Liquidity, best execution process and an accommodative pricing environment were highlighted as some of the main benefits of listing structured products on exchanges during the What Strategies Have Exchanges Adopted For The Furthering Of Structured Products panel at SRP's 3rd Nordic Structured Products and Derivatives Conference 2017, held on September 27 in Grand Hotel Stockholm.

The notion that structured products should be listed on a regulated market is likely to get traction among investors and issuers alike as the issuing and trading process becomes more efficient and transparent, the panellists argued.

According to Axel Holm, Nasdaq Nordic fixed income, most participants in the market are aware of the benefits that listing brings and are working in that direction.

"Beyond regulatory [considerations], there are also some tax benefits for some investors and issuers," Holm said. "The ability to track pricing and trading of instruments [also] brings significant value to investors."

Andre Buck, head of sales, Six Swiss Exchange, said that listing on exchange provides an efficient avenue for marketing and product promotion as it provides exposure to a much wider range and pool of investors. "All your products are visible, they are used in newspapers and can be easily compared with similar products and with those of other issuers for the investor to pick the right one for themselves," Buck said.

Joel Boija, business development, Nordic Growth Market (NGM), said that comparability between products is what creates a liquid secondary market, and that is one of the strongest benefits of exchange listing.

"One of the primary reasons for this is that more complex products and structures are not necessarily popular, somewhat eroding the benefits of comparability and liquidity that exchanges provide," Boija said.

According to Buck, another reason for not listing is that the current market environment, with low volatility and interest rates below zero, undermines the benefits of having a secondary market. "Exchanges are there to allow for secondary trading, and if there is no need for that, then there is no need to list," he said. "For example, callable products, which you buy from primary and wait until they're called, might have little to gain in the way of a secondary market."

Boija, however, noted that it is even more indispensable to list these products in order to facilitate trading opportunities. "More than 50% of all autocallables in Sweden are traded before redemption, for instance, so I see a solid case for listing these products as well," said Boija.

There are also some exotic products and structures that some issuers would not necessarily want everyone to see, while many products are simply not suitable for the retail investor, according to Buck. "We have seen it on our exchange, where issuers increase the denomination of a product to a very high price, say CHF100,000, making the product accessible to wealthy investors only, and that somewhat defeats the purpose of having the product listed on an exchange for ease of access," Buck said. "For certain products I absolutely argue that over-the-counter (OTC) distribution should remain the way forward, and that's completely fine."

Anthony Miranti, head of business development, Priips Hub, Fundconnect, said that a rational approach is needed to put the end investor at the centre of any considerations around listed products.

"If you ask some random person investing in a structured product, if they want it listed or not listed, the answer's going to be 'I don't care'," Miranti said. "Does it add value to the investor, does it reduce costs, does it improve transparency. We have to find a way to help the investor want to list the product. That's the way forward."

Miranti also said that listing structured products on exchange can also provide an open architecture allowing access to wider distribution, lower costs and efficiencies in settlement and trading, although this can be seen as disadvantage from some issuers that rely on their own distribution channels.

"We also have to look at structured product against other competing products such as ETFs," Miranti said, pointing out that experience within the fund space has shown that listing provides a more efficient market, which puts price pressure on non-listed products and changes the market dynamics. However, according to Miranti, in the structured products space, where the majority of products have a single market maker in the issuer, "that is a challenge".

Other challenges to move towards a listed-only market are related to technical barriers such as timely pricing or multiple pricing during the course of the day, Miranti said. "The interesting part is that if you take the asset managers who report fund prices up to 20 to 45 times a day in Denmark, they are the same companies that also produce structured products so the idea that a structured product can't handle that or can't do that is not really not conceivable," he said. "The evolution will take place according to the positioning of structured products in comparison to other products."

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