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Irish regulator updates guidance on decrement, back-testing

The Central Bank of Ireland (CBI) has released new supervisory guidance to investment firms to clarify aspects of the relevant Mifid 2 investor protection requirements and the expectations set out by the regulator in the SRP Letter on Mifid 2 structured retail products last year.

material or brochure and on the page on which the decrement index is described in further detail’.

The letter provides two sample warnings (one for the front page, and one for the page that describes the index in more detail).

period,' in light of the predominantly positive market conditions in recent years, firms must avoid using a large number of overlapping simulations which show little, if any, capital losses as that has the potential to mislead clients about the likelihood of suffering a capital loss.

These relate to how the warnings on use of a decrement index should appear, and the presentation of back-testing.

The use of decrement indices – ‘where a fixed dividend is periodically deducted from the underlying index and which can act as a 'downward drag' on performance where it is higher than the actual dividend paid, and in particular where the index falls below its initial level - was identified as an area of particular complexity by the regulator in 2022.

Going forward, financial firms using decrement indices in their products will be required to provide a prominent warning which must appear in a separate text box ‘on the front cover of the marketing

The letter also confirms that if a product uses a fixed dividend deduction in the form of a fixed point value rather than a percentage investors should be aware and understand that this 'drag on performance' will be accelerated if the index falls below its initial level, and that a sustained fall in markets will accelerate the decline in the value of the index.

‘This should be clearly reflected in the firm’s example scenario illustrations,’ stated the regulator.

The Irish regulator is also seeking to ensure that the presentation of historic data by structured products providers isn't misleading and noted that ‘using past performance representations covering periods of positive client outcomes, (…) may not accurately reflect the likelihood of future capital loss for investors.

According to the Central Bank, although firms can use the past performance of the underlying asset over an ‘appropriate

‘This often results in thousands of positive simulations over a short period that presents zero or minimal examples of capital loss,’ stated the regulator.

The Central Bank expects that the risk of capital loss must not in any way ‘be diminished, downplayed or masked by the firm’s presentation of past performance information’.

‘Firms are expected to ensure that all information presented is balanced, accompanied by prominent and clear warnings, and consistent with the risk profile of the product,’ it said.

The guidance update is part of the Irish regulator’s implementation of the findings from a series of targeted reviews on structured products led by Colm Kincaid (pictured), CBI’s director of consumer protection, aimed to keep product providers in line as the market shifts ‘towards increasingly complex structured products’.

Going forward, financial firms using decrement indices in their products will be required to provide a prominent warning

UniCredit remains dominant despite increased competition

UniCredit achieved its goals in Italy in 2022 after a strong year. The bank placed more than €2.6 billion (US$2.8 billion) in structured products while increasing the volume placed with its distributor partners by 73% year-on-year, further cementing its leadership as an issuer of structured products in the Italian market.

Italiana Certificati e Prodotti d'Investimento (Italian Association of Certificates and Investment Products – Acepi), the volume of structured products placed in Italy has seen a 5.4fold increase over the past decade: from €2.5 billion in 2012, to more than €16 billion in 2022.

“Naturally, this growth has attracted all the major European and American houses […] the consequence being that the choice of issuers in Italy has widened, and the competition intensified,” Albano said.

tenor linked to both inflation and the equity market.”

The product pays an annual coupon equal to 120% of the European inflation (Eurozone HICP ex Tobacco) while at maturity, if the Eurostoxx Banks Index stays above a barrier of 41.38 points, the investor will receive 100% of the initial investment.

“For context, today the index sits around 100 index points,” Albano said.

The bank’s strengths continue to lie in its proximity to clients, according to Roberto Albano (pictured), its head of investment products distribution southern Europe.

“The pre- and post-phase of any deal, the marketing support, and the depth of our product platform, as we offer capital-protected as well as conditional capital-protected and autocallable products,” he said.

“These are important, as any potential partner knows that with UniCredit they have access to payoffs and underlyings that fit any market context.”

According to the Associazione

SRP data shows that last year, 21 issuer groups were active in the Italian market, including Intesa Sanpaolo, BNP Paribas, Société Générale, Leonteq, UBS, Citi and Goldman Sachs.

One of UniCredit’s highlights for last year was a three-year Cash Collect Certificate linked to the Eurostat Eurozone HICP ex Tobacco Unrevised Series NSA and the Eurostoxx Banks Index.

“We always want to be reactive around clients’ needs,” said Albano. “When we first saw signals that inflation was rising in June 2022, we designed a hybrid structured note with a three-year

For the remainder of 2023 and beyond, Albano believes clients will profit from the various bouts of volatility that he expects to see over the course of the year.

“To this end, autocallables on stocks and indices should still be very popular.

“We may also see an increase in capital-protected products – with the market growing from €3 billion to €11 billion over the course of last year. This was primarily due to the uncertain geopolitical environment and rate pickup supporting protected structured products,” Albano concluded.

The SRP Italy database registers 100 structured products issued by UniCredit with a strike date in 2023 to date.

Any potential partner knows that with UniCredit they have access to payoffs and underlyings that fit any market context

DDV: German certificates outperform underlyings

Sixty-two percent of discount certificates generated a positive return in 2022, according to a report commissioned by the German Derivatives Association (Deutscher Derivate Verband – DDV).

“The success of discount certificates is based on the ease with which they can be intuitively understood,” he said.

Investors buying a discount certificate get a price discount on the underlying asset, which acts as a buffer if the price of the underlying asset falls. In exchange for this discount, investors accept that they will only participate in the performance of the underlying asset up to the level of the cap.

“This creates a more defensive risk/reward profile than a direct investment in the underlying,” said Vollmuth.

DDV study. “A comparison of the last two years on stock markets indicates that 2021 was a bull market, initially characterised by strongly rising prices, which stagnated at a high level from autumn onwards.

“In this environment, very many instruments – underlyings as well as discount certificates – generated positive returns. The risk buffers were rarely used, which can also be seen in the fact that ‘only’ 41% of discount certificates outperformed their underlyings in 2021,” said Vollmuth.

The study, which was conducted on behalf of the DDV by TTMzero in collaboration with the Stuttgart Stock Exchange, examined 173,151 discount certificates on the top 70 underlyings from Germany, Europe and the US, including five indices and 65 stocks.

Overall, almost 62% of the discount certificates examined generated a positive return against 39% for the respective underlyings. Some 67% of the discount certificates outperformed their underlying assets in the relevant period while 24.2% achieved a positive return, despite a negative performance of the underlying.

Discount certificates are among the oldest and most popular types of structured product in Germany, according to Christian Vollmuth (pictured), CEO and member of the board at the DDV.

With more than 150,000 products on offer, discount certificates represent over 40% of the structured investment products open to investment in Germany. The range currently includes more than 560 underlyings in the asset classes of equities, indices, and commodities.

“The wide range of caps and maturities makes it easy to integrate nuanced strategies into personal portfolios,” said Vollmuth, adding that whereas investors in equities are always dependent on rising prices to generate returns, defensive and market-neutral approaches are often chosen for discount certificates.

Although discount certificates performed well in 2022, their performance was not as good as in 2021 when 83% provided a positive return, according to last year’s

The bear market of 2022 was quite different. “Here, the highs right at the beginning of the year were followed by a volatile downward trend before some of the losses were recovered from autumn on,” Vollmuth said.

“In this environment, fewer certificates and underlyings generated positive returns, but discount certificates were able to demonstrate their strengths: some 67% of the products outperformed their underlyings.”

The average annual return of all discount certificates analysed in the period under review was -3.8% pa, whereas that of the underlyings was -10.1% pa on average. Of the 67,986 certificates maturing in 2022 (39.3% of all analysed products), 49.6% attained their maximum return which was on average 7% pa.

The success of discount certificates is based on the ease with which they can be intuitively understood

Dutch structured products fund ends activities

Bufferfund has ceased to exist. The Dutch open-ended fund, which invested in bonus- and discount certificates listed in Germany, ended its activities on 31 March 2023, citing disappointing results in recent years and outflows from the fund as the main reason behind the decision.

‘The lack of inflow, which resulted in falling AUM and rising fixed costs, led us to this decision,’ fund managers Marcel Tak and Jan van Rossum stated in the annual accounts.

Since its inception in August 2016, the fund's strategy failed to deliver sufficient results and it was particularly unable to withstand the sharp fall in prices during the corona crisis at the beginning of 2020. Although it did recover considerably since then, Bufferfund’s performance in 2022 – when it achieved a negative result of -10.6%, slightly worse than its benchmark the Eurostoxx 50 –was below expectations.

The disappointing result for 2022 was mainly driven by the poor performance of growth stocks, especially those in the technology sector, in which the fund had a significant position.

‘Popular stocks such as Facebook, Apple, Tesla and Netflix had a hard time and losses of 50% or more were no exception,’ the fund managers said, adding that although a number of these shares somewhat recovered during the year, losses remained substantial.

Due to the very poor price performance of these growth stocks, the bonus return on many of the certificates could not be

achieved. The strategy change made in 2020 and 2021, investing in certificates on single shares instead of strictly focusing on those linked to the Eurostoxx 50, ultimately did not lead to the desired result, the fund managers stated in the fund’s annual report for 2022.

Bufferfund reached its high point in October 2019, when it had €44.9m assets under management (AuM). Back then it had the ambition to increase its AuM to €100m by 2022, by focusing on wealthy individuals, charities and institutional investors.

However, at the start of 2022, the funds AuM had shrunk to €22.5m and by the end of the year it had seen further outflows of €4.5m, not helped by the highest levels of inflation seen since the seventies and the explosion of the energy prices due to the war in Ukraine.

‘We would like to thank all our (former) participants for the trust they have placed in us and wish them every investment success in the future,’ the fund managers said.

Investors had until the end of March to sell participations free of charge. Participations that remained unsold were settled at the net asset value (NAV) determined after 31 March.

Luxsipa adds CIBC and Banque Transatlantique

Luxembourg as new members

The Luxembourg Structured Investment Products Association (Luxsipa) has announced that Canadian Imperial Bank of Commerce (CIBC) and Banque Transatlantique Luxembourg have joined the association as new members.

CIBC started its structured products business in Canada in 1995. In 2012, the bank’s structured notes business was launched in Europe through its London branch.

However, because of Brexit, CIBC Capital Markets (Europe) was then established in Luxembourg in 2020, offering a subset of capital markets products to European clients.

Banque Transatlantique

Luxembourg, a subsidiary of Crédit Mutuel Alliance Fédérale, was established in 1989. Its structured products business is headed by Renato Strillacci, director of the investment department at the bank.

In May, the association appointed Pierre Stoll as its new secretary general.

Luxsipa was founded in 2019. Its members include Banque de Luxembourg, Banque et Caisse d’Epargne de l’Etat Luxembourg (Spuerkeess), Banque Internationale à Luxembourg (BIL), BGL BNP Paribas, BNP Paribas, Quintet Private Bank (Europe), Intesa Sanpaolo Wealth Management, Société Générale Luxembourg, Société Générale, Société de la Bourse de Luxembourg.

Popular stocks such as Facebook, Apple, Tesla and Netflix had a hard time and losses of 50% or more were no exception

Cirdan’s digital bank expands ‘restricted’ structured deposit offering

Smart Bank - the digital investment bank of the Cirdan Group – has expanded its offer of restricted structured deposit accounts with the launch of two new products at five and 10 years at mixed rates, which respectively provide a fixed at 5% return for the first two years and for the first four years, respectively.

The two new structured deposits which are linked to the EUR CMS 30 years and EUR CMS 5 years will pay annually three times the differential if positive between the two underlying reference indices - with a minimum amount of zero. At maturity, investors will receive 100% of the nominal value invested.

The new accounts – the five-year accounts being collected until 21 June and the 10-year accounts being collected until 28 June – respond to investors' need to adopt a defensive positioning, according to Antonio De Negri (pictured), CEO of Smart Bank.

‘Given the excellent reception recorded by our Smart Bank 5X5 deposit account, which closed the funding phase in recent weeks, we have decided to expand our offer of structured deposits with two solutions that we believe can best meet the defensive needs of Italian customers, in light of the probable easing of interest rates in the near future,’ he said.

‘In fact, we believe that innovation is not a value in itself, but fully becomes so when it responds to people's needs. This awareness is guiding our action on the Italian market.’

BBVA rolls out QIS ‘SMART’ index

The new long-only, rules-based dynamic strategy offers a diversified combination of asset classes across a number of geographies and has been designed to provide strong and stable returns in a variety of market scenarios.

The BBVA SMART Index includes a three-step rules-based methodology is applied to the diversified portfolio as well as a forward-looking indicator evaluates the market risk scenario on a daily basis, adjusting the portfolio accordingly.

The index overweights or underweights different asset classes based on assets trends.

components and applying a risk control overlay that allows to keep overall volatility of the index close to the desired target,’ stated the bank.

‘[The new index] brings together the benefits of assets and regional diversification, a forward-looking risk indicator to assess of the market environment, a trend following mechanism to detect the best performing assets, and a risk budgeting to keep overall Index balanced,’ said Pablo Suarez (pictured), head of quantitative investment strategies at BBVA.

BBVA has launched an alternative risk premia index developed by its quantitative investment strategies (QIS) team.

‘Risk diversification is achieved by scaling the volatility of the index

‘This combination allows BBVA SMART Index to deliver strong and stable returns in a variety of market conditions over time.’

Spectrum adds Unicredit to pool of issuers

Spectrum Markets has onboarded UniCredit Bank as the newest member of its pan-European trading venue for securitised derivatives.

‘As retail investors increase in both number and sophistication, it is more important than ever that we stay agile around their needs – developing innovative, tailored investment solutions that enable them to take varied exposures over different time horizons,’ said Marco Formaggio, head of equity & brokerage sales, UniCredit.

The bank will expand the product mix overtime to include short-term, leveraged, and longer-term investment products – with the bank providing liquidity as a market maker.

MerQube UK receives FCA authorisation as benchmark administrator

Unicredit will initially list a range of constant leverage warrants and covered warrant products, which will be available to retail investors across Europe via banks and brokers. Underlyings will include the most popular European and US equities and indices, with a particular focus on Germany.

Spectrum has scaled up its flexible infrastructure to handle the additional volume of order flow and quote data, increasing capacity by over 400% – as part of its strategy to host a focused suite of products linked to the most actively traded underlyings.

MUFG partners with UK fintech

MUFG and Origin have launched Origin Documentation, an automated solution for the Japanese Bank’s equity-linked structured notes product offering.

The documentation product forms one part of a broader drive for increased efficiency and improved client experience being led by MUFG’s structured solutions team in Emea and supported by the international equities trading team.

Driven entirely by APIs for both the inputs and outputs, Origin automatically produces term sheets, final terms, and internal execution files for structured note issuance and associated equity-linked exotic derivatives. The new solution

supports any equity or index-linked structures, with full flexibility for both cash and physical redemptions, knockin and knock-out conditions and more. MUFG acts as underwriter, structurer and arranger for all self-issued equity linked structured notes.

Origin and MUFG partnered to design and develop the solution through 2022, building upon Origin’s documentation product for vanilla debt issuance.

The platform will completely automate the bank’s issuance process involving teams across sales, structuring, operations, and legal, sitting in both Apac and Emea.

The subsidiary of the US technology provider for indexing and rules-based investing, has been authorized by the Financial Conduct Authority (FCA) to carry on the regulated activity of administering benchmarks under Article 34 of the Regulation (EU) 2016/1011/EU) – Benchmarks Regulation (UK BMR).

The FCA authorisation will allow MerQube to provide benchmark services to its clients in the UK, stated the firm on 18 May.

'By successfully registering for this globally respected regulation we can further accelerate our plans to roll out the provision of high-tech support and services to our indexing clients in the UK and throughout Europe,' said Roby Muntoni (pictured), CCO at MerQube and CEO at MerQube UK.

SRP registers 724 retail structured notes linked to three Merqube indices – the MerQube US Tech+ Vol Advantage Index (443 products, US$238.4m), MerQube US Large-Cap Vol Advantage Index (215, US$73.9m) and MerQube US Small-Cap Vol Advantage Index (66, US$0.16m).

New biblically responsible structured notes launched, Barnabas involved

US broker targets faith-based investors with the world's first biblically responsible structured notes; Cirdan expands structured deposit range; banks expected to regularly stress test their counterparty credit risk exposures and assess their counterparties’ vulnerabilities under tail risk scenarios; and more.

Inspire Insight, a sister company of ‘biblically responsible’ investing firm Inspire Investing, has partnered with Barnabas Capital to launch the world's first biblically responsible structured notes.

The new Inspire Faith Notes use the Inspire Impact Score approach to biblically responsible investing by licensing the top 10 holdings of the Inspire 100 index as the notes' underlying basket of securities.

The Inspire Impact Score methodology is a rules-based scoring system that identifies some of the world's most ‘biblically aligned companies to invest in’.

