement Index.

Another product that became increasingly popular towards the end of the year were the bonus fixed rate notes, which were seen in France, Ireland and the UK, among others.

An example is Barclays’ two-year Bonus Fixed Income on the Eurostoxx 50, which pays a fixed annual coupon of 2.35%. At maturity, a bonus coupon of 0.1% is paid, providing the index closes at or above its initial level.

Thirty two percent of the notional in Europe was invested in products offering full protection, against six percent in the prior year quarter

Spotlight on… indices in France (Q4 2022)

In the fourth quarter of 2022, some 32% of index-linked sales in the French market was tied in products on the Eurostoxx 50 (SX5E) – an increase of eight percentage points year-on-year (YoY) and up 13 points from the low seen in Q2 2022.

The rise was driven by the increase in interest rates in the second half of the year, allowing issuers to provide simple structures on the European benchmark once again. During the quarter, an estimated €1.7 billion was invested in products tied to the SX5E (Q4 2021: €1.2 billion). Products issued by Morgan Stanley collected almost 30% of the volumes linked to the index, with Crédit Agricole (23%), Goldman Sachs and Société Générale (12% each) also frequently issuing products on the SX5E.

Sales for index-linked products totalled €5.4 billion in Q4, up 4.5% YoY. At 34%, the

largest chunk of volumes was invested in structures on benchmark indices, which apart from the SX5E also included the S&P 500, Nasdaq 100, and the local Cac 40. A further 4.8% was invested in sector benchmarks. Sales of products linked to decrement indices, at an estimated €3.1 billion, were significantly down from previous quarters, especially compared to Q2 when €4.8 billion was gathered.

However, with rates back to historically normal levels, option budgets are higher, and there is less need for decrement, which was clear in the French market during

Q4. This especially applied to products linked to indices where the decrement is a percentage whose sales were down 57% compared to Q2.

Despite the lower sales, the latter category was still responsible for the best-selling index-linked product of the quarter, which came in the shape of Iris Impact, an eight-year green bond from Natixis that was distributed via the Caisse D’Epargne network. It offered access to the iEdge ESG Transatlantic SDG 50 EW Decrement 5% NTR Index and collected approximately €200m during its subscription period.

The Eurostoxx 50 increased its market share as higher interest rates lessened the appetite for decrement indices

top issuer groups by market share

Product wrap: SG tracks new Euronext climate index in France

Belfius Bank collected €453m with Active Interest 03/2027 in Belgium. The four-year steepener pays a fixed coupon of 3.35% pa during the first two years of investment. The following years, the annual coupon is equal to two times the difference between the 30-year EUR constant maturity swap (CMS) rate and the two-year EUR CMS rate, subject to a minimum of 2% and a maximum of 3.50%. At maturity, the product returns 100% of the nominal invested. The product is issued via the notes issuance programme of Belfius Financing Company. The cost at inception was 2.20%.

The product is the banks highest seller since September 2008, according to SRP data. Back then its DFN EUR 5,35% 2012-2014, a fixed rate callable (5.35% pa) gathered sales of €477m. Priips SRI: one out of seven.

BNP Paribas Wealth Management marketed Starlight 100 Net Zero Paris Aligned Select mars 2027 in France. The four-

year certificate is linked to the S&P EuroUSAJapan 100 Net Zero 2050 Paris-Aligned Select 5% Decrement Index, which is designed to measure the performance of several equity securities drawn from the S&P Eurozone LargeMidCap, S&P United States LargeMidCap, and S&P Japan LargeMidCap that are collectively compatible with a 1.5ºC global warming climate scenario at the index level.

After two-years, the product is subject to early redemption, providing the index closes at or above its initial level. In that case, it offers 110% capital return. At maturity, if the index closes at or above its initial level, the product offers 120% capital return. Otherwise, it returns the nominal invested. The product is listed on the Luxembourg Stock Exchange for an issuance amount of €150,000. Priips Summary Risk Indicator (SRI): two out of seven.

Also in France, Hedios Patrimoine collaborated with Natixis for the launch of H Rendement 45. The 12-year unit-linked insurance plan is tied to the performance of the Euro iStoxx 70 Equal Weight Decrement 5% Index, which tracks the 70 largest constituents

Source: StructuredRetailProducts.com

In this wrap, we look at a selection of structured products with strike dates between 16 January and 19 March 2023.

in terms of free float market capitalization from the Eurostoxx universe, whilst assuming a constant dividend mark down of five percent pa. If, on the quarterly observation date (starting after the first year) the index closes at or above 105% of its starting level, the product redeems early, and the investor receives 100% capital return plus a coupon of 2.50% for each quarter that has passed. At maturity, capital is preserved providing the index does not close below 70% of its starting value. The product is listed in Luxembourg. Priips SRI: five out of seven.

