Yield enhancement products continue to dominate in the European market, while South Korea’s largest labour union calls for more ELS and DLS rules. Plus, American Insurance firm Pacific Life launches its first registered index-linked annuity.

The new year kicked off with a flurry of products debuting in the market, with Crédit Agricole Corporate Investment Bank (CACIB) issuing a unit-linked insurance plan in Poland that offers access to the MSCI Europe Select Blue Cycle 50 Decrement 4% EUR Index.

The weekly ‘Product Wrap’ highlighted a four-year twin-win structure that tracks the index linking to the performance of 50 companies which are involved in water-related businesses as well as companies which proactively employ water efficient processes, are involved in water recycling and in efforts to utilise alternative water sources to better manage the risk of water shortages.

In Belgium, the Brussels-based bank Crelan gathered nearly €60m with Fixed to Floating CMS Linked Coupon 12-2028 right before entering 2025. The interest rate product pays a fixed coupon of 3.20% pa during the first two years of investment. The coupon for the remaining two years is equal to two times the difference between the 30-year EUR constant maturity swap (CMS) rate and the five-year EUR CMS rate, subject to a minimum of 1.0% and a maximum of 5.0%. BNP Paribas Issuance BV is the issuer while BNP Paribas SA acts as the guarantor.

Staying in Europe, yield enhancement products have dominated the market in the third quarter of 2024, reaching their highest market share (69%) and showing consistent growth from the 54% seen in Q1 2024, SRP analysis found.

The rapidly growing Swiss market has played a pivotal role in shaping the overall European market by reducing the dominance of capital protection and increasing the importance of yield enhancement last year.

Zooming into underlyings, single equity indices remained the most popular asset class throughout last year in Europe ex-Switzerland last year, with a US$46 billion in sales volume or 35% market share. The figure is stable compared to US$51 billion in sales or 36% market share in 2023. The Eurostoxx 50 index continued its dominance in the continent as the underlying of choice for equity exposure collecting an estimated US$12.3 billion across 4,583 products  compared to an estimated US$14.6 billion raised from just over 4,600 products in 2023.

The sale to the general public of high-risk structured products with unilateral downside risk should be prohibited

In Asia, a working paper from the Democratic Labor Research Institute of the Korean Confederation of Trade Unions last week stressed the need to strengthen regulation on derivative-linked securities (DLS).

Non-principal-protected structures, consisting of stock-focused equity-linked securities (ELS) and other asset-class-focused DLS, are considered ‘high-risk’ financial investment products, found the research affiliate, part of South Korea’s largest labour union with about 1.2 million members. However, banks often tempt financial consumers with high interest rates and sell these products via savings and deposit channels, putting customers’ financials at risk, especially those nearing retirement, the labour union said.

‘The sale to the general public of high-risk structured products with unilateral downside risk should be prohibited,’ the paper read.

In the American annuities market, Pacific Life entered the registered index-linked annuity (Rila) market with Pacific Protective Growth, which offers five index options, including two that track index-based exchange-traded funds while providing levels of protection during market downturns.

The Rila debuts the First Trust Growth Strength Net Fee Index and includes two ‘seldom-found’ crediting strategies: the Tiered Participation Rate crediting strategy acts as a multiplier for index performance, potentially accelerating growth with interest credited at a rate higher than the actual index return.

Meanwhile, in the Middle East market, Kaspro SPV Ltd., a fully owned subsidiary of Kristal AI and an Abu Dhabi Global Market (ADGM) based special purpose vehicle, launched its inaugural structured notes program valued at US$1.5m.

In a move that ‘positions ADGM as a competitive alternative to established financial hubs like Luxembourg and Ireland’, Kristal, a digital wealth management platform, has issued structured notes under an exempt offer. The transaction comprises five distinct payoff structures and has garnered substantial interest from a range of investors, including a Singapore-based variable capital company sub-fund and over ten clients.

Image: Adobe Stock.

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