By applying a faith-based perspective, this scoring system seeks

out businesses that are a blessing to their customers and communities, workforce, and the world while excluding those that operate at odds with biblical values.

‘The launch of these notes comes from the overwhelming demand from the faith-based community,’ said Robert Netzly (pictured), CEO of Inspire, adding that the new notes bring the faith-based investing movement to the structured note marketplace, ‘providing investors an additional option to help them achieve their investment goals while staying true to their faith’.

Barnabas Capital, a third-party distributor of investment and insurance products will offer the new notes via financial professionals and advisors.

UBS launches US critical technologies ETN play

Solactive has licensed its Solactive Whitney U.S. Critical Technologies Index to be used as the underlying of the new ETRACS Whitney US Critical Technologies ETN listed by UBS Investment Bank. The ETNs are traded on NYSE Arca.

The launch marks the first engagement of Solactive with J.H. Whitney Data Services to develop an index strategy.

The index seeks to track companies that support critical emerging technologies across the US and its allies – index constituents are selected based on affiliation with the modernisation priorities and their geostrategic risk rating score.

‘The innovative and transformative nature of critical emerging technologies offers significant potential for growth and diversification, as it provides exposure to a broad range of companies in this sector,’ said Timo Pfeiffer, CMO of Solactive

The industry affiliation maps designated technology priorities to granular industry classifications, and the geostrategic risk rating score measures entanglement in risky countries, as designated by the US government.

The result is a universe of companies aligned with the US modernisation priorities with minimised geopolitical risk from sanctions, trade, and conflict.

The Solactive GBS Developed Markets

Large & Mid Cap USD Index forms the basis of the index universe, which consists of large and mid-cap companies in developed market countries.

To be included in the index, companies must be associated with one of the 14 critical technology sectors and receive a high geostrategic risk rating score, as determined by the selection criteria.

‘The [new index] is a pioneering benchmark that uniquely factors in the emerging geopolitical landscape and the associated risks and opportunities for companies and investors alike,’ said John O’Connor, chairman & CEO at J.H. Whitney Investment Management.

New custom underlyings launched, FIA post double-digit growth

The new risk control proprietary indices add to a growing range of underlyings seen in the US indexed annuities market which continues to break sales records.

FIA Plus offers crediting options linked to the HSBC AI Global Tactical Index

Ibexis Life & Annuity Insurance Company has introduced a new proprietary index developed by Bank of America (BofA) via a new fixed indexed annuity (FIA).

The Ibexis FIA Plus fixed indexed annuity which will be available via an independent marketing organisation (IMO) sales channel.

The BofA U.S. Strength Fast Convergence

Index applies Bank of America’s patent-pending Fast Convergence (FC) Technology to the Nasdaq-100 TR Index with the goal of reducing risk and improving performance.

By monitoring market moves and rebalancing throughout the trading day, FC technology aims to control the realised volatility of the index more efficiently, with the goal of added consumer value.

The index also includes a 4% monthly cap rebalanced daily with the goal of higher participation rates in index-linked products and a 12.5% volatility target to mitigate losses by allocating to noninterest bearing cash. When realised volatility decreases below the target, the index applies up to 175.0% leverage with the goal of capturing returns.

The FIA Plus also offers crediting options linked to the HSBC AI Global Tactical Index (HSBC AIGT), as well as the S&P500 and a fixed account. The new annuity is an accumulation focused FIA but also offers additional floor options that provide higher accumulation potential.

Ryan Lex (pictured), chief distribution officer at Ibexis, said: ‘With the FIA Plus, a client has the ability to control their level of risk. Clients have the flexibility to annually allocate their money into a traditional 0% floor strategy for a competitive participation rate or expose prior gains to more risk in exchange for increased upside potential.’

New FIA deploys J.P. Morgan factor play

National Western Life Insurance Company has launched the NWL Capital Solutions, a 10-year FIA that offers exclusive access to the J.P. Morgan Factor Focus index, and seven different index strategy options, including the Dow Jones Industrial Average and S&P multiasset risk control (MARC) 5% Index.

The J.P. Morgan Factor Focus index was introduced in the US annuities market in the summer of 2022 via the insurers’ newest FIA - the NWL New Frontiers.

The J.P. Morgan Factor Focus index is calculated on an excess return basis and provides a dynamic rules-based allocation to an equity constituent - the J.P. Morgan U.S. Minimum Volatility ETF and a bond component - the J.P. Morgan Core Bond Index, offering dynamic allocation to the U.S. dollar fixed income market, with a volatility target level of five percent.

The S&P MARC 5% index which debuted in the US annuities market at the end

of 2017 was designed to track the performance of a risk-weighted portfolio consisting of three asset classesequities, commodities and fixed income - represented by three component indices: the S&P 500 Excess Return Index, the S&P GSCI Gold Excess Return Index and the S&P 10-Year US Treasury Note Futures Excess Return Index. S&P Marc 5% is dynamically rebalanced between the three indices and the cash component to target a five percent level of volatility.

NAC adds risk control strategies from Barclays to FIA range

Record-breaking quarter for US annuity sales

Following record-high sales in 2022, total first quarter annuity sales stand at US$92.9 billion, a 47% increase from the prior year. This is the highest quarterly sales level ever recorded, according to LIMRA’s U.S. Individual Annuity Sales Survey.

Fixed-indexed annuity sales had a record-breaking quarter at US$23.1 billion, up 42% from first quarter 2022 results and four percent higher than the record set in the fourth quarter of 2022.

first quarter of 2023, up eight percent from the prior year.

North American Company for Life and Health Insurance, a member company of Sammons Financial Group, has deployed the Barclays Transitions 12 VC Index and Barclays Transitions 6 VC Index as indexlinked crediting options offered by its new NAC Control. X FIA.

Both indices seek to provide investors with consistent broadbased exposure to US equities while seeking to stabilise performance throughout each economic cycle by incorporating commodities and longer duration US treasuries. The index transitions between allocation trend scenes based on market conditions using dynamic trend rotation.

To further control risk, both indices aim to limit their annual volatility to a six and 12% target using Barclays’ proprietary intraday volatility forecasting technology.

The new exclusive Barclays Transitions Indices are designed to follow the equity markets and capture as much upside as possible while managing risk during changing market conditions, said Bryce Biklen (pictured), North American’s chief distribution officer.

‘Economic conditions remain favorable for FIA products, and this is forecasted to continue throughout the year,’ said Todd Giesing, assistant vice president, LIMRA Annuity Research, adding that FIA sales are expected to grow as much as 10% in 2023, ‘as investors continue to seek out solutions with a balance of protection and growth’.

Registered index-linked annuity (RILA) sales amounted to US$10.4 billion in the

LIMRA is predicting RILA sales to have another record-breaking year in 2023, likely growing at least 10% as RILA’s value proposition will continue to attract investors seeking a greater return on investment in exchange of some of the downside risks.

According to LIMRA, traditional variable annuity (VA) sales continued to slide posting sales of US$12.9 billion in the first quarter, down 30% from first quarter 2022 results - with market volatility expected to remain high, LIMRA is forecasting sales growth in this category to be flat in 2023.

Finra fines TD Ameritrade for disclosures on callable securities

The Financial Industry Regulatory Authority (Finra) has fined TD Ameritrade Clearing US$500,000 for failing to disclose fully information about callable securities, including exchange-traded notes (ETNs) and preferred securities, to millions of customers over five years.

According to the regulator, the lack of disclosure from January 2016 to June 2021 for almost 10 million transactions omitted required statements that the securities were callable, meaning the issuer of the security could repurchase it by a specific date, which could affect the securities’ yield, particularly in regard to the ETNs.

TD Ameritrade self-reported the matter

to Finra, according to the settlement, in which the company agreed to Finra’s findings without admission or denial. Charles Schwab Corp., which acquired TD Ameritrade in 2020, said the settlement resolves an ‘unintentional oversight about the placement of certain information on trade confirmations for a few securities’.

According to Finra, TD Ameritrade sent trade confirmations to clients who made more than 9.8 million purchases of the securities in question that failed to disclose the securities could be redeemed, and in the case of the ETNs, that a redemption before reaching full maturity could affect the yield of the securities.

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CACIB capitalises on self-led issuance, securities houses activity in Taiwan

The French bank has been recognised as the Best House, Taiwan, at the SRP Apac Awards 2023 for its diversified client group and steady performance throughout a difficult year.

For CACIB, the volume saw a significant decrease compared to 2021 during which lifers, a heavyweight in Taiwan's Formosa bond market, had "the best year" by deploying structured products to earn yield in a low rates environment, according to Jessica Chi (pictured), head of capital markets and fixed income sales, Taiwan at CACIB.

Since Q1 22, lifers have "substantially slowed down" their activities due to lessened new money as the Taiwanese dollar tumbled almost 10% against the US dollar - the steepest drop in 25 years – amid several Fed rate hikes.

capacity to innovate in a market that has become "much more standardised”.

On the retail side, the French bank delivered a four-fold growth in Taiwan in 2022 compared to 2020 driven by investors' expanded appetite to fixed income from equity-linked notes (ELNs).

It debuted its range of ELNs in Taiwan in 2021, adding to its long-established fixed income solutions offering.

"We managed to sharply increase the volume with securities houses, [which] made up half of the retail distribution in 2022," Chi told SRP.

In 2022, Crédit Agricole Corporate and Investment Bank (CACIB) arranged and issued approximately 150 structured notes worth US$1.5 billion in Taiwan where self-led issuance is required by regulators when it comes to retail.

Institutional investors, namely "clients' own investment" from life insurers (lifers), banks (onshore and offshore units primarily in Hong Kong SAR and Singapore), accounted for 92% of the notional while retail contributed to the remaining led by banks and securities house.

However, the results achieved by the bank's desk in Taiwan, which comprises 10 staff in sales and structuring in Hong Kong SAR and sales onshore, represented "a steady deployment" of CACIB's equity structured products franchise in Asia Pacific (Apac) in 2022, according to the bank.

The challenge to generate yield through structured products was seen across major Asian markets due to rate increases and uncertain equity market conditions.

In Taiwan, CACIB's market share continues to increase on the back of a large and diversified client base and its

A total of 102 retail structured notes, including ELNs, were issued by CACIB in Taiwan in 2022 with E.Sun Commercial Bank, Mega International Commercial Bank and DBS Bank acting as the main distributors, SRP data shows.

They products were linked to a total of 16 underlying names, including the 30year USD CMS (69 products), five-year USD CMS (56) and shares of Taiwan Semiconductor (14).

"We've tweaked some ELN payoffs in view of growing demand for full and partial principal protection. For example, investors can enjoy capital gain from

We managed to sharply increase the volume with securities houses, [which] made up half of the retail distribution in 2022

shark fin while getting yield enhancement with coupons," Chi added.

Additionally, retail investors who hold a market-neutral view can benefit from coupons via a long volatility position, said Chi highlighting a principalprotected "catch profit note" with a tenor of 2.5 years offered by CACIB to a local commercial bank, which enables investors to benefit from high volatility of the equity markets without taking a directional position in a short term.

Linked to shares of Taiwan Semiconductor, the structured note offers a coupon equivalent to the absolute value of the underlying performance if a knock-out event occurs, or to zero value otherwise, in the first year.

A fixed coupon of 4.0% and 2.0% will be paid in the second year and the last half year, respectively.

The tenor of ELNs typically ranges from one month to 15 years whereas products targeted at institutional investors run for five to 20 years.

"Taiwan retail investors are very openminded and have a unique preference for longer tenor and diversified currencies in Asia," said Chi.

In Q1 23, CACIB delivered over US$500m traded notional in the market, translating to a 60% increase year-onyear. "The higher volume is driven by the redeployment of USD-denominated ELNs, which is 6.5x compared with the full year of 2022," she said.

US dollars remains the most favoured for structured notes in Taiwan, accounting for around 75% of the trades at CACIB in 2022, followed by Australian dollar, South African Rand and offshore Chinese yuan, according to Chi. For client's own investment where the traction remains limited, structured products often feature vanilla payoffs tied to interest rates, such as CACIB's callable notes.

Constant maturity swaps in US dollars are also a frequent pick in the form of range accrual or steepener notes.

Nomura deploys first bond-inverse tracker in Japan

"Both retail and institutional clients are very familiar with CMS, at least for the last decade, which makes it easy for local banks to sell. CACIB was among the first foreign banks to promote investor education on the underliers," said Chi.

"We expect to see continuing growth from retail investors as they have abundant amount of money to invest and have interest in exploring new ideas. Principal-protected notes (PPNs) are still in great demand this year."

Nomura Asset Management (NAM) has announced the launch a new ETF designed to track the performance of the JPX JGB Futures Double Inverse Index. The ETF is the first bond-inverse ETF in Japan. The ETF has been approved for listing by the Tokyo Stock Exchange (TSE). From the listing date, investors will be able to trade the tracker fund on the TSE through securities dealers and traders in Japan. The minimum investment amount for the ETF is expected to be approximately 7,500 yen (per 10 units). The ETF is part of Nomura’s Next Funds range which now comprises 68 products.

JPX JGB Futures Index Series is calculated by applying a multiplier to the daily rate of return of the JGB Futures, where the index series consist of four indexes including the JPX JGB Futures Index, JPX JGB Futures Inverse Index, JPX JGB Futures Leveraged Index, and JPX JGB Futures Double Inverse Index.

Taiwan: top retail distributors CACIB structured notes in 2022

Stropro debuts structured fund, expands issuer pool

The Australian structured product platform continues to expand its products offering and platform capabilities.

"The Stropro Global Income Fund would be the first structured fund that we know of in Australia," said Ben Streater (pictured), chief investment officer at Stropro.

"The product offers diversification away from private debt or private credit, which have been popular alternative investments for Australians to generate income over the last decade through this low interest rate environment, especially for accredited investors."

The fund aims to outperform equities on the downside and investment grade bonds on the upside. The deep downside protection featured by the FCNs – typically between 50% to 60% - reduces the volatility of the fund "quite substantially" versus direct equities.

"There are not many distributors in Australia – only two or three private banks," said Streater. "Stropro is quite unique to have the ability to access such a large issuer panel and to issue funds."

Stropro has onboarded Morgan Stanley and launched its first structured fund.

Managed by Stropro Funds Management, the Stropro Global Income Fund aims to provide accredited investors and independent financial advisors a ‘defensive, globally-diversified fund of defined-income return investments’.

According to the firm, 60% to 80% of the fund assets will invest in fixed coupon notes (FCNs) linked to blue chip stocks with exposure to eight investment banks in Stropro's current pool with the remaining to be invested in specialist fixed income managers.

Following a soft launch for 10 clients in April, the fund has generated AU$3m seed capital, which is set to be deployed for five to six FCNs in the coming weeks – the fund is targeting AU$15m over the next three months.

The new offering is seeking to deliver the Reserve Bank of Australia (RBA) cash rate plus four percent, which amounts to approximately eight percent pa.

"The return will be paid monthly. The FCNs will be paying quarterly, but the payment dates will start overlapping monthly," said Streater, noting that liquidity is an important theme of 2023.

Boutique Capital will act as trustee, and redemptions will be available after six months.

As a direct participant of Clearstream, an Australian custodian, Stropro can trade directly with accredited investors and financial advisors without the need of private banks.

The two client groups account for around 70% and 30% of the structured products flow at the firm, respectively, following the launch of a financial advisor hub in Q4 22.

“Two common questions we are asked by clients about the fund. The first is around the number of products and the diversification within the fund," said Anto Joseph, CEO of Stropro.

"The other one is around the correlation to equity markets or bond markets, because what we're trying to do is to create lower correlation to equities and

Stropro Global Income Fund

The

would be the first structured fund that we know of in Australia

bonds and achieve a more risk-adjusted return compared to equities and fixed income benchmarks."

The fund launch coincides with the onboarding of Morgan Stanley as a new issuer on Stropro's multi-issuer platform this week after Goldman Sachs joined in April. The issuer pool also includes Natixis, Marex Solution, Macquarie Bank, BNP Paribas, Citi, Société Générale and boutique house C2 Financial Group.

Since 2020, Stropro has distributed 106 structured products with AU$140m (US$93 million) traded notional, majority of which are fully-funded while seven are leveraged tax-deductible strategies in the form of call option participation notes or limited recourse loans.

A total of 1,315 transactions have been executed, including 200 year-to-date.

The firm posted AU$18m traded notional inflow in May - a record month, according to Streater.

"FCNs have become more popular in Australia given that yields have come up," he said. "For the 41 FCNs we’ve distributed, the longest tenor is eight years with the average being around three years."

Most of the FCNs have autocall mechanism set every six or 12 months, bringing the average life down to 1.5 or 1.8 years.

"Snowball is still quite popular as investors are looking for more liquidity and more clarity of their risk and return," added Streater. "We've done 100% protected participation style notes and 100% protected income notes since 2022."

