In this week’s roundup, we also look at Leonteq's new activity at BX Exchange, SCG AM's fund of autocalls move to increase distribution, and Innovator's launch of a new structured ETF linked to an ETF.

South Korea’s Financial Supervisory Service (FSS) is planning to send out inspection reports sometime this week to local banks that sold the embattled equity-linked securities (ELS) products linked to the Hang Seng China Enterprises Index (HSCEI), according to local media reports Monday (8 April).

FSS officials will demand formal responses from the banks regarding the reports. There will also be sanction measures and the review committee could be held as early as next month, local media reported.

The reports said the inspection reports contain the results of two-month on-site and document investigations conducted on the banks started in early January.

Five banks (KB Kookmin, Hana, Shinhan, NH NongHyup Banks and Standard Chartered Bank Korea), as well as six brokerage houses (Korea Investment, Mirae Asset, KB, NH, Samsung Securities and Shinhan Securities) are among those being probed.

The reports will include detailed information on the mis-selling HSCEI-linked ELS product sales by the probed banks, including ‘poor management of sales policy and consumer protection,’ ‘incomplete sales at the sales system level’ and ‘various incomplete sales during the individual sales process' which were confirmed last month.

FSS officials will demand formal responses from the banks regarding the reports. There will also be sanction measures and the review committee could be held as early as next month, local media reported.

The Korean financial watchdog’s latest probe came after losses hit those who invested in the three-year ELS product, with concerns over breaching their knock-in levels looming in the market. The FSS said last month that losses from such products are set to reach KRW5.8 trillion (US$4.4 billion) this year if HSCEI remains at the current level.

As the Korean regulator set up the compensation plan, several banks including KB Kookmin Ban have started to implement schemes to compensate investors facing losses from such yield enhancement products.

Leonteq becomes market maker at BX Swiss

Leonteq AG said it is taking over the market making for several trading segments of the Swiss stock exchange BX Swiss.

Starting this month, Leonteq will now implement a 'phased approach' to gradually take over the role as market maker for equity securities and ETFs on BX Swiss to ensure liquidity in these securities, the company said.

The latest development came after the Swiss structured products provider announced in January that it intends to become a market maker on BX Swiss, having acquired a 10% stake in BX Swiss from Boerse Stuttgart Group last December.

Leonteq has been operating as an issuer on the BX Swiss, the second largest stock exchange in Switzerland, since 2021 and has successfully listed structured products in the regulated trading segment of deriBX and listed exchange-traded products.

SCG AM fund of autocalls expands reach

SCG Asset Management has announced that Arizona-based Vision 4 Fund Distributors has become a third-party distributor for its Alternative Strategies Income Fund (LTAFX, LTIFX), a US interval fund dedicated to autocallable notes launched last October.

The agreement also includes ‘potential customized investment solutions’, as applicable. The closed-end fund is continuously offered and actively managed seeking to provide high income with consistent quarterly distributions across market cycles. Through its proprietary Selector model, SCGAM aims to design a high-income paying portfolio that is well diversified across timespans, industries, and sectors.

Since 2010, Vision 4 has raised over $19 billion in AuM for top tier asset managers in the U.S, according to the firm.

‘Advisors and their clients are looking for alternative income strategies that can supplement traditional 60/40 allocations with significant sustainable, uncorrelated income streams and the Alternative Strategies Income Fund can be a good fit for many client portfolios,’ said Jerry Vainisi (right), CEO of Vision 4.

Blackrock launches first active equity ETFs in Europe

BlackRock has debuted two actively managed exchange-traded funds (ETFs) in the European market, designed to meet investors’ growing demand for income-focused strategies.

The iShares World Equity High Income Ucits ETF (WINC) and iShares US Equity High Income Ucits ETF (INCU) are designed to generate high income through ‘actively managing a diversified basket of primarily dividend paying stocks and by selling index call options,’ the world’s largest asset manager stated.

Both funds are managed by the BlackRock Systematic and Shares ETF platform teams. They're listed on Euronext Amsterdam and Xetra, and each has a total expense ratio (TER) of 0.35%.

BlackRock’s senior managing director Raffaele Savi and managing directors Robert Fisher and Anna Hawley are the named portfolio managers for the World Equity High Income Fund. Savi, Fisher, and managing director Travis Cooke are the named portfolio managers for the U.S. Equity High Income Fund.

‘Our clients’ business models in Europe are rapidly changing – a shift to centralised investment propositions, a focus on whole portfolio outcomes, a rise in digital wealth platforms, a new market regime – all mean our clients require a broader set of investment strategies across index and active, including the wrappers they’re delivered in,’ Jane Sloan (right), EMEA head of global product solutions at BlackRock, said in the statement.

‘That is why we are excited to bring active ETF strategies to Europe, creating an important new avenue of choice and further access to investing,’ she said.

Innovator expands defined protection 100% buffer ETF

Innovator Capital Management, a US-based defined outcome exchange-traded fund (ETF) provider, has launched three defined outcome ETFs, which consist of two Defined Income ETFs and an Equity Defined Protection ETF.

As part of the expansion of Defined Protection ETFs, the newly listed Equity Defined Protection ETF provides investors with market exposure up to an 18% upside cap, plus a 100% buffer against losses in the SPDR S&P 500 ETF over a two-year outcome period before fees and expenses.

The launch was in response to the reset of the payoff profiles occurring as equity markets sit at all-time highs and hover around the high end of their historical valuation range, Innovator Capital Management stated.

‘Markets often climb a wall of worry; the potential for the market to fall doesn’t negate the potential for it to keep climbing,’ Graham Day (right), chief investment officer at Innovator Capital Management, said in the statement. ‘This is precisely the tension that Defined Outcome ETFs are built to address.’

Summer Wang contributed to this report.

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