Product innovation close to exhaustion, Six

Six Swiss Exchange's operating income for 2016 was up 1.5%, with operating profit 2.9% higher, at CHF287.1m (€265.8m), according to Andre Buck (pictured), head of sales at the exchange.

Last year was all about making listings more appealing and straightforward, according to Buck. "Connectivity was also at the centre of developments and we developed a number of initiatives around the automatisation in the onboarding of listed products," said Buck. "By lowering the listing fee and streamlining processes, we hope to attract new issuers.

Product innovation is close to exhaustion in product innovation, with regulation thwarting the ability of issuers to bring new product ideas. "What we see nowadays are tweaks and added features to existing structures, but we don't see new products per se," said Buck. "This is mainly because of suitability and appropriateness, which are pushing manufacturers to mainstream products well-known by investors and regulators. The focus is on aftersales service and support.

"Any exotic pay-off or underlying strategy has to go through a number of compliance checks to make sure they will not disrupt the value chain around regulation, marketing documentation and suitability," said Buck. Requirements around Mifid 2 rules are also limiting product manufacturers as they are working to meet the implementation deadline. "Most of the innovation around exotic products has been done via family offices, as they don't have to fulfil the requirements around retail investors," said Buck. "Our data hub (Connexor) features 26 investment products pay-offs and over 800 variations."

Switzerland has been at the forefront of developments in the multi-issuer platform set up, but before that happened almost every issuer had its own platform. "These platforms developed as an addition to the primary market and a way to provide tools to investors and advisors to build and price products according to their needs," he said. "Most of those platforms can choose to be listed on exchange or go OTC. For Six, this was an interesting development because it gave power to the investor and was also an interesting way to provide education. This is also a reflection of the automatisation of banking functions and a shift towards reducing the cost of issuance."

In any market, issuers want to have volume on the products they issue and multi-issuer platforms are not driving huge volumes, according to Buck. "The Primegate/Sttutgart platform, for instance, makes sense in Germany, because they have over 1.5 million products listed and it makes sense to rationalise. "Six Structured Products Exchange has over 30,000 products listed and over 80% of those products see a turnover in their life time," said Buck. "The previous Scoach joint venture between Deutsche Börse and Six was broken up in Mid-2013. According to industry estimation in Germany, only 20% of the products listed ever see a ticket."

The partnership between Six and Deutsche Borse, which ended last year, left a specialist index team at Six dedicated to that business, including the SMI and the SPI, which have been integrated in the overall offering of the Swiss exchange, according to Buck. "That business line was active in 2016 with new launches including the index family SPI Multi Premia," said Buck. At the end of January, Six started calculating the Ethos Swiss Governance Index, a new ESG index measuring the returns on selected stocks from the basic universe of the Swiss Performance Index. "The appeal of the new indices has materialised in a number of trackers being issued using the different factor strategies; these indices can add value to investors in structured products," said Buck.

Smart beta and ESG strategies will not drive most of the activity in structured products, although "this kind of strategy is the perfect fit to balance portfolios that have a significant percentage of actively-managed products," said Buck. "Retail investors are favouring passive investing and this kind of indices fit into that demand."

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