Beyond equity, Stropro has offered carbon commodity carry trades linked to the ICE EUA Futures Dec22 Contract. The SGI Diversified Multi Asset Enhanced Index has also been traded through 100% protected participation notes and call warrants. "The products cater to investors'

demand for uncorrelated returns or returns less correlated with equities," Streater said.

"We have seen some interest in structured notes linked to both local and offshore fixed income funds."

In April, a structured note linked to the Pimco GIS Income Fund was offered with AU$15m notional.

"That's how we have captured appetite on fixed income generally. We've explored a few bond rates, like repo repacks, but it's not there yet as the return is not quite justifying the complexity," said Streater, adding that a term deposit with an Australian bank can easily offer a return of 4.5% pa.

"Rates can be quite complicated. Australian investors tend to shy away from complexity," said Streater. "Their portfolio is still quite concentrated in domestic equities and property, but we think looking for global diversification continues to be a strong thematic."

Hang Seng releases high div China-HK indices

Hang Seng Indexes Company has launched the Hang Seng SCHK High Dividend Yield Screened Index and Hang Seng SCHK China Central SOEs High Dividend Yield Index, as it continues to expand its range of factor indices targeted at investors seeking to diversify their portfolios.

With the rising popularity of dividend yield strategy among factor indices, there has been a strong net inflow for dividend related exchange-traded funds (ETFs) in Apac during the previous three years. The index provider believes a defensive investment solution such as the dividend yield strategy could deliver a relatively stable performance for income-oriented investors and enable them to navigate the dynamic economic environment.

The Hang Seng SCHK High Dividend Yield Screened Index reflects the performance of high-yield large-cap and mid-cap securities listed in Hong

Kong that are eligible for trading via the Southbound trading link of Stock Connect Scheme. This new index selects high dividend-paying and financially sound companies, aiming to offer sustainable income, avoid yield traps and create long-term value for investors.

To capitalise on the growing interest in central State-Owned Enterprises (SOEs) recently, the launch of the Hang Seng SCHK China Central SOEs High Dividend Yield Index tracks the performance of high-yield securities listed in Hong Kong with central SOEs as the largest shareholder, which are eligible for

trading via the Southbound trading link of Stock Connect Scheme.

Amid SOEs reform gaining momentum continuously, the new index will help investors to seize investment opportunities related to these strengthening SOEs in China as well as harvesting stable incomes over the long run.

The two new indices are calculated and disseminated in real-time at two second intervals and have been designed to enhance the risk adjusted return of the portfolio, through capturing one or more long-term factor risk premiums.

Exclusive: Former CS senior Apac QIS structurer resurfaces at Nomura

The Japanese bank continues to bolster its equity structured solutions franchise as a key strategic priority in Asia.

The structurer's license with Credit Suisse (CS) was terminated on 15 March, four days before the 167-yearold Swiss investment bank agreed to be bought by its main rival UBS in an emergency takeover, according to the Monetary Authority of Singapore (MAS).

The acquisition is set to complete as early as 12 June with the corresponding delisting of CS Group AG shares from the SIX Swiss Exchange and New York Stock Exchange, the bank announced Monday.

derivatives sales at the Swiss bank, to its in Hong Kong team, SRP has learnt.

Recent moves

The appointment of Florentin comes after Bogdan Ianev, ex-managing director and head of volatility solutions specialising QIS for Americas at CS, joined Japanese bank Mizuho in March.

Ianev is now head of structuring, equity derivatives at Mizuho Americas and continues to be based in New York.

Clement Florentin (pictured) has joined Nomura as head of equity structuring, Asia ex-Japan and head of global markets quantitative index strategies (QIS) structuring, Asia Pacific (Apac), according to an internal memo seen by SRP.

Based in Singapore, he reports to Rana Dasgupta, head of global markets structuring, Asia ex-Japan, in Singapore, and Hiroshi Shikano, head of global markets structuring, Japan, in Tokyo.

‘The innovation, growth and sustainability of our equity structured solutions franchise is a key strategic priority in Asia as we seek to broaden our client base and identify new revenue opportunities,’ stated the memo released on 31 May.

In his new role, Florentin is responsible for the expansion of Nomura's QIS product and infrastructure footprint in Apac, and will work closely with sales, trading and global structuring teams across the bank's global markets client franchise, according to the memo.

SRP understands that Florentin's role is newly-created with his sales counterpart being Ajay Jain, who became the head of equity product sales, Asia ex-Japan based in Hong Kong SAR last November.

At CS, Florentin spent nearly 15 years across London, Hong Kong SAR and Singapore where he started his career with his last role being managing director, co-global head of QIS distribution structuring, Asia ex-Japan as well as head of equity derivatives and investment solutions structuring, Asia ex-Japan.

‘He has deep experience in origination, design, delivery of investment solutions capabilities and leading equity derivatives franchise growth through innovation, origination and platform development,’ stated the memo. Early next month, Nomura will welcome another former CS banker, who was most recently director in equity

Several senior executives in global markets had chosen to depart CS since Q4 2022 when the bank's five-year credit default swaps hit a record high, significantly impairing its structured products business. The second half of the year is expected to see further departures from CS’ investment banking unit.

Within Nomura, Simon Yates was named as global head of equities at Nomura Securities International based in New York in March.

Nomura Holdings reported US$10.1 billion net revenues for the FY2022/23 ended in March, down two percent year-on-year. Pre-tax income dropped 34% to US$1.1billion while net income attributable to shareholders decreased 35% to US$699m, according to its latest annual report.

‘In Wholesale, global markets booked stronger fixed income revenues. In investment banking, advisory revenues remained solid on contributions from equity private placement deals, offsetting a significant decline in global fee pools, while the equity capital markets business improved from a slow first half,’ said Kentaro Okuda, Nomura President and Group CEO.

SRP understands that Florentin's role is newly-created with his sales counterpart being Ajay Jain

OCBC, ADDX partner for first tokenised structured note

The second largest Singaporean bank by market cap has entered a strategic partnership with the private market exchange to broaden its investor base with a FCN sold at US$1m.

Traded on 28 April, the three-month tokenised fixed coupon note (FCN) is linked to the shares of a US-listed tech giant with a minimum size of US$50,000. The note is available to ADDX clients classified as accredited investors by the Monetary Authority of Singapore (MAS).

The structured note is governed by Singaporean laws and is the first product issued by a local bank on the shelf of ADDX, a Singapore-based private market digital securities platform built on blockchain and backed by a group of Asian financial institutions including Singapore Exchange (SGX) and United Overseas Bank (UOB).

The launch marks 'the start of a long-term partnership' between OCBC Bank and ADDX that will see them put out a wider variety of investment products.

'Partnering with new digital players like ADDX and deepening banking relationships with high-growth and emerging sectors allows OCBC to increase its customer proposition and tap on a larger investor base,' stated the bank.

The partnership fits with ADDX’s plans to reduce manual intervention in the issuance, custody and distribution of digital securities by using blockchain and

smart contract technology ‘to fractionalise investments in a scalable and commercially viable manner’.

'While we already have a comprehensive stable of treasury products which includes sustainability-linked interest rate swaps, cross currency swaps, structured deposits and green bonds, it is important that we continue to innovate and find new channels for our products,' said Kenneth Lai (pictured), head of global treasury at OCBC Bank.

The bank expects the launch will lead to 'more diverse product offerings' that are relevant to the global accredited investor base of ADDX.

In addition to structured products, asset classes available on ADDX include private equity, hedge funds, venture capital, private credit, real estate and debt securities.

This is the third structured product distributed by ADDX following two FCNs issued by Vontobel including 'the first tokenised structured product in Asia' tracking a blue chip US stock with a minimum ticket size of US$10,000 in September 2021; and an FCN featuring a worst-of option traded in January 2022. The two structured notes collected a notional of approximately US$300m.

The new FCN posted traded notional of US$1m with DBS Bank acting as the custodian, said Oi-Yee Choo, CEO of ADDX, told SRP without disclosing the underlying share and coupon level.

"From a technological standpoint, there are no limitations to how small the minimums can go. The decision to set the minimum size for this deal at US$50,000 is a commercial one," said Choo when asked about the minimum tickets.

'Moving forward, structured products will be a key plank in ADDX’s issuance strategy,' she said, adding that more structured products are already in the pipeline. 'We are also exploring the issuance of commercial papers.’

In Asia, Singapore has been active in exploring the use of blockchain in the wealth management space, catching up Europe where there is more rapid development in structured products.

Last November, the MAS launched a new pilot programme in wealth management with HSBC, UOB and Marketnode collaborating to enable native digital issuance of wealth management products, including structured notes.

It is important that we continue to innovate and find new channels for our products

Kenneth Lai, OCBC Bank

Exclusive: Huatai enters HK listed structured product market

The Chinese securities house will debut its suite of derivative warrants (DWs) in Hong Kong SAR tomorrow (6 June) following a two-year process.

The Chinese securities house has been working on the launch since early 2021.

The number 'six' has a special connotation of good fortune in Cantonese. The journey of successful trading and investing requires skills, but a bit of good luck will always helpsPaddy Cao, Huatai International

“Although Huatai has a leading presence in both listed and over-the-counter [OTC] products in China, its presence in Hong Kong SAR has so far been concentrated in the OTC market,” Cao said. “The warrants business is part of [Huatai's] broader push to enter and grow in the listed products domain in the city.”

product segment as part of its restructuring in Asia.

The six DWs issued by Huatai are linked to five Hong Kong-listed stocks and the Hang Seng Index (HSI), which accounted for over 70% of the DW market in terms of outstanding volume.

“The number ‘six’ has a special connotation of good fortune in Cantonese. The journey of successful trading and investing requires skills, but a bit of good luck will always help,” said Cao.

The new Huatai DWs which comprise four calls and two puts will go live on Hong Kong Exchanges and Clearings (HKEX) on 6 June with Huatai Financial Holdings (Hong Kong), a fully-owned subsidiary of Huatai Securities which is the third-largest Chinese securities house by assets, acting as the issuer and liquidity provider.

“We are excited to enter the structured products market as an issuer, after receiving formal approval on 5 May [from HKEX],” Paddy Cao (pictured), head of warrants at Huatai International, told SRP.

According to Cao, the traded notional of structured products traded by Huatai’s equity derivatives division totalled more than US$700m across onshore and offshore in 2022.

With the new listing Huatai becomes the 17th issuer in Hong Kong's DW market after the most recent entrant - DBS Bank, and the fourth issuer from China after Bank of China, Haitong Securities and Guotai Junan Securities.

Last November, Vontobel announced that it would exit the listed structured

“Hong Kong structured products have always been heavily dominated by retail investors. Globally, we have seen a massive surge in retail trading, epitomised by the Game Stop saga in early 2021,” he said.

During Covid-19 when working remotely became a norm, the retail group showed growing desire to stay involved in financial markets, which led to rising demand for a wide variety of financial products and education.

“Meanwhile, we have seen the barriers to entry lowered, as more brokerages now offer lower fees and costs of trading out of commercial consideration,”

The journey of successful trading and investing requires skills, but a bit of good luck will always helps

Cao added. “As a result, investors are increasingly looking for cheaper ways to trade, products with leverage and liquidity to trade into and get out of positions quickly.”

As investor choice increases, DW issuers have branched out from headline blue-chip names in search of fresh opportunities. This is “quite beneficial” for investors as they will be more prepared when certain small stocks became a hit due to breaking news, said Cao.

While Huatai aims to expand its DW underliers to include the majority of the eligible list within one year, it also plans to roll out callable bull bear contracts (CBBCs), which are an integral part of the structured products market, according to Cao.

Scalable approach

Cao noted that a differentiator will be its no-legacy approach to the market.

“One of the benefits of being a new player is the ability to innovate and start from scratch,” he said. “We do not have the constraints of having to fit within an established ecosystem of trading systems or trading strategies.”

He and his team spent most of their time prior to the regulatory approval developing the required trading tools, strategies and systems - some are provided by external parties - and implementing risk controls and capabilities.

The former Optiver trader now manages a team of five comprising sales, trading and technology with their backgrounds spanning structured products issuance, high-frequency trading, media and system development.

“Substantial investments have been made in the system setup, recruitment and formation of the core and supporting team, and staff training,” said Cao.

Investor education will be built up once the business is operational, subject to feedback from investors.

“One behaviour we have noticed is that turnover is a key consideration among Hong Kong structured product investors,” said Cao.

"Whilst significant and highly visible, there are a range of other factors such as spread, price and outstanding

proportion that should be given equal, if not more weight before making a trade.”

Accordingly, the Chinese issuer plans to provide “fair and transparent prices” through more automation tools to systematically manage its trading and pricing.

“This will reduce the risk of errors through manual control whilst ensuring consistency in the way we price across products and responsiveness to changing market conditions,” he said.

On HKEX, structured products recorded average daily turnover (ADT) of HK$11.7 billion in May, representing a stable level from April and accounting for 11.5% to cash market, the latest monthly report by the exchange shows.

As of 31 May, the number of listed structured products decreased 1.8% to 10,365 while the market value of structured products held by investors was down 11.9% to HK$3 billion compared with a month ago.

HSI alone took up 62.3% of the market share of the combined market turnover, with the top five local stocks - Tencent, Meituan, Alibaba, HKEX and Ping Ancontributing another 25.9%.

First batch of DWs listed by Huatai Financial in Hong Kong SAR (6 June 2023)

*This data may fluctuate during the life of the DW

Source: HKEX

France Q1 2023: capital protection, interest-linked products prosper

The first quarter of 2023 was marked by strong appetite for capital-protected and interest-linked products which increased their market share by 38 and 25 percentage points YoY, respectively

An estimated €7.3 billion (US$7.8 billion) was collected from 750 structured products with strike dates in Q1 2023 – down six percent by sales volume year-on-year (YoY) but an increase of 9.3% from the previous quarter. Issuance was down almost 50% YoY, leading to a rise in the average ticket size to just under €10m (Q1 2022: €5.4m).

Fourteen different payoffs were utilised during the quarter, with autocall the preferred option for the French investor. The 536 products that had a knockout feature were responsible for 65% of total sales in Q1 2023, much lower compared to the prior year quarter when autocalls claimed 85% of all sales.

The average maturity was 6.4-years compared to 5.5-years in Q1 2022. Twelve issuer groups were active in the quarter (Q1 2022: 13). Of these, Crédit Agricole was the number one provider, collecting €1.5 billion from 51 products. This is equal to a 21% share of the French market.

The group’s products, which were distributed, among others via LCL, Crédit Agricole Banque Privée and Irbis Finance, included 20 products linked to a single index that were worth approximately €200m. Its highest sales, however, were gathered from seven products linked to the interest rates that sold a combined €1.1 billion while nine products tied to a basket of shares accumulated €275m.

Société Générale claimed an 18% market share in Q1 2023 –down seven percentage points YoY. The group achieved sales

of €1.3 billion from 115 products that were mostly issued on the paper of its Luxembourg domiciled SG Issuer vehicle (Q1 2022: €2 billion from 366 products).

Its preferred asset class was the single equity index (€550m from 52 products), ahead of interest rates (aged funds (€500m from 13 products) and managed funds (€415m from 16 products). The latter category included six products that were linked to Solys LFDE International Selection Fund, which is actively managed by its subsidiary SG 29 Haussmann. The fund aims to outperform its benchmark, the Solactive GBS Global Markets Investible Universe EUR Index TR, over a long-term horizon by exploiting investment opportunities on the equity markets.

Natixis (14% market share) completed the top three. It issued 88 products worth an estimated €1 billion (Q1 2022: €580m from 74 products). More than half of its issuance was linked to a single index – mostly proprietary or custom indices with a decrement feature, including iEdge Europe Climate EW 40 Decrement 50 Points GTR Index, iEdge ESG Transatlantic SDG 50 EW Decrement 5% NTR Index, and iEdge Credit Agricole SA Decrement 0.8 EUR GTR Series 1 Index, which were published, administered, and calculated via SGX Indices.

The top 10 also featured three US investment banks: Citi, Goldman Sachs, and Morgan Stanley.

Single equity indices remained the dominant asset class, despite

France: sales & issuance by quarter (EURm)*

France A1 2023: top asset classes by market share*

seeing their market share shrink from 73% in Q1 2022 to 47% this year. The Eurostoxx 50 and Eurostoxx Banks Index continued to be firm favourites. The former was used as the underlying in 121 products that sold around €650m – a significant drop in sales volume YoY (Q1 2022: €1.2 billion from 141 products) while volumes invested in structures on the Eurostoxx Banks, at an estimated €230m (from 47 products) remained relatively stable (Q1 2022: €220m from 83 products).

There were also 155 products linked to a decrement index available to French investors in the quarter, down from 281 products in Q1 2022. The 62 products linked to the interest rates collected around €1.9 billion, thereby increasing their market share from just one percent in Q1 2022 to 26% this time around. Underlyings included the three-month Euribor, secured overnight financing rate, and various versions of the various EUR constant maturity swap (CMS) rate. Popular payoffs for this asset class were callable, target return and steepener.