Banca March launched March Vida Multi Estructuras Emisión V 2022 Fijo+Bonus in Spain. The four-year, unit-linked deposit is targeted at the bank’s private clients and offers 100% capital return, plus a coupon of 4.80% at maturity. However, if the underlying Ibex 35 index closes at or above its starting price on 18 January 2027, a coupon of 9.60% is paid. A one-off entrance fee of 0.63% applies. This product is not listed. Priips SRI: one out of seven.

Consensus Asset Management introduced Kreditbevis Intrum 3 to its private clients in Sweden. The 4.9-year creditlinked note offers exposure to Intrum Justitia AB. Every six months, it pays a fixed coupon of 4.75% (9.5% pa). At maturity, if the underlying company has remained solvent, the product offers 100% capital return. However, if at any time during the investment term a credit event has taken place, the product stops paying the coupon and the return at maturity is diminished with the amount written off. A production fee of up to two percent is included in the purchase price. A distribution fee of maximum three percent will be paid by Nordea (the issuer). The product is listed at Nasdaq OMX Stockholm. Priips SRI: four out of seven.

Aktia distributed Osaketodistus Vihreän Siirtymän Raakaaineet II in Finland. The five-year autocall is linked to the Stoxx Europe 600 Basic Resources Index. It has annual knockout observations from 26 February 2024 onwards. If, on any of the validation dates, the index is at or above its initial level, the product offers 100% capital return, plus a coupon of 11% for each year that has passed. Capital is preserved if the index does not close below 50% of its starting price at maturity. Barclays is the issuer. The commission payable will be no more than four percent. The product is listed at Euronext Dublin. Priips SRI: six out of seven.

Santander launched Defined Return Plan 41 in the UK. The deposit has a six-year tenor and offers minimum 100% capital return, plus a coupon of 63%, providing the final level of the FTSE 100 Index is at or above its initial level. Otherwise, a coupon of 2.50% is paid. The final index level is calculated as the average of readings taken on each trading day from 7 August 2028 to 7 February 2029. Priips SRI: three out of seven.

MIDDLE EAST & AFRICA

Causeway Securities marketed issue eight from its Fundsmith 95% Capital Protected Note series in South Africa. The six-year investment offers 95% capital return plus 130% uncapped participation in the performance of Fundsmith Equity Fund Sicav T EUR Acc, subject to quarterly averaging throughout the term (24 readings). The underlying fund is actively managed and invests in global equities. As of 30

December 2022, it managed €8 billion of assets. The product is denominated in US dollars and issued via Morgan Stanley.

NORTH AMERICA

Bank of Montreal introduced the US Fertilizer Callable Equity Income Notes, Series 3910 (CAD) (F-Class) in Canada. The five-year MTN offers access to three stocks from the chemicals sector: CF Industries, Mosaic Company, and Nutrien. A coupon of 1.265% (15.18% pa) is paid if all shares close at or above 70% on the validation date. The product redeems early if all shares close at or above 110% of their initial level. There is no selling concession fee. However, a fee of up to C$0.15 per note will be payable to Laurentian Bank Securities for acting as independent agent.

J.P. Morgan sold US$308m worth of Callable Fixed Rate Notes (48133PDZ3) in the US. The one-year registered note offers a fixed coupon of 2.50% per semester. At maturity, the product returns 100% of the nominal invested. There is an underwriting fee of US$1 for each note sold. Wells Fargo Securities acts as a selling agent.

Also in the US, Morgan Stanley collected US$84m with its one-year Callable Fixed Income Securities (61774TZB1) on a worst-of basket comprising Nasdaq 100, Russell 2000, and S&P 500. The product offers a fixed coupon of 11.12% pa, which is paid monthly. At maturity, if each index closes at or above 70% of their respective initial levels, the product

Source: StructuredRetailProducts.com

offers 100% capital return. Agent’s commission and fees total 0.75% and the estimated value on the pricing date is US$987 per security.

ASIA PACIFIC

Fubon Bank targeted 一年美金固定配息匯率型/Fixed Dividend Rate Structured Note at retail investors in Taiwan. The one-year US dollar denominated note is linked to the appreciation of the euro relative to the dollar. At maturity, if the EUR/USD is below 100%, the product offers 100% capital return, plus a coupon of 4.51% pa. Otherwise, the coupon is 4.5% pa.

IwaiCosmo Securities achieved sales of JPY330m (US$2.5m) with ノックイン債/KI M20250203 in Japan. The two-year autocall offers a fixed coupon of 3.31% pa, paid quarterly. It will redeem early if the Nikkei 225 closes at or above 105% of its starting level on the quarterly validation date. The product has an American barrier of 60%. Société Générale is the issuer.

