Latest: Finra fines Schwab over disclosures on ETNs

The Financial Industry Regulatory Authority (Finra) has imposed a US$350,000 fine on Charles Schwab & Co. Inc. for failing to fully disclose information about exchange-traded notes (ETNs) to thousands of customers over a period of almost five years.

From January 2016 to December 2020, Schwab sent trade confirmations to 765,000 clients that did not disclose that the ETNs had a callable feature and that early redemption of the notes could affect their potential returns. As a result, Schwab violated industry rules around disclosure, according to the US regulator.

Over the period in which it violated the rule, Schwab used an outside or third-party vendor to provide it with redemption information about securities, including ETNs

Schwab self-reported the matter and accepted the settlement with Finra without admitting or denying any of Finra’s findings.

Finra’s settlement with Schwab was released last Thursday (15 June), the same day as the regulator’s agreement with TD Ameritrade Clearing, which was also fined US$500,000 for failing to disclose fully information about callable securities, including ETNs and preferred securities, to millions of customers over five years. Schwab acquired TD Ameritrade in 2020.

Over the period in which it violated the rule, Schwab used an outside or third-party vendor to provide it with redemption information about securities, including ETNs, according to Finra. Schwab then used the redemption information in the transaction confirmations it sent to customers.

According to the regulator led by Robert W. Cook (pictured), the third-party vendor used by Schwab provided inaccurate or incomplete information on 183 ETNs. For an additional 15 ETNs, Schwab received accurate redemption information from its vendor but inaccurately stated on transaction confirmations to clients that the ETNs were not redeemable, according to Finra.

Click in the link to read the Finra letter.

BofA joins UK structured products trade association

The UK Structured Products Association (UKSPA) has announced that Bank of America (BofA) has joined as a new member bringing the total membership of the association to 21 firms.

Despite not having a presence in the UK retail market as a counterparty the US bank achieved its highest ever quarterly structured product sales in the US market during Q1 2023, according to SRP data. BofA collected US$1.8 billion from 380 issued products – up 43% by sales volume compared to the prior year quarter (Q1 2022: US$1.3 billion from 200 products). The bank’s products were exclusively targeted at the US market although its subsidiary Merrill Lynch acted as derivatives counterparty for three equity-linked securities (ELS) in South Korea. 

Narvir Brar, head of UK equity derivative sales at Bank of America said the US bank would bring its market expertise to the association ‘playing our part in the further advancement of the UK market for structured products’.

The association’s membership has been growing steadily since its inception in 2009 and now represents the significant majority of those involved in the UK structured products market.

‘This gives our members the unique opportunity to collaborate on building best practice for our industry and support and educate the wider investment community on the benefits of structured products,’ said Zak De Mariveles (above right), chairman of the UKSPA.

Marex bolsters SSPA ranks

Marex has joined the Swiss Structured Products Association (SSPA) as a new member and issuer bringing the association’s membership base to 45 firms across the entire value creation chain, from issuers to trading platforms and buy-side to brokers and partners.

Across its businesses, Marex provides services in agency execution, market making, clearing and, hedging and investment solutions (Marex Solutions).

Marex Financial Products, a specialist team of Marex Solutions, designs, structures, hedges and distributes customisable investment products under their own issuance programme to private banks and wealth managers with their proprietary trading platform, Agile.

‘The exchange with Swiss and international structured products experts will contribute to the advancement of the whole industry,’ said Joost Burgerhout (right), head of Marex Financial Products

UK advisor jumps on ESG bandwagon

Arcus Partners, an appointed representative of Dura Capital, has launched a six-year ESG-linked structured investment plan which will be available to investors via professional advisers.

The product has been designed for investors seeking out an ESG-linked investment while also supporting positive impact projects and is backed up by recent research from the UK Structured Products Association (UKSPA) which shows that 95% of UK retail investors want at least some of their investment portfolio to have an ESG focus.

According to a UKSPA poll, over 60% of those surveyed stated that they want at least half of their portfolio to have an ESG focus, an increase of over 20% in the last two years.

The return is linked to the performance of the Solactive Transatlantic Biodiversity Screened 150 CW Decrement 50 Index, which measures the performance of companies that have been screened based on their potential impact on biodiversity.

The plan has been created as a ‘Positive Impact Note’ from Société Générale, which will invest an amount equivalent to the product’s proceeds to finance environmental and social activities.

The product will mature early paying a 10.30% pa. coupon if the index closes at or above its start level on any annual observation dates from the end of the second year. If the plan does not mature early, the return will be paid at maturity if the underlying is at or above 85% of its initial level. Capital is at risk one to one with the underlying if the index has fallen by more than 40% at maturity.

Peter McAuley (above right), partner at Arcus Partners, said: ‘Arcus is focused on delivering value for money propositions to the market. We have watched the demand for ESG linked investments grow and have spent some time seeking feedback from IFAs to find a product which matches our values with those of advisers and clients.’

GraniteShares debuts 5X, 3X ETPs on Borsa Italiana

Exchange Traded Products (ETPs) provider GraniteShares has expanded its product range in Italy with the launch of its first suite of 5X and 3X Leveraged ETPs on the FTSE MIB Index.

Investors now have access, in euros and on the Italian Stock exchange, to four new ETPs offering long and short daily leveraged exposures (5x and 3x) to the major Italian index.

The FTSE MIB Index measures the performance of 40 Italian equities and seeks to replicate the broad sector weights of the Italian stock market. The Index is derived from the universe of stocks trading on the Borsa Italiana main equity market. Each stock is analysed for size and liquidity, and the overall index has appropriate sector representation.

Capturing approximately 80% of the domestic market capitalisation, the index is comprised of highly liquid, leading companies across the main sectors in Italy, said Will Rhind (above right), founder and CEO at GraniteShares. 

‘Our 3X and 5X Long and Short ETPs allow sophisticated investors the opportunity to express bullish and bearish trades on the primary benchmark index for the Italian equity markets,’ he said.

Solactive launches ‘Gerd Kommer’ multifactor play

Solactive has partnered with Legal & General Investment Management (LGIM) and German investment expert Gerd Kommer, to launch the Solactive Gerd Kommer Multifactor Equity Index.

This index uses a multifactor optimisation strategy and a global markets universe to provide exposure to the equity market in both developed and emerging countries as well as small-, medium- and large-caps - it consists of around 5,000 stocks with weights tilted towards undervalued, more profitable and lower-capitalisation stocks.

The LGIM ETF tracking the index targets German-speaking self-directed investors and benefits from the brand Gerd Kommer as one of Germany's most popular finance influencers and a strong advocate for passive and low-cost investing.

‘The index design incorporates a number of key insights taken from best practice in smart beta investing as well as from recent academic research,’ said Gerd Kommer (above right), German investment expert.

Timo Pfeiffer, CMO of Solactive, said: ‘This new product will become accessible to a broader range of investors, allowing them to diversify their portfolios and seize new investment opportunities.’