At 10%, market share for products linked to a basket of shares was stable (Q1 2022: 11%). Some 86 products were issued on this asset class, well down from the 375 products in the same quarter last year, although volumes, at €755m and €850m, respectively, were less far apart.

A product that stood out in this segment was an autocall from Credit Agricole CIB Financial Solutions, which was linked to a basket of 20 stocks from the basic materials, consumer goods, energy, financials, health care, technology, telecommunications, and utilities sectors. It was listed on the Luxembourg Stock

Exchange for an issuance amount of €340m. Capital-at-risk products, which totally dominated the French market in Q1 2022, saw their market share drop from 94.3% to 55.3% - a decrease of 39 percentage points YoY.

The main beneficiary were capital-protected products. Boosted by the increased appetite for interest-linked structures, which, without exception, offered to return at least the nominal invested, products with 100% capital return increased their market share from 1.1% to 38% while products with a minimum capital return of above 100% reached 6.2% market share in the quarter (Q1 2022: nil).

France: top 10 issuer groups in Q1 2023*

*Compared by sales volumes with Q1 2022

Source: SRP

*Excluding flow and leverage products

Source: SRP

France: capital protection - market share by sales volume

France: 96% of maturities deliver positive yields, three percent return capital loss

SRP reviewed more than 1,000 products maturing or expiring early in France during 2022.

France: historical performance of structured products (2017 - 2022)

A recent study conducted by Structured Retail Products (SRP) focusing on the French market found that 96% of all products that matured – or were redeemed early – generated positive returns for investors in 2022.

SRP analysed more than 1,000 products that delivered an average annualised return of 6.9% during 2022, slightly down from the previous year (2021: 7.7%).

The average term to maturity was 1.9-years, while more than 75% of products paid out a return of above five percent, against 85% in 2021. Three percent of the analysed products had a negative capital return.

Autocalls made up 82% of all maturing products in the period. They ran for an average term of 1.5- years and produced an average annualised return of 8.0%, compared to 8.1% in 2021. More than two-thirds of autocalls delivered an annualised return equal to or above six percent.

Structures that matured organically returned on average 2.3% pa. The 1,011 products that were analysed collected an estimated €12.5 billion ($13.2 billion) during their initial subscription. Approximately €3.2 billion was invested in 271 products that delivered annualised returns of between six and eight percent while a further €4.7 billion was tied in 240 products which returned annualised coupons of between four and six percent.

Some 49 products worth an estimated €200m provided annualised returns of more than 15%.

The average annualised return for maturing products during the past six-years is 6.2% with a low of 5.7% seen in 2018 and a high of 7.7% in 2021. The highest median return, at seven percent, was registered in 2022.

The highest average annualised returns, at 8.50%, came from products linked to a decrement index (2021: 7.7%), which were responsible for 17% of the redeemed notional. Their call rate was 31%, similar to products linked to a single stock and those linked to benchmark indices (30% and 27%, respectively), and their average duration was 1.28-years.

The outperformance of the decrement-linked products was due to the higher concentration of indices exposed to the oil and energy sectors which were performance standouts in 2022.

One such product was Performance Oil and Gas Janvier 2021

IF, a 10-year autocall which was issued via Société Générale and linked to the iStoxx Europe 600 Energy ex Coal GR Decrement 50 EUR Index. It offered an early redemption coupon of 9.85% per quarter, and duly obliged on 4 January 2022 – at the first time of asking – returning 139.40% after just one-year.

Products linked to benchmark indices, which collected 39% of the redeemed notional delivered a coupon of 4.65% pa on

France: annualised return - matured & autocalled

(Right) Matured (Right) Average annualised coupon (Left)

France: market share & annualised return by underlying type

average and products linked to a worst-of basket of stocks returned 7.44% pa. The latter included Athéna Daily sur Panier Worst of Juin 2022, another product from Société Générale, which was linked to the shares of Stellantis and BNP Paribas and returned 132.5% of the nominal invested after just six months.

Certi Plus Advanced New, which was issued on the paper of BNP Paribas, was one of 242 reviewed products on a single stock that held 10% of the notional invested. It was linked to the share of Tesla and returned 136.10% after one-year.

Ninety percent of analysed products sat in the yield enhancement category. They claimed 75% of the notional in 2022 and delivered an average annualised coupon of 7.29%. Returns for capital protected products and credit-linked notes (3.88% and 2.65% pa, respectively) were also positive, but participation products fared less well during the year, returning -1.07% on average.

France: annualised return by underlying type

The highest call ratio was seen at the beginning of the year, with 39% of all autocall products redeeming early in January. For most of 2022, the trend was downward, with an absolute low reached in October when just three percent of all autocalls saw their knockout feature triggered.

However, since then markets have picked up, with the call ratio for December at six percent – a growth which has continued in the new year (January 2023: 18%).

The returns shown do not take into account management fees in the case of a life insurance or investment contract, or custodial fees in the case of an investment in a securities account. In addition, returns exclude entry/arbitration fees in the case of a life insurance or investment contract, as well as the subscription fee in the case of an investment in a securities account and social and tax levies.

France: autocall rate*

Spotlight: European banks trigger early redemptions in France

The European banking sector performance has been a standout driver of successful early redemptions of structured products (autocalls) for the best of Q1 2023 in France, according to SRP data.

With banks set to end the quarter about flat following the sector turmoil, early matured products linked to banking indices represented more than a fifth of the redeemed notional in France year to date. Additionally, products linked to the performance of shares of French banks accounted for a further three percent of the approximately €2 billion released for reinvestment in what has been an improving quarter for autocalls in terms of rollover money.

Three quarters of the products expired were linked to a single index, with products linked to a broad benchmark index, a bank index and an ESG index being the main drivers, in terms of released notional.

Products linked to bank indices took the lion’s share in terms of number of early redemptions with eighty-four products out of 350 captured by SRP.

New products linked to banking indices in France accounted for an estimated nine percent of the index-linked notional which represents 47% of the total traded notional since the beginning of 2023.

As the quarter comes to an end, new issuance shows a cautious revisiting of banking indices with investors presumably seeking to benefit from the high volatility of the index, which allows to create products with better potential returns and higher protection.

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0DTEs add to ‘hedging toolbox’, appetite for SPX Vega remains

Market analysts have sounded the alarm as the craze for zero-day to expiration contracts, known as zero-day contracts or 0DTEs, is bringing new volatility to the wider equity market and having an impact on how underlying assets behave.

For trading desks hedging structured products, 0DTE options are not a game-changer, but one potential hedging instrument among others used by traders.

“Their recent surge provides with an additional tool in the dynamic hedging toolbox, for the potential short-dated residual exposures, but our products typically entail longer maturities,” said Pierre Gimenes, global co-head of structuring for global markets, at SGCIB.

This, however, means that “structured products trading books would not be the major actor in that vol market segment”, he said.

“Given the investment terms of structured products these options would have limited use,” said a senior market source. “However, all structures must be hedged on the last day before maturity – the strikes and barriers in 99% of the products are in or out of the money and don't need further hedging. However, if the product has touched the barrier then 0DTEs can be used for hedging.”

According to Kris Sidial, there's two potential ways as of how the increased use of 0DTE options affects the structured products market and issuers of structured products.

“I don't think necessarily that the structured products market is selling vol via 0DTEs but they're selling shorter dated vol like one-month tenors that they'll look to sell to hedge their gamma exposure a little cleaner,” he said. “So, they can have their big exposure hedged, but if their gamma exposure starts getting a little bit crazier, 0DTEs can help them to be a little more flexible in reinforcement.”

Dynamic hedgers have a little bit more of an efficient way to hedge their portfolio and the dynamic hedges are usually the ones that are issuing the structure product notes, added Sidial.

A senior banker for a leading European investment bank and issuer of structured products confirmed that the use of daily options to hedge discontinuities - recall barriers, down and in puts (PDI), gap limits - on the S&P 500 is now part of the day to day.

“There are several reasons for that,” he said. “[0DTEs] have good liquidity, the strikes are tight, and the observation is at close, as on our structured products.

“However, we do not wait for the day of the expiry to trade them, we tend to do it earlier (days or week before the event date) to avoid having a large gamma exposure.”

Hedgers/sellers

One of the reasons why 0DTEs are mainly traded volume wise for indices is because of the higher option demand from hedgers and sellers of structured products.

“What we noticed in the data is really that so, a lot of the activity is around 2% slightly out the money on the call side and 2% slightly out the money on the put side,” said Sidial. “And the data shows that at the beginning of the day, there is a lot of people coming in to sell volatility.

“It seems like the bulk of this flow is coming from wealth managers and volatility hedge funds – mostly speculative vol hedge funds and some market makers and a very small percentage of retail.”

Ambrus Group has just published a new research paper analysing and demystifying “the truth behind 0DTE options and what it means for the market going forward”.

“Our research shows that retail is not behind the bulk trading of these 0DTE options,” said Sidial. “And what you will notice throughout the course of the day is that people will look to cover these positions and then you'll notice a second wave of buyers that will come in and try to bet in favour of the trend. So, if the market was up 1% going into the middle part of the day, you'll see a lot of people come in and try to buy calls or vice versa if the market was down 1%.”

According to Sidial, the behavioural pattern is that beginning of the day, “you have a lot of people coming in and they're selling volatility at the beginning of the day”.

“Midway throughout the day, they're looking to close some of these positions. And then you have a second wave of participants that come in and they'll try to buy the continuation of the trend,” he said.

Another common misconception pointed by the report is the idea that investors are hedging their risk with 0DTE options instead of VIX calls.

Sidial pointed to the mini banking crisis of March 2023 as a scenario where 0DTE options would not be a reliable hedge.

“In fact, during that brief moment we witnessed one of the highest amounts of VIX call buying over the last three years,

demonstrating that investors will still rely on 30-day volatility during times of instability and panic,” he said.

“Although these options are not impacting the VIX derivatives complex, the addition of 0DTEs does seem to have had an impact on the SPX complex.”

Generally, the Vega is greater in longer-term options whereas shorter-term contracts carry a higher gamma profile - due to the short-term nature of 0DTE contracts, they do not carry a large Vega profile.

“Even with all of the active trading that takes place, it seems that the Vega from 0DTE options is not disrupting the breakdown and appetite for SPX Vega,” said Sidial.

!Since most of the contracts traded are slightly OTM, they carry a very high amount of delta and gamma risk which can impact the market. This can be observed in the big intraday price swings in the underlying which occur as a result of market makers hedging their exposure to these contracts.”

Fuelling vol… in stress conditions

The report has an interesting twist as it found that on regular market days and regular scenarios, the increased 0DTE activity is not adding a sense of hazard but during moments of true market stress, “they absolutely act as an additive fuel to the fire”.

“The misconception is that we could wake up one day and 0DTS could just drive the market down 20% and that from what we're seeing in the data is actually not true,” said Sidial. “But if we have a scenario where the market is down, 5% or there is a market crash the new phenomenon could help accelerate volatility.”

According to Sidial, it is not really a “volatility creator, but a volatility accelerator”.

“For us, those imbalances and the extra vol provide an opportunity to extract value from the market, but maybe not for other market participants,” he said.

“We have not witnessed that kind of vol over the last two years or the S&P500 down 5-6% on a pretty extreme catalyst. But these options have been put into play and eventually we will run into the day where that sort of additive fuel will add the reflexivity and as a vol fund this could work out favourably for us.”

The misconception is that we could wake up one day and 0DTS could just drive the market down 20%

SRP Europe Awards: SG Index –a three-pronged approach

Société Générale (SG CIB) has leveraged the capabilities of its index business SG Index to complement its equity derivatives structuring and hedging activities and be a top provider of custom index strategies during 2022.

The French bank was recognised as the Best House in Europe for the 10th consecutive year at this year’s SRP Awards Ceremony. SG CIB took six other accolades including Best House ESG for the third time in four years; Best House France; Best House Yield Enhancement; Best Warrant Provider; Best Proprietary Index; and Best Issuance platform.

Pierre Gimenes (pictured), head of equities & equity derivatives pricing, Europe, at SGCIB spoke to SRP about the merits of SG Index in supporting the banks equity derivative activities.

“SG’s index platform was set up to complement our offering and serve investor across different target markets,” he said.

SG Index (SGI) platform offers access to the bank’s own branded indices such as its range of ESG indices where SG is the index sponsor and owns the IP, but it also promotes white label indices developed by third parties. Overall, the platform comprises north of 2,000 indices across asset classes and client types.

SGI is based on three pillars and is used for several types of clients and products.

The custom index segment covers indices optimised for

structured products and includes a range of thematic indices used in delta one and leverage certificates – notably popular in Germany – which is a growing market for the bank through b2c channels.

Then there is the bank’s QIS strategies unit which is used more often to respond to needs of private banks, especially around discretionary portfolio mandates, but also to deliver strategies for distribution purposes.

The third leg of the pillar - what the bank calls the ‘execution platform’ - offers solutions to manage discretionary strategies and puts SG’s execution capabilities at the disposal of clients who want a wrapper to implement their own views, strategies and IPs – which can be algo based or discretionary.

“The three categories have different applications but are very complimentary to each other and offer solutions to different needs,” said Gimenes.

Public distribution

In the public distribution market Gimenes sees a continuation of the trend of the past years around ESG criteria being used in

SG’s index platform was set up to complement our offering and serve investor across different target markets

equity indices - over the past three years, the volume tracking ESG indices has been quite significant as volumes quadrupled over three years.

“We observe a clear trend towards ESG but with a new approach compared to five years ago when the focus was on broad ESG filters – using ESG scores – and considering all the three pillars for the ESG score,” he said. “As time goes by, we observe a growing interest in more specific aspects of ESG which is pushing us to create new industry standards and become more precise when we develop new index strategies.”

The ‘E’ of ESG remains on top of the agenda due to current concerns around climate change. Climate is very much at stake but there are some other themes linked to the environment where people want to invest.

“Biodiversity or the transition towards a circular economy, for example, epitomize this trend within the evolution of ESG indices beyond the traditional carbon intensity theme,” said Gimenes.

The French bank reported US$17 bn Aum in Europe for its range of structured products linked to bespoke indices including decrement equity indices, vol target on multi-assets allocations, etc.

Input/output

Most of the indices and strategies developed by SGI are the result of the combination of the input from the structuring team which usually is seeking to respond to a client need and uses third party calculating agents and index sponsors “to leverage their operational calculation capabilities and reliability”.

According to Gimenes, in the ESG space some index providers have specific capabilities on certain themes, because they have either internal expertise on the matter, or partnerships with external ESG data providers.

“We usually discuss with the client the investment goals and then we build up a proposal looking at the best way to achieve that objective and choose the right partner to deliver the strategy,” he said.

Biodiversity which is the theme of the French bank’s submission to SRP’s awards, is a good example, as it is something that only a limited number of data providers have a robust expertise on at this stage.

“This is a key element at a product development stage as it guides towards the index provider with the relevant specific expertise,” Gimenes said.

Delta one

The delta one offering of SGI has been growing steadily over the past few years and most of the activity is driven by thematics of which ESG takes a good share.

Themes driving investment include electric vehicles and sector based strategies, but exposures can also be broader, according to Gimenes.

The French bank launched a delta one certificate recently linked to the MSCI theme rotation index which covers a universe of 22 big themes to mega trends.

“We think this index offers a lot of value because it uses quite sophisticated AI techniques to rotate and extract value from the best performing investment themes,” said Gimenes.

Fueling innovation

From a structuring perspective and a product development standpoint indexing is at the core of innovation in the structured products market, according to Gimenes.

“Developing new underlyings has become one of the most critical aspects of products structuring. You can see across the board and the value chain the use of indices in the structured products market and how investors are looking at new underlyings,” he said.

The increase of custom and optimized underlyings for structured products shows the evolution of the market from broad market indices and stocks to less standard underlyings that implement investment strategies broadly proposed in the asset management space and are designed to extract potential alpha from the market.

“This has enabled us to offer additional value in our products and improve the value proposition of structured products, closing part of the gap to the richness of investment thematics offered in the mutual funds,” concluded Gimenes.

Developing new underlyings has become one of the most critical aspects of products structuring

SGI: QIS played a diversifying, defensive role in 2022

In the second of a two-part interview, Pierre Gimenes, global co-head of structuring for global markets at SGCIB, discusses the contributions of SGI’s QIS group in helping institutional investors (pension funds, asset managers, hedge funds, etc.) design and implement risk premia strategies with proprietary algorithms and in-depth research, and how the SGI YouTRack execution platform is increasingly sought by these investors to manage discretionary strategies.

According to Gimenes, QIS has been traditionally targeted at institutional investors because it provides a natural starting point to extract and implement risk premia from basic thematic strategies. However, it is a technical area that requires an understanding of sophisticated instruments.

