JP Morgan is boosting its presence in the German structured retail products market after launching a range of turbo warrants linked to the domestic Dax on the Euwaxx segment of the Stuttgart exchange in December 2017. Since then the US investment bank has marketed over 3,000 turbo optionsscheine, according to the SRP database.
JP Morgan is already "very successful in the retail structured products business in Asia, and a market leader at the Hong Kong exchange", according to Marcel Langer (pictured), head of ETP sales Germany at JP Morgan. "It is the logical next step for us to leverage that expertise and bring it to other markets," said Langer. "The European market is very mature and clients already have lots of experience with structured products."
JP Morgan has broad experience in setting up platforms as well as managing the issuance, quoting and risk management of various product types, and can provide "the necessary tools to make the most of this during the development phase of our European ETP platform", according to Langer.
As opposed to the warrants issued by JP Morgan in Asia, the turbo optionsschein range - listed on the Stuttgart Boerse, have a much shorter duration and comprise single day products as well as instruments with a term of up to two weeks, an important factor as with leveraged products the life span of an option should be considered since it is directly linked to the time value of the instrument.
"The costs of new listings of structured products are much lower in Europe, particularly in Germany, than in Hong Kong," said Langer, adding that this is relevant for products with a short tenor "as they have to be replaced on a more regular basis".
"In addition to cost, issuance criteria in Hong Kong are more stringent in terms of minimum tenor and minimum issue price." Moreover, limitations on the Asian market in terms of confined degrees of implied volatility in the instruments and a restricted scope of conversion ratios justify the issuance of longer dated products which is also an established practice for the German market, according to Langer.
The new JP Morgan range is aimed at self-directed investors as warrants can provide investors with opportunities for considerable profits but exposes them to significant risks as well.
"For the products we have issued so far, the leverage is not an immanent product property, but is the result of the market trading in proximity or with some distance from the strike of the instrument," said Langer. "This leads to low single digit leverage up to lower triple digits being available."
Besides the potential gains one could amass through leveraging in turbos, hedging against unfavorable market movements is also popular among German investors, who "have an excellent understanding of how the products work", according to Langer.
In terms of underlying exposure, JP Morgan is planning to expand the original Dax-linked suite of products. "Obviously, Dax is by far the most common underlying for leveraged products in Germany, and therefore we started with that underlying," said Langer. "[But] we have [also] added various German blue-chip stocks to our offering and will continue to do so -on an almost daily basis."
The inclusion of new underlyings is a consequence of the high interest among investors along with the steady flow of distribution, which in turn is expected to be on the rise as the bank completes its product palette, according to Langer.
"We will broaden our offering in terms of underlyings, payouts and distribution channels, which means that we also intend to offer products off-exchange through online-brokers too," said Langer, adding that the bank's expansion will not be limited to Europe's largest market. "[We are] constantly monitoring other markets and evaluating different options to provide services outside Germany too."
Additional reporting Darina Bacheva.
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