HSBC Bank issued 股票掛鈎投資2023/Single DCDC ELI DFSIN2300078 in Hong Kong SAR. The unlisted daily cash dividend callable equity investment is linked to the share of Semiconductor Manufacturing International Corporation. The product has a daily autocall feature (starting from 28 February 2023) which is activated if the share closes at or above its initial level. At maturity, the product offers 100% capital return if the share closes above 82%. Otherwise, the investor participates 1:1 in the fall.

People moves

Citi

Citi has appointed Flavio Figueiredo as global head of corporate sales & solutions within the bank’s markets division in New York. In his new role Figueiredo (pictured) will drive coordinated coverage of corporate and public sector clients across all markets products. He will work with product heads in the banking, capital markets and advisory division, commercial banking solutions & services and treasury and trade solutions to deliver execution services and solutions.

The new role is an expansion of his prior role as global head of rates & currencies corporate sales and solutions, said the bank.

Steve Roti, head of strategic equity solutions, Ron Ruffini and Yoven Moorooven, co-heads of commodities corporate sales and structuring, will now report to Figueiredo, in addition to their pre-existing reporting lines.

Ashurst

Ashurst has appointed Evan Hillman as counsel in its global structured products practice, based in New York. He will report to Lloyd Harmetz, a partner in the global structured products practice. Harmetz (pictured) has driven new investment to grow the firm’s New York team and US securities law capabilities since joining in 2021.

Prior to joining Ashurst, Hillman was a senior managing associate at Sidley Austin, which included a secondment to Goldman Sachs, as well as serving as counsel in the Mergers & Acquisitions group at Royal Bank of Canada (RBC).

Hillman has broad experience advising clients on registered and unregistered structured note offerings, systemic trading strategies, ensuring that new underliers and investment products meet suitability and disclosure requirements, negotiating dealer and commercial agreements, and general securities and compliance issues, stated the law firm.

Lionel Phillips-Franjou (pictured) has been appointed as director, Apac head of complex structuring, multi-asset group at Citi. Based in Hong Kong SAR, he reports to Mario Serafino, managing director, Apac head of multi asset group, equity derivatives sales and solutions for financial intermediaries since October 2022. Phillips-Franjou has been tasked with designing, promoting and implementing structuring solutions for Citi’s clients in Apac, with a focus on Citigroup First Investment Management.

He joined from Société Générale, where his most recent role was that of head of cross structuring group, Apac ex-Japan, based in Hong Kong SAR since January 2021. Phillips-Franjou had been at SG since February 2007. He started as financial engineer, structured products in Hong Kong SAR before spending eight years at the French bank’s London office starting from April 2010. During his time in London, he was appointed as head of product development for Lyxor ETF before becoming director, head of global equity flow structuring, in June 2011 and subsequently coordinated cross asset structuring efforts with respect to delta one and exchange-traded products in Emea from 2015.

HKEX

Hong Kong Exchanges and Clearing (HKEX) has appointed Matthew Cheong (pictured) as managing director, head of structured products and platform business development at HKEX.

Cheong will work closely with the sales and marketing teams to support market outreach and engagement and collaborate with the operations and IT divisions on the development and implementation of the platforms for relevant HKEX products. He reports to Wilfred Yiu, who added to his portfolio of responsibilities the role of co-chief operating officer alongside Bonnie Y Chan at the end of January, in addition to his responsibilities over HKEX’s cash, derivatives, clearing and depository businesses as head of equities.

Cheong joined from Goldman Sachs where his most recent role was that of managing director, global markets, Asia Pacific equities, co-head warrants market making desk, and co-head equities technologies. He also worked at J.P. Morgan for six and a half years focusing on developing trading systems and technology as executive director.

Leonteq

Leonteq has appointed Alexandre van Gasselt (pictured) as head of markets. Van Gasselt reports directly to Leonteq’s chief executive officer (CEO) Lukas Ruflin. In his new role, Van Gasselt will oversee, among others, exotics trading, retail flow business, as well as delta-one, actively managed certificates (AMC), funds and quantitative investment strategies (QIS) trading activities. Previously, he was managing director, co-head trading at the Swiss structured product specialist.

Van Gasselt joined Leonteq in 2019 from Société Générale where he was a managing director. Prior to that he spent 14 years at Commerzbank in various roles, including co-head structured products technology, covering the financial engineering and front office infrastructure teams, and head of equity indices and cross assets structured products trading. He started his career at the German bank in 2005 in equity exotics trading.