“We have noticed recently that on the private banking side, discretionary portfolio managers have been more active in the QIS front as they seek to serve clients with different investment time horizon and appetite for complexity,” he said.

From an asset class perspective, there have been successful developments in 2022 - the bank’s SGI Step Index was deployed by several Swiss banks to extract carry from equity volatility. Several global asset managers traded the equity repo carry and rate volatility carry strategies developed by the QIS team.

“The rate volatility carry strategy is an interesting example,” said Gimenes. “This strategy leverages on the specific dynamics of the USD rates volatility market, where long-dated part is less expensive than the short-dated one. Positioning on the longdated volatility thus offers an opportunity to build a defensive position while benefitting from a time decay.”

SGI’s QIS team took advantage in 2022 of the fact that there is a lot of institutional investor activity on long dated callable bonds which are selling long dated rates volatility.

This explains the inverted curve as a result of the imbalance between supply and demand, according to Gimenes.

“Because of our cross-asset set up and global presence we are able to connect the dots and package strategies to take advantage of this kind of opportunity - cheap, long dated volatility has revealed beneficial over the past 18 months typically and was a good diversifier for global portfolio positions as equity and bonds fell,” he said.

Going long on bonds was not an effective hedge in 2022, so QIS strategies played a diversifying and defensive role in investor portfolios.

“More generally, the poor performance of the traditional ‘60/40’ portfolio in 2022 has been a wake-up call for global portfolio allocators to seek for alternative solutions to build defensive, decorrelated positions,” said Gimenes.

Smart beta

The other leg of QIS – smart beta – saw a continued decline as the initial focus from clients managing large portfolios on some fundamental factors such as equity value or equity quality shifted towards broader, cross-assets portfolio approach.

“Smart beta and equity factor investing did rely on fundamentals rather than on market imbalances, and they lacked a cross-asset dimension,” said Gimenes.

“We observed a gradual shift in interest from the pure equity (smart beta, factor-based) towards more diversified QIS

Smart beta and equity factor investing did rely on fundamentals rather than on market imbalances

approaches seeking for example carry through alpha, or defensive profiles.”

Issuers are well positioned to identify structural markets imbalances and dislocations, which create robust, structural premia, that can be wrapped into investable strategies.

Hedge fund like returns

According to Gimenes, some of the arbitrage strategies SGI has developed include tail risk hedges which are defensive, aiming at ‘convex’ profiles in very severe downturns like the ones we saw in 2008 and 2020.

“There are similarities to the approach implemented by some hedge funds, which are trying to capture the imbalances and market opportunities through relative value positioning,” he said.

“Some QIS strategies implement a similar approach, when the premia at stake can be implemented in a systematic manner. QIS range also explores broader market segments as it offers access to longer term horizon, hedging strategies beyond pure alpha generation, etc.”

Liquidity issues

When it comes to risk management and hedging products linked to new custom underlyings, Gimenes noted that everything relating to delta one exposure does not raise volatility risk management issues “because the strategies are built in a way that are properly replicable by the issuer”.

“There is no convexity at stake which means that the risk management is more this of a classical equity portfolio,” he said. “This is very familiar to delta one traders, but the structured products space is different and does raise some additional challenges.”

ESG is a good example of trading desks having to deal with lower liquidity in underlyings used in the structured products market.

“Every strategy we build must be replicable from a risk management standpoint but it is true that some strategies that are deployed via delta one products are hard to translate efficiently from a pricing perspective into structured products, which imply more dynamic hedging process,” said Gimenes.

“Sometimes we must somehow restrict ourselves to a subset of assets and underlyings that are liquid enough for us to hedge properly. On top the individual hedge, we make sure that there is a reasonable risk management product by product.”

Book diversification

The second critical layer investment banks apply to manage liquidity risk is diversification at a trading book level which also comes from investor demand specially for those issuers with a global reach.

“The structured products market has evolved towards tailormade products and this brings challenges compared to managing an S&P500 or EuroStoxx 50 only book,” said Gimenes.

“For this business to be sustainable it must be done properly. Education and transparency remain very important aspects of this market and product governance is also a must.

Mifid has helped to normalise product governance at a manufacturer and distribution levels. However, it is important that some of the more complex structures are offered to sophisticated investors only and do not end up in the wrong hands.

For instance, SGI’s QIS and discretionary portfolio strategies must be aligned to the right target market, said Gimenes.

“This is a very important aspect of governance,” he concluded. “The market has made significant improvements on disclosure and regulation has established a standardised sales and marketing processes, which is good because issuers and manufacturers must ensure that the right product end up in the hands of the right client and that investors have enough information to make an informed decision when they invest in these products. That's crucial.”

The structured products market has evolved towards tailormade products and this brings challenges compared to managing an S&P500 or EuroStoxx 50 only book

Looking back: 25 years of the rev conv

This is the story of how the reverse convertible came to life at a time when structured products were known as ‘special products’ in the Swiss market.

This is the story of how the reverse convertible came to life at a time when structured products were known as ‘special products’ in the Swiss market.

It was in the spring of 1998, and Swiss (and US) interest rates were already low – the great crisis of the year 2000 would arrive two years later…

That is how Patrick Oberhaensli, founder and CEO of EVOLIDS FINANCE, a disruptive Swiss financial services company, recalls the market environment in the run up to the debut of the first ever reverse convertible structure in the Swiss market.

Oberhaensli has been teaching finance to professionals since 2009 and was previously responsible for Swiss institutional sales at Robeco for over five years. Prior to that, he held various senior client-oriented positions at Swiss Bank Corporation (SBC) which was merged with Union Bank of Switzerland (UBS) in 1998 to form UBS – the largest bank in Europe and second largest in the world.

“I was working at internal audit investment banking when I was offered to move to the client front within investment banking. This is where I started working on interest rate derivatives at a time when structured products were called ‘special products’ there,” says Oberhaensli.

In that context, he had a strong focus on product development and creating new solutions.

“A lot of our work at the time involved looking at interest rate curves in different currencies but also at the assets classes to find cross-market opportunities,” he says.

It was during his time at UBS when Oberhaensli started working with options which led to the creation of the first reverse convertible structure.

Investor driven

The design of the first rev conv structure had nothing to do with internal conversations but with feedback from institutional investors which were seeking to go beyond the classic short-term views on companies (bonds/stocks) related to tactical asset allocation or the ones associated with (long term) strategic asset allocation.

“Institutional investors wanted to have an (alternative) neutral medium-term view for those investing directly on specific sectors and specific names and were looking at a different type of exposure which at the time could only be achieved by directly investing in equity or leveraging these (the directional view),” says Oberhaensli.

This approach was problematic because there wasn’t a suitable solution if the investor had a view that a specific stock or sector would not move a lot in the mid-term - three to fiveyear horizon – as “there were no exchange-traded options that would last that long.

“Another key element that pushed me to find a solution was that most institutional investors cannot use leverage and that made the situation more difficult,” Oberhaensli says. “We had to simplify and have those considerations embedded in an all-inone investment solution that would make things clearer in terms of exposure.”

The rev conv structure is based on implementing a view on the underlying instrument but without leverage and with a mediumterm horizon which is something investment banks could offer over-the-counter (OTC), although banks would not want to have credit exposure versus the investor.

“To have something that was fully capitalised from the beginning we resorted to options to build that new type of structured product,” he says.

“That is how the first reverse convertible structure on stocks and later on bonds came to life. This yield enhancement strategy became popular among investors because it was fulfilling a need."

According to Oberhaensli, the main driver was the investor view and then understanding what makes the short put exposure from the investor perspective more valuable.

“Essentially, what makes a short put worth more than is volatility on one side, but also the dividend yield which adds more value to the put which is then sold at higher price,” he says.

“Understanding out of the universe of stocks you can filter out using these two criteria, especially. But you can of course add other filtering elements that would ensure to get closer and match what the investor wants.”

Of course, adds Oberhaensli, some reverse convertibles on certain underlyings with less attractive coupons on the flow side will have less demand.

“But on the investor solutions side they play a valuable role in a portfolio,” says Oberhaensli.

From institutional to retail

Reverse convertibles have had an interesting evolution over time. On one hand, the more exotic the option the less volume of issuance will likely be possible. On the other hand, there are several elements to consider at the same time with this structure “as you must match the view on the asset with the typically shorter time horizon and the partial capital protection will necessarily lead to a lower coupon (than without that partial capital protection)”.

According to Oberhaensli, there's no contradiction in the transition from institutional to retail as the rev conv is a structure that has added value to private banking and retail investors as well.

“Of course, investing in such a product should be preceded by an investment policy statement [IPS] so that the product matches the investment objectives and constraints of the end client,” says Oberhaensli. “That is why I think this product is not a flow product but a solution type of product – it’s not something that should be taken from the shelve but be aimed at solving a need. From that perspective it still has the profile of an institutional product.”

The main attractive of the rev conv is that is built upon a very

simple and easy to explain structure which of course can become complex with the use of exotic options.

“The simplicity of the reverse convertible certainly played an essential role in its wide adoption,” says Oberhaensli, pointing at the three key elements in a rev conv - understanding the structure, the opportunity and the associated risks.

“Essentially, investors are delta long in the underlying, and depending on the structure you need to also consider the credit risk of the bond - nowadays alternative issuing vehicles have become more common (with their own risks).”

The success of the rev conv is closely linked to its payoff profile which resonated with bond investors that understood the embedded credit risk of the issuer while accepting the stock's specific risk.

According to Oberhaensli, demand for the reverse convertible will not fade because in the current environment of higher volatility and higher interest rates this payoff structure can offer good returns depending on the underlying and the investment horizon.

“There are opportunities in numerous stocks all the time and very special situations that can make reverse convertibles more attractive,” he said. “The US debt ceiling controversy for example could potentially trigger a sharp(er) volatility spike for a while.

“On the other hand, we know that volatility is mean reverting, and you also have to consider the put call parity as a call warrant issued on the same underlying, horizon and strike will lead to a price benefit given that hedging the risk is much easier.”

Source: SRP

SRP Apac 2023: relaxed regulations create opportunities in SEA

Two senior executives from major local banks in Malaysia and Thailand discussed how the regulatory shift in the past year has brought opportunities to the markets in a fireside chat at the SRP APAC Conference 2023 held in Singapore in May.

Thailand has seen major regulatory updates from the Bank of Thailand and the Securities and Exchange Commission (SEC) in relation to the issuance of structured notes in the country, according to Tortrakun Satayaprasert, senior vice president, product solutions and markets innovation at Krungthai Bank.

Specifically, the central bank has adopted a principal-based governance for derivatives-embedded products, instead of a rule-based approach. In other words, the governance of 'what is permitted to be traded' has become 'what is not permitted to be traded'.

"This has widened the range of products that we can offer onshore, more directly related to structured products," said Satayaprasert. "Another key change is that retail investors can now purchase creditlinked notes [CLNs] in Thailand.

“The products used to be limited to financial institutions through private funds.”

In addition, commodity derivatives which could only be traded for hedging purposes previously, and commodity index-linked investments can now be offered, including commodity-linked structured notes.

The minimum ticket size of THB5m (US$135K) has also been waived for structured notes. Depository receipts (DRs), a type of listed structured product designed for Thai investors to access offshore equity, now feature more eligible underlier choices and require smaller issuance volumes, according to Satayaprasert.

Prior to the new rule, there was only one DR listed with a daily traded volume of

approximately THB5m. Currently there are 12 issuers trading THB200m on average.

"For structure notes, the market continues to grow, reaching US$4 billion-equivalent by sales volume in 2022," he said.

From a bank's perspective, one of the hurdles to expanding the Thai market is localisation, specifically the language barrier and human resources available as many term sheets and strategy description must be translated from English to Thai.

In Malaysia, the regulations on listed structured warrants were also relaxed as they lowered the market cap requirement that corporates ned to meet to become eligible underliers. This has enabled Maybank to offer a lot more names, according to Abdul Azzahir Azhar, regional head of equity & commodity derivatives at Maybank Investment Banking Group.

"We've also seen a reduction in the requirement to be deemed a high-net-worth investor in Malaysia," he said. "Hopefully this will lower the threshold required for people to invest, particularly in principal-protected notes, which are popular.”

In Q1 2021, the Indonesia Stock Exchange (IDX) reached out to Maybank about the launch of structured warrants following the introduction of Indonesian Financial Services Authority (or Otoritas Jasa Keuangan – OJK) Regulation No. 8/ POJK/04/2021 on 19 March 2021.

"Interestingly, it was two Malaysian banks [that entered the market] – RHB Bank first and Maybank second. [IDX] is waiting for Indonesian banks to come onboard," said Azhar, adding that Indonesia was relatively late in tapping the market among the

Association of Southeast Asian Nations (ASEAN) countries, but the bourse and regulator were actively learning from their neighbours.

Besides Indonesia and its home country, the largest Malaysian bank by market cap also has its equity derivatives presence in Thailand after it began to issue structured notes there in August 2022. On the OTC side, the best-selling and best-performing product has been the autocallable fixed coupon note (FCN) in Malaysia.

"Asian investors are addicted to yield and coupon. Malaysia is no different," he said. "There has been a significant uptick in principal-protected notes but really not enough to offset the drop we saw in the autocallable or FCN space.”

The traction of PPNs is very limited in Malaysia due to lower overnight funding compared with the Asian markets where USD-denominated structured products are common.

"There's almost no way to sell a structure with unlimited upside participation. What has been doing quite well is the shark fin payoff," he said. "We did try to explore more index-based structures, but I think Malaysia is not quite there yet in terms of the acceptance of quantitative investment strategies ideas, which require lots of time to be explained to clients."

In Thailand where interest rates also remain low, at 1.75%, investors are more interested in PPNs with a long-only strategy and long tenors like three to five years, according to Satayaprasert. Krungthai has recently traded PPNs on an an all-weather QIS index, which has climbed 10% to 15% since the product launch.

SRP Apac 2023: Personality of the Year –Jung-Jin Yoon

The Apac Personality of the Year Award 2023 was presented to Jung-Jin Yoon at the 10th Apac Awards Ceremony, which took place on the evening of Wednesday 3 May at the Hilton Singapore Orchard.

Yoon, managing director, head of crossasset sales & structuring for Apac at Société Générale (SG) received the highest number of votes from respondents to the SRP Apac Awards Survey 2023.

Growing up in Montreal and New Jersey, Yoon, a native of South Korea, returned to the country to pursue his bachelor's in business administration at Yonsei University in 2002 and served a two-year conscription before kicking off his career at Macquarie Bank as a corporate finance analyst in Seoul in 2007.

One year later, the recent graduate, who enjoyed working in an international environment, joined SG's Hong Kong office because of a close acquaintance who introduced him to global markets, specifically the derivatives space.

"It was a simple decision taken 16 years ago. I'm quite happy where I am right now," Yoon told SRP.

The word 'natural' was used several times when Yoon looked back at his trajectory at SG where he started in equity derivatives (EQD) sales support for the Korean market and now manages approximately 100 cross-asset sales and structurers in Apac.

The cross-asset set up was launched as part of a global shift at the French bank triggered by then SG boss Christophe Miané in 2009.

In 2013, Yoon relocated to South Korea overseeing the third-party distribution after SG obtained the relevant regulatory licences for its onshore operation where structured products were the first leg of the local expansion, followed by market access and flow activities.

"It's a team that's very dear to me," Yoon recalled, referring to the local setup. "We started from scratch - building the local infrastructure, transferring the activities from HK, and repositioning our franchise.

"Once you have better client proximity, it leads to better discussions on product innovation and an enhanced understanding of market opportunities. I'm hoping that we are able to replicate this in every market."

Yoon accesses market opportunities from three main angles - product opportunities, client demand and regulatory framework.

"In Korea, demand for structured products was high as there was a surge in demand from retail investors wanting a boost in income amid very low interest rates back then, not to mention that the regulatory

environment was less strict compared to what we see today," he said.

Initially the market was "very binary" and products available were autocalls either with or without correlation on single stocks.

"There was no big shift in investment sentiment and consequently this a very standardised flow business," Yoon said. "Even with a cross asset mandate, there was not much to explore initially as a significant portion of market investments were in equities."

Looking back, SG was one of the pioneers in building up the interest on fixed income among high-net-worth individuals in South Korea, according to Yoon.

"It was during my time in Korea where I

'The award was presented to Samue Henry on behalf of Yoon'

experienced the value of being cross-asset and how powerful that setup is," he said, adding that the strengths are reflected in product innovation and capabilities besides an ability for sales to tactically pivot based on market conditions.

After nearly five years in Seoul, Yoon went back to Hong Kong in late 2017 where he embarked on a "natural transition" to regional roles with step-by-step exposure - from private banks to consumer banks in Singapore and Hong Kong SAR, then to Taiwan, China, Japan and then to institutional coverage.

Commoditisation

"The Apac market has clearly grown, but at the same time it’s become much more challenging in some markets over the past 10 years," he said.

One example is the massive standardisation and automation of structured products, which're reflected in smaller trades, higher volumes, less direct interaction with clients but more with third-party multi-issuer platforms, according to Yoon.

"Certainly, the business is more operationallyefficient today but also too commoditised leading to somewhat of a binary market and a loss in sales DNA," he noted.

Ten years ago, one client sent one email for a single pricing request at a time. Nowadays, a batch of 100 pricing requests takes no more than a few minutes.

"The sheer capacity to mass price and market these products came much faster than most envisioned," said Yoon.

Post-Covid 19

Since 2020, the industry has shifted towards fixed income from equity.

"While we hope to bring more product impact on this space, it’s somewhat disappointing to see that not many Asian investors really embrace long term structures, which thereby leave limited room for product innovation," said Yoon.

The momentum on fixed income has slowed down this year whereas the rebound on Asian equities hasn't fully materialised.

"Q1 23 was not an easy one. A lot of the markets continue to trade the same products that were traded when rates were near zero," he said. "This overall transition is taking longer than what we had hoped for. It's a key focus on our agenda for this year."

In terms of traded notional of structured products, fixed income underliers were up approximately 50% while equities including multi-asset were down around 20% in Apac in Q1 23 year-on-year.

"The Japanese market was heavily hit due to the ongoing regulatory scrutiny since H2 22, which we expect clarity going into Q3 23. It remains a key pillar for SG in conjunction with Korea, Singapore and Greater China," he said.

Apart from fixed income, quantitative investment strategies (QIS), environmental, social, and governance (ESG), thematic indices and hybrids were little known back 10 years ago.

Typically, each year sees one to two products with a strong market impactwhether it be on a tweak payoff or a new concept, according to Yoon.

"Unfortunately, given the context of the markets - I don't think we've had that in the past year. [This] is something we need to rectify," he said.

Cautious approach

Structured product sales is a complex product type that requires a mix of sales capabilities, product depth and understanding of the trading fundamentals.

"It’s a role that needs to be very riskconscious, whereas we have seen numerous profiles in the market who approach this business from a brokerage standpoint, which we don’t find to be a sustainable model," he said.

For many investment banks, structured products are no longer a business driven by market share, according to Yoon.

In February, SG rejigged its cross-asset franchise in Apac which is currently led by Yoon by merging its structuring and sales teams - the sales team is mostly localised in the bank's coverage locations while structuring has been consolidated in Hong Kong SAR and Tokyo.

"We want the structuring team to be clientfacing and having the proximity as the sales do," he said. "Some banks have structuring and sales governance separately whereas some are combined. Ultimately, it's a matter of how you align the business strategy."

Once you have better client proximity, it leads to better discussions on product innovation and an enhanced understanding of market opportunities

SRP Apac 2023: asset class rotation and emergence of hedge fund plays

The SRP APAC Conference 2023 kicked off with three panellists from private banks sharing the strategy shift amid rising interest rates on 3 May.

It is the upward trajectory in interest rates that has impacted the structured products landscape the most, according to Rohit Jaisingh, head of capital markets products at DBS Bank, adding that the climb has led to risk de-escalation close to a risk-off mode.

"This means that the momentum of equity structure products, which were the key driver of our business, has stalled," said Jaisingh. "Inflation is persistent at high levels and corporate earnings are under some pressure. So, the outlook for equities is still unclear."

With implied volatilities coming off, we've been encouraging our clients to buy some downside protection on their portfolios - Rohit Jaising, DBS Bank

According to Jaisingh, interest rate hikes has enabled the private banking clients at DBS to pivot to interest rates-linked products as a result of the inverted yield curve and low risk propensities. "We have seen a lot of interest in rate-linked products like step-up notes, capped and floored floaters with or without credit overlays,” he said.

In addition, the 'near cash structure products', as they are known at DBS Bank, have gained traction with credit-linked notes (CLNs) that track Monetary Authority of Singapore (MAS) treasury bills frontrunning the trend.

On the underlying side, Jaisingh noted that the Bridgewater global macro strategies and DBS Bank's flagship portfolios, including the DBS Barbell Income Fund, was brought to the market through structured products in Q1 23 to complement stock dispersion strategies.

"With implied volatilities coming off, we've been encouraging our clients to buy some downside protection on their portfolios," he said. "In essence, what has happened over the last couple of years is that we have seen this asset class rotation."

At DBS Private Bank, the asset class split for equity, rate and FXlinked structured products has shifted to 40/30/30 from 60/20/20 based on the issuance volume from 2021. "This is a pretty significant shift as far as our business is concerned," said Jaisingh.

In contrast, the asset class split for equity and non-equity was 90/10 for structured products traded at Nomura's International Wealth Management before Q1 2022, featuring autocallables, reverse convertibles, accumulators and decumulators, according to Aditya Sehgal, head of capital market solutions at the Japanese bank.

"The impact of [interest rate hikes] forced us very aggressively to move in a direction of looking at other products within the portfolio that can complement a diversified the overall offering," said Sehgal, adding that principal-protected participation products have also been in focus over the last 12 months.Investors essentially want as much unlimited upside as possible and as little downside as possible through participation products, which has become feasible in the current rates environment, said Sehgal.

"What we've been pushing or focusing our participation products on are the high beta, small cap type of names," he said. "With just three, four or five months of high velocity, you essentially want to get your principal return."

At HSBC Private Banking & Wealth (PBW), investors began to show "massive interest" in interest rates-linked structured products from 2022 until equities "came back" towards the end of the year contributing to 65% of the trading flow in Q1 2023, according to Ishan Sarkar, head of capital markets, Southeast Asia at HSBC

"When it comes to equity-linked structured products, we generally talk about fixed coupon notes (FCNs), equity-linked notes (ELNs), dual currency notes (DCNs), accumulators and decumulators. What was different this time was that clients actually used the higher interest rate to express their directional view," said Sarkar.

Participation notes with principal protection have been increasingly used to implement high-conviction themes like China's re-opening from Covid-19 on back of stock baskets. The demand boils down to the fact that there is a lot of risk reduction. But at the same time, there is "a bit of optimism" in certain market geographically.

"When the market outlook is unclear, what we do is to take a step back and look at our strategic asset allocation," said Sarkar. “Hedge funds have been a favoured underlier choice since early 2022, and structured products linked to hedge funds are very new in Asia.”

At HSBC PBW, the house view is that clients need to diversify their investments, such as by allocating 10% to 15% to alternatives. With a structured product where investors buy a call option on a basket of hedge funds or a single hedge fund, they benefit from downside protection while still participates on the underliers, according to Sarkar.

"Given the challenges we have in the market, the innovation is structured products continue to happen," he said.

Crypto news

All the latest developments in digital assets from across the globe

BOCI, UBS partner in first HK tokenised structured notes

Bank of China International (BOCI) has successfully issued CNH200 million (US$ 28 million) fully digital structured notes, making it the first Chinese financial institution to issue a tokenised security in the country’s special administrative region.

The product was originated by UBS and placed to its clients in Asia Pacific, marking a long-term collaboration between BOCI and UBS in the space of digital structured notes as the interest in fully regulated digital asset products increases in the Apac region.

‘High-frequency issuance activity can benefit from vast efficiency gains through the use of blockchain technology, which will ultimately bring advantages to investors,’ said Aurelian Troendle (pictured), global head of MTN trading, UBS.

The Swiss bank had issued a US$50m tokenised fixed rate note in December 2022 under English and Swiss law, digitised on a permissioned blockchain.

By issuing these digital securities, both BOCI and UBS have taken new steps in terms of applicable law and blockchain types. This transaction marks the first product of its kind in Asia Pacific constituted under Hong Kong and Swiss law and tokenised on the main Ethereum blockchain, successfully introducing regulated securities onto a public blockchain.

BOCI which was the first Chinese financial institution to issue structured notes overseas is also at the forefront of developments in the crypto space as the first Chinese issuer to offer fully digitalised structured notes.

‘Working together with UBS, we are driving the simplification of digital asset markets and products, for customers in Asia Pacific through the development of blockchain-based digital structured products, designed specifically for customers in Asia Pacific,’ said Ying Wang, Deputy CEO at BOCI. We are encouraged by the evolution of Hong Kong's digital economy and are committed to promoting the digital transformation and innovative development of Hong Kong's financial industry.”

UBS is seeking to expand its tokenization services across structured products, fixed income, and repo financing through UBS Tokenize, a dedicated business line specialised in security tokens using blockchain technology.

Gate adds cap prot shark fin to gate wealth

Gate.io, a cryptocurrency exchange based in the Marshall Islands, is launching Shark Fin Boost and Shark Fin Wealth, two new principal-protected investment products with a potential return of up to 14%. The new products will seek to deliver stable and guaranteed returns for BTC, ETH , and USDT investments. They will be available on Gate Wealth , Gate.io's dedicated wealth management platform - Gate Wealth offers both products on seven-day terms on BTC, ETH , and USDT investments.

The Shark Fin Boost provides a guaranteed return of at least 7% but can go as high as 14% and features no minimum investment requirement. On the other hand, the Shark Fin Wealth structure offers the same investment assets and terms but requires higher minimum investment amounts of 10,000 USDT, 0.5 BTC, or 10 ETH for their respective assets. The guaranteed annualised returns are as high as 3.5% but can reach up to 14%, depending on the asset.

Shark Fin Boost and Wealth are part of a suite of structured investment products offered on the Gate Wealth platform.

Launched in April, 2023, Gate Wealth is designed to provide professional investors access to ‘comprehensive and customised wealth management services to global crypto investment users, especially individual investors, institutional investors, high-net-worth individuals, and other wealth and asset managers’.

Gate Wealth features 100% fund mapping to ensure the safety of funds and offers a wide range of investment tools and structured products with stable income and considerable return rates.

The platform led by Han Lin (pictured) also provides customised product solutions to meet users' needs for income and asset protection and leverage ratio, making it easy for users to browse and find a variety of investments that fit their goals.

Digital asset based ETP AuM up by 60% YTD

Exchange Traded Products (ETPs) with digital assets as underlying collateral have seen a 59% growth in total assets under management (AuM) since the begininig of the year, according to Fineqia International.

The AUM increase was at a 37% premium to the underlying value of digital assets, which grew slower at 43% since the beginning of the year. This can be attributed to the price rise of main digital assets that underpin ETPs such as bitcoin and ethereum vis-à-vis smaller alternative coins, as well as capital inflows into these listed products.

‘The tide is higher now than at the beginning of the year, and it has lifted most ships,’ said Fineqia CEO Bundeep Singh Rangar (pictured). ‘The market is holding steady at this higher watermark.’

The 43% price gain since the beginning of the year overshadowed a three percent decrease in AuM in the month of May, to US$31.7 billion from US$32.6 billion, and the five percent monthly decline in the overall value of crypto assets to US$1.14 trillion from about US$1.20 trillion.

The total value of the crypto market at the end of May this year was 13% lower than that at the end of May last year, marking the smallest year-on-year decrease so far this year.

Bitcoin (BTC) dropped seven percent in May, declining to US$27,200 from US$29,200 recorded on April 30. The AuM of ETPs holding BTC correspondingly decreased by four percent, reaching US$21.7 billion from US$22.6 billion.

Ethereum (ETH) decreased two percent in value, dropping to US$1,875 from about US$1,910. ethereum (ETH) denominated ETPs grew 1.6% increase in AUM, however, reaching US$7.6 billion on May 31, compared with US$7.5 billion a month earlier.

ETPs representing alternative coins decreased 8.6%, and those with a basket of cryptocurrencies declined 2.6% in AUM.

The number of tracked ETPs stood at 154 as of the end of May.

VersiFi to launch partner-powered prime services platform

VersiFi has launched a new partner-powered prime services platform for digital assets to minimise counterparty risk .

The plug-and-trade solution includes an institutional-grade technology platform and ecosystem of regulated exchanges, liquidity

providers, custodians and lenders, to offer a full-service prime brokerage solution without the single-firm counterparty risk.

‘The digital asset sector, particularly in the US, finds itself at an inflection point and has a choice to make,’ said Sameer Shalaby (pictured), VersiFi's founder, president and CEO.

‘For there to be widespread adoption amongst asset managers the market structure needs to resemble that found in TradFi to minimise counterparty risk, where there is a separation of responsibilities between exchanges, custodians and lenders.’

According to Shalaby, the new solution offers a unifying technology platform ‘that enables independent yet seamless access to these discrete core functions to support customers while laying the proper foundation for regulatory oversight,’ said Shalaby.

The VersiFi platform, currently in development and expected to officially launch by Q3 of 2023, will bring together the entire ecosystem of regulated exchanges, liquidity providers, custodians and lenders to provide clients with a full-service, regulatory-compliant solution that streamlines the trading lifecycle.

VersiFi was founded in 2022 by veteran entrepreneur Shalaby who previously was president and CEO of Hazeltree Fund Services, a global provider of treasury solutions to alternative asset managers.

DeFiReturns rollsout v2 with advanced analytics

Pods, a provider of institutional-grade structured products for crypto assets, has announced the launch of a new version of its DeFiReturns. According to the firm, DeFiReturns v2 launches after months of development and rigorous testing with the reimagined app replacing the earlier MVP version that only allowed users to check and compare real realised returns across multiple DeFi protocols.

The crypto firm added that the upgraded DeFiReturns app heralds a new era in the DeFi sector as it will allow users to compare historical returns, real returns and not just projected APYs across platforms such as Uniswap and Curve.

Users can also gain insight into DeFi investing and use that to maximise their earning potential, stated the firm.

According to platform, the newly launched version offers these capabilities by integrating new tools and features including a ‘fine-tuned’ user interface that makes the application easier to navigate and use.

‘DeFiReturns v2 allows users to leverage an intuitive interface to easily check and compare returns across protocols,’ it said.

The new app includes advanced analytics for strategies with rewards, which means users can view their accumulated yield, with or without rewards, as well as a ranking of all the top performing strategies over the past 30 days.

‘With this app users can achieve things like finding the top 3 strategies for Ethereum (ETH) and USD Coin (USDC),’ stated the firm.

State Bank to introduce digital currency, CBBCs

Pakistan is on its way to introducing its own digital currency, according to a senior official of the central bank – State Bank of Pakistan.

Shoukat Bizinjo (pictured), additional director, digital financial services group, SBP, said the regulator was looking at callable bull/bear contracts (CBBCs) as a potential route for launching digital currencies and for investors to use structured investment products that mirror the performance of underlying assets without requiring to pay the entire cost of ownership of those assets.

‘The SBP is reviewing and consulting with other central banks in this regard,’ he said.

The official also revealed that state bank is currently in talks with regional business leaders to launch digital money in the country following recent developments in e-banking by Electronic Money Institutions (EMIs) which have introduced e-money wallets for customers and firms, with other digital payment tools like prepaid cards and contactless payment choices.

There are 12 EMIs in the country in various stages of acquiring licenses from the central bank.

CS-backed platform aims at tokenisation, deploys Polygon blockchain

Taurus SA, a Swiss-based digital asset infrastructure provider, has fully integrated the Ethereum platform Polygon blockchain across its custody and tokenisation platform in a move to allow banks, brands, and issuers to issue, book and service any tokenised assets via Polygon, in a fully automated way.

‘Building on Polygon, one of the leading blockchain ecosystems, is a natural step for Taurus. Our banking, consumer goods and sports & entertainment clients can now benefit from low fees and faster transactions for any tokenisation use cases: equity, debt,

structured products, funds, NFTs,’ said Victor Busson (pictured), CMO and head of strategic partnerships at Taurus.

Taurus is seeking to capitalise on regulatory frameworks related to tokenised securities being clarified in key financial centres recently with Europe leading the way.

According to Busson, most tier one financial institutions are entering the space and building capabilities to manage tokenised securities with ‘blockchain-agnostic and tokenagnostic infrastructure’.

Deploying on Polygon allows common clients to leverage Polygon’s large ecosystem, low transaction fees, and high throughput while benefiting from Ethereum layer-1 security, said Busson.

‘The tokenisation of real-world assets is a no-brainer at the root of the idea. The challenge is and always has been to build sufficiently advanced infrastructure to enable it,’ said Colin Butler, global head of institutional capital at Polygon Labs.

In February, Credit Suisse led a US$65 million Series B for Taurus with participation from Deutsche Bank and other financial institutions.

Taurus is targeted at the banking segment and has more than a 60% market share in Switzerland.

Coinbase targets institutional investors with new BTC, ETH futures

US-based cryptocurrency exchange

Coinbase has launched new Bitcoin (BTC) and Ethereum (ETH) futures through its regulated derivatives exchange ‘specifically targeted towards institutional investors’.