Leonteq also announced a change to its executive committee, as Marco Amato, deputy CEO & chief financial officer (CFO) of Leonteq, will step down from his role by 31 August 2023 to pursue new opportunities. Amato joined Leonteq as CFO in September 2016, and additionally served as chief risk officer between November 2016 and October 2017. In October 2017, he was appointed CEO ad interim replacing Jan Schoch who left the company following a €20m net loss in January 2017. Since May 2018 Amato has served as deputy CEO and CFO.

HSBC

Vivek Kumar (pictured) has been appointed as global head of FX and derivatives platforms & product management at HSBC based in Singapore. He has been charged with modernising and introducing new digital technologies and platforms to provide an automated user experience across foreign exchange (FX), structured products and derivatives solutions at scale.

In this newly created role, Kumar reports to Fidelis Oruche, managing director, global head of capital markets and investments and wealth solutions (IWS) platforms, global private banking and wealth at HSBC, also based in Singapore.

Kumar joined from SCB where he was executive director, head of products (FX, interest rate and commodity) within the capital market product and solutions (CMPS) unit from February 2018.

From May 2010 to January 2018, he was business manager specialising in FX and rates derivatives as well as credit under the financial markets division at SCB. Kumar started his career at Barclays where he worked as a business analyst in FX, rate and credit based in Singapore and Hong Kong SAR for three years.

Standard Chartered Bank

Olivier Pierlot (pictured) has been promoted to global head of structured products & fixed income product management within the capital market products & solutions (CMPS) division at Standard Chartered Bank (SCB). Pierlot continues to be based in Singapore and reports to Nicolas Rigois, managing director, global head of CMPS at SCB. His mandate has been expanded to fixed income and credit in addition to the management of the structured products business.

In his expanded role, Pierlot has been tasked to drive the product development globally for retail as well as private banking segments, and to broaden the structured product and fixed income franchise to the high-growth markets for SCB. He joined the UK bank in May 2015 focusing on equity derivatives in the private and priority banking segment across Asia, the Middle East and the UK.

Prior to that, he spent almost nine years at BNP Paribas Wealth Management as a discretionary portfolio manager in Hong Kong SAR and successively an equity derivatives structurer and advisor in Singapore.

Leonteq

Thorsten Heidt (pictured) has joined Leonteq as managing director at the Swiss provider’s Frankfurt office. Heidt rejoins the structured products industry after a 12-month career break following his departure from Société Générale in December 2021.

Heidt transferred to the French bank in 2019 as a managing director following the acquisition of Commerzbank’s equity markets & commodities (EMC) division. He was head of corporate & institutional sales Dach region EMC since 2016 after he relocated from Hong Kong where he was managing director and head of equity markets & commodities Asia. Heidt joined Commerzbank in 1997 as a

junior equity derivatives trader and held several management positions in derivatives trading covering various asset classes, including commodities, foreign exchange, interest rates and single stock equity derivatives. He also served as a member of the supervisory board and representative for Commerzbank at Deutsche Börse Commodities between 2008 and 2011.

Société Générale

Société Générale (SG) has appointed Jung-Jin Yoon (pictured) as managing director, head of cross-asset sales & structuring for Asia Pacific (Apac). The appointment is part of the French bank’s decision to combine its structuring team together with its crossasset sales force. Yoon will continue to be based in Hong Kong SAR.

Yoon joined SG in Hong Kong SAR in 2007 before relocating to Seoul to lead the local cross-asset distribution activities in 2013 as the bank bolstered its Korean setup. He returned to Hong Kong SAR in 2017 as head of cross-asset distribution sales for Asia ex-Japan before his mandate was expanded to Apac in April 2020.

The reorganisation is to ‘ensure a strong alignment of the bank’s innovation capabilities to its clients’ needs for solutions’. Olivier Renoux and Tommy Paulhan have been appointed co-heads of structuring for products & solutions, global markets, Apac - an expansion from their existing roles.

Renoux and Paulhan, who are both based in Hong Kong SAR, will report locally to Yoon with a functional reporting line to Pierre Gimenes and Vincent Vigroux, managing directors, and global co-heads of structuring for products & solutions at SG in Paris.

Ranked as managing director and director, respectively, Renoux and Paulhan will replace Olivier Daguet, head of structuring for products & solutions, global markets, Apac at SG. Daguet will return to Europe although the timeline for the move and the new role have not been disclosed.

Renoux joined SG in New York in 2005 as an equity derivatives pricer. In 2010, he relocated to Hong Kong SAR, and was later promoted to his current position - Apac head of equity pricing and cross-asset quantitative investment strategies (QIS). Paulhan has acted as Apac head of fixed income & currencies (FIC) pricing since 2019 after his relocation from Singapore to Hong Kong SAR. He joined the French bank in 2006 where he started as a market risk analyst covering Lyxor’s hedge funds managed account platform in Paris.

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