The exchange’s institutional-sized contracts for Bitcoin (BTC) and Ethereum (ETH) will be sized at 1 Bitcoin and 10 Ethereum respectively.

The decision to launch these products was prompted by feedback received after the introduction of the exchange’s nano Bitcoin (BIT) and nano Ether (ET) contracts.

The exchange led by Brian Armstrong (pictured) recently announced its intentions to launch a derivatives exchange in Bermuda as part of its global expansion strategy. The exchange’s initial offering will enable traders to speculate on the prices of Bitcoin (BTC) and Ethereum (ETH) through perpetual futures contracts with 5X leverage.

Coinbase’s recent move to expand globally with its derivatives

exchange comes at a time when the crypto exchange is grappling with regulatory uncertainties surrounding digital asset trading in the US.

Yield App boosts crypto accessibility with open banking solution

Estonia-based digital wealth platform Yield App has partnered with Volt, a global realtime payments gateway, to offer additional GBP and EUR on-ramps via Faster Payments Service (FPS) and SEPA Instant credit transfer scheme.

Yield App customers can now buy cryptocurrency in real time directly with their bank, thanks to the integration of Volt's pan-European open banking solution.

With connections to 1,800+ banks across the continent, the two-step process enables customers to authorise transactions with just face ID or biometric authentication from their banking app.

The partnership is a strategic move by Yield App to ensure its customers have a seamless experience when accessing the platform's full suite of products, which bridge the gap between traditional finance and decentralised finance through crypto structured products and its core earn offerings.

Building upon the foundations of legacy payment solutions, open banking-powered on-ramping has emerged as the faster, easier and more secure way to invest, offering an enhanced payment experience fit for the digital age, said Gero Piskov (pictured), card and payments manager at Yield App.

‘It's time for the industry to embrace open banking solutions so that retail crypto investors aren't left outside in the cold, said Piskov.

New crypto ETP provider in Sweden, Ribbon launches onchain altcoin options

Virtune has become the first regulated digital asset manager in Sweden to launch crypto ETPs on Nasdaq Stockholm in collaboration with index provider Vinter, issuing agent Nordic Issuing, market maker Flow Traders and Coinbase as custodian. The new Virtune Crypto Top 10 Index ETP (VIR10) offers exposure to up to 10 leading cryptocurrencies in one single product via the Virtune Vinter Crypto Top 10 Index (VVTOP10).

The ETP, which is 100% physically backed by cryptocurrencies and fully collateralised, will be available in Swedish krona for the Swedish investors and in euros for the rest of the Nordic investors. The product holds two ISINs to cater for each currency, SEK (SE0020052207) for Swedish investors and EUR (SE0020052215) for euro investors.

The underlying index has an allocation to 10 cryptocurrencies with a maximum weight of 40% per cryptocurrency to promote diversification, providing a balanced and diversified investment alternative.

The underlying basket will only comprise cryptocurrencies that are approved by Nasdaq and will be rebalanced monthly to ensure that remains up to date and aligned with current market conditions.

'This product caters to institutional investors and experienced crypto enthusiasts while also serving as an excellent entrylevel product for those new to crypto investments,' said Christopher Kock (pictured), CEO of Virtune.

Virtune is a registered financial institution by the Swedish FSA and withholds an approved EU Base Prospectus for issuing crypto ETPs in Europe.

Ribbon's decentralised exchange Aevo unveils altcoin options trading

The Ethereum-based structured product firm Ribbon Finance's decentralised exchange Aevo has begun offering options tied to alternative cryptocurrencies (altcoins), a crypto term used to describe digital assets other than bitcoin (BTC) and sometimes even ether (ETH).

Aevo users can now trade options linked to Lido's LDO, Pepecoin (PEPE), Sui's SUI, Arbitrum's ARB, Litecoin (LTC), Aptos (APT) and other tokens which could earlier only be traded through an over-the-counter (OT) desk.

Users can pick the options strike price and tenure of these options and get instant quotes from crypto market makers Galaxy, GSR and OrBit Markets.

Currently, Aevo users can only buy options and hold the same till expiry or square off before the expiry, but the firm has plans to allow users to write options with customised margins and counterparty of choice.

Market makers would need to post collateral, approximately 30% of the notional trade size, in the form of dollar-pegged stablecoin USDC, Ribbon Finance's CEO Julian Koh said.

Ribbon launched Aevo last year to allow ether investors to trade options onchain.

StructrPro: US callables gain market share, on track to deliver

SRP data shows that the market share of callable structures in the US has increased by 250% since 2021 when 268 callable structures worth US$4.6 billion (4.4% market share) were launched in the US market.

By Suzi Hampson

The callable structure as a sole payoff type is on track to match last year’s issuance and sales with 318 products worth US$3.7 billion marketed YTD which represents a market share of 13.8%the callable structure has also been used this year in combination with barrier rev convs (1,294 products worth US$4bn) and accrual and range (six products / US$32.9m) and spread (14 products/ US$14.1m).

In 2022, there were 922 callable products issued in the US market worth US$17.1bn which represents a market share of 15.4%callable structures sold in the US in 2022 also featured accrual (10 products / US$104m), spread (10 products /US$7.9m), rev conv (4,045 products/US$13.5 bn) as well as combinations with accrual and range (42 products/ US$147m).

Callable products make up around 15% of all products in the US structured products market, a total of over 15,000 products.We can define issuer callable to mean products that give the issuer the right to terminate the product on a certain set of dates throughout the product term.

Callable structures are different to most payoff types in that the product outcome depends on a choice by the issuer rather than purely the performance of the underlying asset. This will automatically increase yield or upside compared with products with otherwise identical features making them attractive to investors whilst providing a level of flexibility to issuers not available in other structures.

The callable feature can be used as a stand-alone or applied as a variation to many structured product payoffs. The most obvious and widely used case is the autocall payoff converted into an issuer callable. Another common usage of the callable feature is in long dated fixed income products such as steepeners.

To illustrate issuer callables we look at some performance statistics taken from the US structured product analysis service StructrPro. com. StructrPro can be used to analyse live and matured products from the SRP database using analytics powered by FVC. The results here are for equity linked callable products with a strike date covering the period between 24 March 2022 and 24 March 2023.

Fig 1: Levels Scatter chart for equity linked callable products striking 24 March 2022 – 24 March 2023

Source: StructPro.com

Figure 1 shows rebased key product levels. This shows that for many products the current level of the respective underlying is below the strike level. The three most popular underlyings for callable products in the US market are the S&P 500 Index, Russell 2000 Index and Nasdaq 100 Index. Just under 75% of callable products have exposure to at least one of these indices and many as part of a worst-of structures. All three of these underlyings have fallen over the past twelve months which is in line with the results seen on the scatter chart.

As with autocalls, issuer callable products usually offer returns when the product is called or by way of a fixed or conditional coupon stream. The levels chart shows that for almost all product with a coupon barrier the current level of the underlying is greater than the required level and therefore coupons are likely to be paid. The capital at-risk barrier is in general the same level or lower than the coupon barrier meaning for the vast majority of products in this category striking over the past year the underlying is currently above the at-risk barrier level.

Figure 2 provides a breakdown by underlying for issuer callable products on StructrPro.com. The chart also shows the return per annum of the product grouped by underlying. Callable products are showing very strong returns ranging from 8.52% pa. to 18.7% p.a. for the most popular underlying assets.

Due to the callable feature, it is not known whether these products will call or continue past the next call dates, it will be up to the

issuer to decide whether it makes economic sense to carry on the product and therefore pay the necessary coupons and returns or to terminate the product early.

The issuer callability makes the pricing of these products more complicated. For independent “fair value” pricing it is necessary to assume that the issuer will always act rationally to exercise, which would mean doing what would minimise the expected value of what they have to pay out given the product and market performance. On occasions an issuer may be more or less inclined to call than the theoretical answer for reasons of balance sheet or terminating an investment. To price a callable a technique called "backwards induction" is generally used, rather than simple Monte Carlo. The reason for this is to be able to compare from an issuer’s perspective the difference between calling on the product call dates and allowing the product to continue with a view to making the most rational choice. The FVC model library that powers StructrPro has recently added this subtle product type in order to cover this important sector of the market.

Issuer callable products make up a significant part of the US structured products market. They can offer high returns for investors and often suit issuers as well. Issuer callable products bring some complexity to pre-strike pricing, stress testing and to lifecycle management but given their popularity investors and advisors clearly embrace them, and therefore issuers will likely continue to bring them to market.

Fig 2: Product break down and return by underlying for equity linked callable products striking 24 March 2022 – 24 March 2023

Source: StructPro.com

Analysis: deep barriers

The recent increases in interest rates have triggered a return to capital protected structures but has also allowed issuers to offer extra protection on autocall products with lower barriers.

By Tim Mortimer

Structured products traditionally divide into capital protected and capital at risk offerings. The key difference between these two categories is that capital protected products will return the investor’s initial capital in all circumstances irrespective of the performance of the underlying assets to which it is linked.

For structured products the term capital protected is not generally taken to mean that there is no associated credit risk. Since most structured products are issued by investment banks as senior unsecured credit (“notes”) they carry the same credit risk as traditional bonds that many banks might also issue. In many jurisdictions there is a deposit wrapper available in for capital protected products which subject to certain eligibility offer investors protection against issuer default up to the scheme limit. This further strengthens their claim to be fully protected.

Capital protected structured products are generally made up of a “zero coupon bond” which repays the initial capital at maturity plus one or more options or coupon components to provide upside. Typical choices are a long call option

(for a participation product), a long call spread (for capped participation product) and a digital option.

Capital at risk products by contrast will have a short option or a zero-coupon bond which has a face value of less than 100%. Typically, the short put option is attached to a product with high income stream or geared call options.

Most capital at risk products do not simply have a short position in a vanilla at-the-money put option of the underlying asset since this would expose the investor to losses even in the event of a small amount of market decline. It is very common to have a barrier which protects the investor from losses unless the barrier level is breached. This reduces the downside risk at the cost of less favourable product features (for example income or equity participation).

Generally, distributors have set barrier levels at those which reduce risk to capital but does not lose all the advantages in terms of yield or return. For “investment” style products

Image: Mark Gusev/Adobe Stock

(usually five years or longer and linked to one or more Equity Indices) the preferred solution is to set the barrier at between 50% and 70% of the initial level of the underlyings.

Low barriers increase

The recent upward trend of interest rates has meant that a larger number of capital protected products have been issued in the last year or so because it is possible to offer yields or potential yields at levels that many investors find appealing without any capital risk.

If the risk-free rate is one percent, a capital at risk product targeting a yield of seven percent is necessarily taking significant risk, through an aggressive barrier level, volatile or high dividend underlyings, or the worst of construction. When the risk-free rate is instead five percent, a capital at risk product with the same profile might now be able to achieve 10-11%. Since investor income targets are often driven by perception or their spending requirements many of them would still be happy with income of 7-8% even when rates have risen. This accordingly can be achieved at much lower risk and one solution has been to offer capital at risk products with barriers at extremely low levels in a way that has not been done in large numbers before.

Many recent examples have been seen in Europe and Asia with barrier levels set at 35%-40% of the initial underlying level well below the 50% level which is generally the lowest such barriers are set. These products are most commonly linked to individual stocks, or worst-of combinations.

The use of such low barriers fits this investor group very well since they can offer a higher yield than the risk-free rate but with barrier levels that appear extremely safe. Part of the reason that such barrier levels generate enough extra premium is that while a low barrier much reduces the probability of losing capital it does so by eliminating the middle loss cases and leaves the higher value extreme loss cases.

Two such examples in Europe (both issued in Euros) show different approaches. BNP Paribas has issued a threeyear Memory Income Autocall linked to eBay, Zalando and Farfetch in Italy. This product pays 17.4% p.a. on a monthly

schedule if all three of its underlyings are above 30% of their initial levels. The memory feature means that any missed payments are made on the next occasion that all three underlyings are above the coupon barrier. The product calls if all three underlyings are above their start level at any monthly observation starting at six months. It also has a final European capital barrier set at 30% of the initial level.

Barclays have also issued a product with a 30% European barrier over a five-year term into the French market. It is a reverse convertible linked to the Eurostoxx-50 index and pays 4.7% p.a. This is a much more modest target but still well in excess of current EUR five-year swap rates which are around three percent.

While both products have a barrier set at 30% there are major differences in choice of underlyings which explain the contrast of the yield levels. BNP Paribas has elected to use the worst of three very speculative stocks whereas the Barclays product is simply linked to the EuroStoxx-50.

The BNP Paribas product does not truly feel like a low-risk product despite the barrier level illustrating the need to assess any headline terms of a product. Its yield clearly suggests significant residual risk and the PRIIPS SRI risk number is six on the usual 1-7 scale. The Barclays product is more representative of this trend.

Other European countries such as Germany have also seen issuance of products with such low barriers. Within Europe as a whole 160 such products have been issued with a total notional of US$480m. Outside Europe the only market to have adopted this approach in any meaningful way is South Korea with a total of 110 products at a notional total of US$175m. Data is from the start of 2023 and is from SRP global databases.

There has been an increase in the popularity of capital protected products made possible by rising interest rates. This also opens up a middle ground for capital at risk products that take lower risk and one way to achieve this is to use a very low barrier.

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

Generally, distributors have set barrier levels at those which reduce risk to capital but does not lose all the advantages in terms of yield or return

Spotlight on… industry sector indices

An estimated US$8.5 billion was collected from 3,110 structured products linked to a single industry sector index in 2022, down 20% by sales volume year-on-year, but an increase of 70% and 123%, respectively, compared to 2020 and 2019.

SRP’s industry sector group covers strategies that offer exposure to equity sectors defined by economic activity –from agriculture to industrial, healthcare and financial services.

In 2022, 54 different industry sector indices were used as underlying for structured products. Of these, the Solactive Canada Bank 40 AR Index (SOLCAB40 Index), seen in 1,162 products worth an estimated US$2.2 billion, accumulated the highest sales volume.

The index, which tracks the performance of the Solactive Canada Bank TR Index adjusted for a synthetic dividend of 40 index points per annum, made its debut on the SRP database in 2022 and was exclusively used in the Canadian market.

The Eurostoxx Bank index (SX7E Index) on the other hand was available across 17 different jurisdictions. It was the underlying for 550 products that sold a combined US$2.1 billion (2021: US$2.3 billion), with the highest sales achieved in France (US$800m from 200 products) and Italy (US$630m from 53 products).

Four more Solactive indices featured in the top 10, including the Equal Weight Canada Banks 5% AR Index (SOLCBEW5 Index), United States Big Banks AR Index

(SOUSBBAR Index), Canada Insurance AR Index (SOLCINAR Index), and the Canada Bank 30 AR Index (SOLCABAR Index). All four were only seen in the Canadian market, where their combined sales totalled US$1.4 billion from 662 products (2021: US$5.4 billion from 1,982 products).

The Energy Select Sector Index (IXE Index) was only used as a single index in the US (US$450m) while the Stoxx Europe 600 Basic Resources

(SXPP Index), which achieved sales of US$260m from 40 products was seen only in continental Europe, mostly in France, Germany and Italy.

The top 10 was completed by S&P/TSX Composite Index Banks (TXBA Index), which like Solactive’s indices was only utilized in Canada (US$240m) and Euro iStoxx Banks GR Decrement 50 Series 2 Index (IX7S2D50). The latter was seen in 69 products sold to retail investors in France (US$230m).

Canadian investors were spoilt for choice with six out of the top 10 industry sector indices for 2022 available in Canada only.

Industry sector (single index): top 10 2022 by market share

Spotlight on… top issuers in the US (Q1 2023)

Some US$26.6 billion was collected from 8,362 structured products in the first quarter of 2023 – a 7.2% drop in sales volumes year-on-year (YoY). However, sales were up by 3.9% compared to Q4 2022 when US$25.6 billion was gathered from 7,383 products.

Average sales, at US$3.2m per product, were stable compared to Q1 2022 when products sold on average US$3.3m.

Seventeen different issuer groups, a mixture of US, Canadian and European investment banks, were active in the quarter (Q1 2022: 17).

Citi was the number one issuer during the quarter. The bank captured a 15.3% share of the US market with sales of US$4.1 billion from 1,243 products (Q1 2022: US$3.9 billion from 1,186 products). Almost halve of the bank’s sales in the quarter, at US$2 billion, was tied in 717 products linked to the S&P 500.

In second, J.P. Morgan increased its market share to 13.9% with sales of US$3.7 billion from 1,841 products. Like Citi, a large chunk of its sales came from structures linked to the S&P 500 (US$1.7 billion from 865 products) although its best-selling product, Callable Fixed Rate Notes (48133PDZ3), was linked to the interest rates. The one-year registered note, which pays a fixed coupon of five percent, sold US$307.5m during its offering period, making it the highest selling US product of the quarter.

Morgan Stanley and Barclays both captured 11.2% of the US market while Goldman Sachs, which was the main

US: Top 10 issuer groups - market share by sales volume

issuer in Q1 2022, completed the top five with a market share of 8.3% – down 9.6 percentage points YoY. Goldman’s sales dropped by almost 60% compared to the prior year quarter while its issuance was down 29% YoY.

The only newcomer in the top 10 was Toronto Dominion Bank, which replaced Credit Suisse.

For the FY2022 period, J.P. Morgan replaced Goldman Sachs as the number

one issuer in 2022 claiming a 15.5% share of the US market with sales of $14.5 billion from 7,297 products (2021: $12.1 billion from 5,112 products).

In second, Citi increased its market share to 15.3% – up 2.9% from 2021. The bank achieved sales of US$14.3 billion, slightly behind J.P. Morgan, although Citi achieved its volumes from far less products issued (4,919). Goldman Sachs dropped to third place, despite increasing its markets share by 1.4% to 14.1%.

Citi replaced Goldman as the number one issuer in the US structured products market during Q1 2023.

Product wrap:

In this wrap, we look at a selection of structured products with strike dates between 20 March and 18 June 2023.

EUROPE

Federal Finance Gestion launched Fee Destination 2028 in France. The five-year fund offers access to the S&P France 40 Paris-Aligned Transition ESG 5% Decrement Index. It is managed via a physical replication of the index by investing at least 90% of its assets in equities of the index.

If, on the annual observation date, the index closes at or above its initial level, a memory coupon of four percent is registered for that year. At maturity, if the index performance is positive, the product offers 100% capital return, plus a coupon of four percent, plus the coupons recorded during the first four years. The maximum overall capital return is therefore 120%.

This product has obtained the ‘Towards Sustainability’ label, a quality standard to create clarity and transparency around sustainable and socially responsible which was developed in 2019 by Febelfin, the Belgian federation of the financial sector. Priips Summary Risk Indicator (SRI): two out of seven.

Meteor Asset Management collaborated with Barclays for the launch of Growth Deposit Plan June 2023 7287 in the UK. The three-year, protected Phoenix deposit is linked to the FTSE 100 Index. At maturity, the plan will pay a fixed gross interest of 22.50% if the final level of the index is at or above its opening level. The minimum investment is £5,000. The plan is available for investment by individual applicants; as Isa; by pension schemes; by trustees, companies, and partnerships; or by offshore bonds. Meteor will receive a distribution fee of up to 1.50%. Priips Summary Risk Indicator (SRI): two out of seven.

OP Yrityspankki Oyj introduced OP Säästöobligaatio

Eurooppa & Amerikka XIX/2023 in Finland. The five-year medium-term note (MTN) offers access to a basket comprising two SGX indices – iEdge ESG US SDG 40 EW Decrement 5% NTR Index and iEdge ESG Eurozone SDG 35 EW Decrement 5% NTR Index – one with a focus on highly liquid US listed companies and the other with a focus on highly liquid European companies. At maturity, the product offers minimum 100% capital return, plus 100% participation in the rise of the best performing index, capped at 30%. Priips SRI: two out of seven.

KBC issued KBC-Life MI Global BestOf 100-1 in Belgium. The eight-year investment fund is linked to Class 23 insurance KBC-Life Multinvest. It offers 100% participation in a basket of 30 global stocks, floored at an overall minimum capital return of 116% and capped at an overall maximum capital return of 140%. The final basket level is calculated at the average of monthly readings taken during the last year of the investment. The product has an entry fee of 2.50% and the annual ongoing charges (including management fee) are estimated at 1.14%, which amounts to 11.70% over the total investment term. Priips SRI: two out of seven.

Garantum distributed Aktieindexobligation USA värdebolag vs tillväxtbolag 3 år nr 4820 in Sweden. The investment is 100% capital protected by Credit Suisse and targeted at investors who believe value companies will outperform growth companies in the next three years. At maturity, if the Russell 1000 Value Index has outperformed the Russell 1000 Growth Index, the investor participates 130% in the positive difference, subject to six-month backend averaging. The distribution fee is 3.60% and the product is listed at Nasdaq Stockholm. Priips SRI: two out of seven.

Wilgenhaege marketed Double Digit: Besi 15% in the Netherlands. The five-year Athena autocall offers access to the share of BE Semiconductor Industries (Besi), a Dutch multinational company that designs and manufacturers semiconductor equipment. The product is subject to annual early redemption, providing the share closes at or above its initial level on any validation date. In that case, 100% of the nominal invested is returned, plus a coupon of 15% for each year that has passed. At maturity, if the share closes at or above

its initial level, the product pays a coupon of 75%. The European barrier for soft capital protection is 70%. Société Générale is the issuer. Priips SRI: six out of seven.

Abanca sold Garantizado 12 Meses in Spain. The one-year, 100% capital protected structured deposit is linked to the share of Bayer AG. At maturity, if the share closes at or above its initial level, the product offers a coupon of 3.60%. Otherwise, the coupon is set at 3.20%. An entry cost of 1.65% applies. This product is not listed. Priips SRI: one out of seven.

Alior Bank distributed Apollon Oxygen in Poland. The fiveyear autocall is issued via Société Générale. It offers access to the SPDR S&P Oil & Gas Exploration & Production ETF, which seeks to provide exposure the oil and gas exploration and production segment of the S&P Total Market Index (TMI). The product is subject to semi-annual early redemption if on any of the observation dates the ETF closes at or above its initial level. In that case, it offers 100% capital return, plus a coupon of 8.5% for each semester elapsed. At maturity, if the ETF has not fallen below 70% of its starting price, the product offers 185% capital return. Otherwise, the investor participates 1:1 in the fall. The product is listed in Warsaw. Priips SRI: six out of seven.

MIDDLE EAST & AFRICA

Absa issued issue 64 of its Twin Fixed Return and Growth Protector in South Africa. Twenty-five percent of the investment

Asia Pacific: top 10 issuer group by issuance - 20 Mar to 18 Jun 2023*

HSBC

DBS

Morgan Stanley

UBS

Kiatnakin Phatra Securities

Bank of China

China Merchants Bank

Siam Commercial Bank

KB Financial Group

Korea Investment

*Excluding flow- and leverage products

amount will be allocated to a fixed income investment, returning 21% after one year. A further 25% will be allocated to a three-year fixed income investment (42% return) and with the remaining 50%, the investor participates 150% in the upside performance of the MSCI World Business Cycle Clock Factor Select Index, subject to six-months backend averaging. A financial adviser fee of 2.30% and a administration fee of 1.25% is integrated in the structure of the investment. The product is available via the Itransact investment platform.

NORTH AMERICA

J.P. Morgan collected US$114m with Digital Equity Notes (48133VBR0) on the S&P 500 in the US. At maturity, the product offers a capital return of 116.8%, providing the final index level is at or above 90% of its initial level. Otherwise, the capital return is 100% minus 1.1111% for every 1% fall in excess of the initial 10% fall. There is an underwriting commission of 1.19% and the estimated value is set at US$980.80 per US$1,000 principal amount.

Another US product that sold well, with sales of US$108m, was Goldman’s Buffer Autocallable Gears (36265J490), also on the S&P 500. At maturity, if the index does not fall below 80% of its initial level, the product offers a capital return of 100% plus 171.3% of the rise in the index over the investment period.

ASIA PACIFIC

Gungin Securities distributed 固定利付コーラブル債/ M20300530 in Japan. The product is linked to the interest rates with a seven-year tenor. It offers fixed annual income of one percent, payable every six months. Barclays (the issuer) has the option to call the product on any semi-annual coupon payment date.

HSBC Bank issued 年人民币产品004款第1期/CNY Note S1 in China. The 1.5-year structured deposit is tied to SPDR Gold Shares, an exchange-traded fund managed and marketed by State Street Global Advisors. If, at any time throughout the tenor the price of the ETF is at or above 111% or at or below 89% of its initial level, the product offers 100% capital return plus a coupon of 1.33% pa. Otherwise, the product returns 100% of the nominal invested, plus 100% of the absolute value of the rise or fall in the ETF.

Goldman Sachs International was the derivatives manufacturer for Shinhan ELS 24498, a three-year autocall tied to the shares of Hyundai Mobis and KB Financial Group, which was distributed in South Korea via Shinhan Investment. The product has a step-down autocall barrier which starts at 85% for the first three semesters, and subsequently decreases to 80% and 75% for semester four and five, respectively. At maturity, the product offers 100% of capital return plus a fixed coupon of 21.6% if both shares close at or above 55% their initial price. Otherwise, the investor participates 1:1 in the worst performing share.

Source: SRP

People moves

SCG Asset Management (SCG)

SCG Asset Management (SCG) has announced the appointments of Ian Merrill (pictured), Kevin Murphy and Todd Dilatush as president, head of trading, product and risk management, and head of distribution, respectively.

Based in New York, they will be responsible for building out the firm's expanding asset management platform, ‘focusing on product and index development and distribution, as well as sourcing strategic investments that are accretive to the overall platform’.

Merrill joins from Barclays where he spent over 18 years in various senior management roles in derivatives and structured

investments, including global head of equities structuring, head of equity derivatives sales, Americas, head of cross-asset sales Americas and head of the iPath exchange traded notes business.

He was one of the most senior executives at the bank’s US equity derivatives division at the time of the structured notes over-issuance fiasco in the US market which has marred the performance of the bank and triggered several litigation cases from investors seeking restitution. Merrill left the UK bank in late February.

Merrill was also a member of the board of directors of Simon Investments’ Simon Markets, for over three years before to its sale to iCapital. Prior to joining Barclays, he was a securities and derivatives lawyer at Sidley Austin in New York, where he worked with global investment bank clients to design and structure investment products.

Murphy is also a seasoned executive with over 30 years

of experience in the financial markets at several global investment banks.

He started his career as a derivatives trader in New York and London across fixed income, foreign exchange and equity markets and held senior management roles in structured equity derivative trading teams at J.P. Morgan, Lehman Brothers and Barclays.

At Barclays, he managed global trading, structuring and sales teams focusing on client solutions and structured transactions, including corporate derivatives, margin financing, structured investment products, quantitative investment strategies and fund derivative solutions.

Murphy’s roles also included significant infrastructure design, capital allocation and risk oversight across the global markets businesses, as well as extensive regulatory oversight responsibilities ranging from Federal Reserve CCAR, stress testing, benchmark administration and model valuation. He was head of risk, capital and platforms within the global equities division when he left Barclays in 2020.

In addition, Todd Dilatush previously director of national sales for multi-issuer structured products and annuities platform Luma Financial Technologies, has joined SCG in a similar role. At Luma, he was responsible for Luma’s sales to structured product distributors including private banks, broker dealers and independent advisors. Prior to joining Luma, Dilatush spent over 16 years in cross-asset solution sales at Barclays Capital and Natixis, where he was responsible for the design, development, and retail distribution of structured products with broker-dealers, independent broker-dealers, and intermediaries. He has also held positions at the Federal Reserve Bank of New York and Merrill Lynch.

The new hires complement other recent appointments in quantitative analytics and data science, as the firm seeks to respond to investor needs with advanced derivative-based solutions, said Sachs.

Leonteq

Leonteq has hired Anouch Wilhelms as head public distribution Germany/ Austria based in Frankfurt.

In his new role, Wilhelms (pictured) will report to Michael Seifried, head retail flow business at the Swiss structured products specialist, also based in Frankfurt.

The appointment is part of Leonteq’s build up in Germany where it has hired a team of industry experts to drive the newly

established retail flow business initiative, which is designed to further grow and diversify Leonteq's product offering and client franchise, a Leonteq spokesperson told SRP.

“We launched a new initiative in 2022 with the aim of developing an automated retail flow platform to offer clients a large range of securitised leverage products, including warrants,” said the spokesperson.

Wilhelms joins from Société Générale Corporate and Investment Banking (SGCIB) where he was director, derivatives, head of public distribution media. He was part of a group of executives that that transferred to the French bank following the acquisition of Commerzbank’s equity markets & commodities business it acquired, via an agreement signed in November 2018.

At Commerzbank, Wilhelms spent more than 15 years in different roles and was a director, equity markets and commodities, public distribution when he joined Société Générale.

SocGen

Société Générale has announced several changes within its global banking and investor solutions division (GBIS). The French bank has appointed Hatem Mustapha as co-head of global markets activities and head of equities & equity derivatives, succeeding Alexandre Fleury (pictured) in this position. Reporting to both AnneChristine Champion and Fleury, who were appointed co-heads of global banking and investor solutions in March, Mustapha will work alongside Sylvain Cartier, co-head of global markets activities. Mustapha ’s replacement as head of global markets Americas will be announced in due course.

Under the new divisional structure Demetrio Salorio takes the role of head of global banking and advisory, succeeding Pierre Palmieri, who has been proposed to be appointed as group deputy chief executive officer. Salorio will report to both Champion and Fleury.

Ilya Polyakov takes the role of deputy head of global banking and advisory, alongside Alvaro Huete who remains also deputy head of global banking and advisory. Both Polyakov and Huete will report to Salorio.

In addition, Thierry d’Argent has been appointed group country head for the United Kingdom and Ireland, and CEO of Societe Generale London Branch, replacing Salorio in this role. d’Argent will report to both Champion and Fleury.

Mustapha, Polyakov, d’Argent and Salorio will be members of the group’s management committee.

The appointments are part of Slawomir Krupa’s reorganisation of the bank’s roadmap in global banking and investor solutions which resulted in several changes to its equity derivatives team including the departure of Julien Lascar, global head of equity derivative sales, and the appointments of Eric Jungers and Jean-Francois Mastrangelo as co-heads of equities & equity derivatives (EQD) for Apac reporting to Jérome Niddam, Apac head of global markets, with a functional reporting line to Fleury and Cartier.

Krupa was appointed chief executive officer in September 2022 after an 18-month stint as deputy general manager, and head of global banking and investor solutions.

Barclays

Barclays has appointed Scott McDavid and Ronnie Wexler to run the global equities business which houses the bank’s structured products activities, and report to the bank’s co-heads of global markets Adeel Khan and Stephen Dainton.

McDavid will join Barclays in September as global head of equities. Based in New York he will report to Khan. In this role, he will lead the global equities team and have oversight and responsibility for equities distribution and prime. He will also have a strategic focus on the bank’s platform complex. In addition to partnering with macro, credit and securitised products, McDavid will work in partnership with investment banking to drive progress across the CIB.

McDavid joins from Morgan Stanley where he spent over 18 years. In his most recent role, he was co-head of equities trading for Americas with primary responsibility and oversight over flow and structured derivatives, central risk management and the delta one desks. Prior to Morgan Stanley, Scott spent eight years with Susquehanna Investment Group in equity derivatives trading.

Wexler (pictured) will join Barclays in June as global head of equities distribution. He will report to Dainton and will be based in New York. Wexler will be responsible for growing the bank’s equities client franchise across sales, trading and research.

Wexler joins Barclays from NYDIG where he has served as global head of business development since August 2020. Prior to this, he spent 19 years at Goldman Sachs where he held several senior positions across securities division distribution, most recently as partner and co-head of Americas equities distribution & execution.

In this role, he was responsible for all client facing functions across execution services, derivatives, and research sales. He joined Goldman Sachs in 2001 and was one of the founding members of the bank’s cross-asset sales desk.

Patron Investments

Tom Karlsson has joined Patron Investments, an investment management firm specialised in derivatives, options and family offices as a partner and portfolio manager, in London.

Karlsson (pictured) joins from Dunn Capital where he was a director of volatility strategies since January 2021.

Prior to that, Karlsson spent more than four years at Susquehanna International Group (SIG) where he was head of European options sales in Dublin.

Karlsson joined Susquehanna’s European headquarters in Dublin after 11 years in London working for several investment banks including HSBC where he was equity derivatives sales; as well as Deutsche Bank and Société Générale where he was a vice president in equity flow and structured products sales to Nordic institutional clients.

He also worked for J.P. Morgan and Pohjola Bank in various derivatives sales roles covering institutional clients mainly in the Nordics, the UK and Benelux. Karlsson started his career in his home country of Finland working at the Helsinki Exchange in 2001 selling equity derivatives to Eurex market makers.

ING has appointed Jan Talsma as director, client solutions group (CSG) investment solutions for Europe, Middle East & Africa (Emea) within its Financial Markets business. In his new role, Talsma (pictured) will further drive the roll out of one of Financial Markets’ growth pillars, equity derivatives, structured notes, and Sprinters to ING’s financial institution clients.

He will be based in Amsterdam and report to Zico Yeh, who has been heading the CSG investment solutions Emea team since November 2022 after returning to structured products from a stint as director at ING Wholesale Banking’s single family office desk.

Talsma joined ING from Citigroup, where he has worked 19 years in different roles, dealing with equity derivatives, cross asset solutions sales and structured products on both the buy side and sell side. While at Citigroup, Talsma was located in London and Amsterdam.