Russia’s Otkritie Group launched a new specialist structured product hub to provide a comprehensive approach across business lines and target markets.
SRP spoke to the team running the new Structured Products Factory to discuss its market strategy, its offering and the challenges ahead to grow the Russian retail market.
The structured products business has been in existence within different business departments of Otkritie Group since 2012. In 2019, the company decided to create a single center of competence – Structured Products Factory – to service the various business lines covering different kinds of investor profiles (institutional investors, private banking clients and retail investors), and appointed Anton Plyasunov (pictured) as head of Structured Products Factory.
Plyasunov rejoined Otkritie at the end of 2019 to lead this upgraded structured products business after a short stint at Sberbank as head of distribution retail structured products. Prior to that, he was head of structured products at Otkritie.
“The new team consists of Otkritie Group’s employees and specialists hired from the market,” says Plyasunov. “All members of the team have a strong background in structured products.”
How can the new business help Otkritie to increase its footprint in the structured products market?
Anton Plyasunov: Otkritie’s structured product business is a significant player in the Russian structured products financial market. Russia has a quite consolidated market, not many financial institutions can afford sustaining their own structured product business. As one of the key Russian financial groups, Otkritie had to have one of their own.
However, as always with the structured product market, which is not very transparent, the position is quite difficult to quantify. Whereas Sberbank, Russia’s largest financial institution, dominates some structured product types, there are certain businesses where we could well be among the leaders. For example, we have very strong in-house products distributed in the form of OTC derivatives. Our goal is to convert them into securitised instruments, and make them more transparent and suitable for retail investors.
What distribution channels do you service?
Oleg Yakubov (right), deputy head of SP Factory: We sell our products to four key sale channels. Retail clients of Otkritie financial group are the biggest chunk of business in terms of volume. Otkritie Broker has its own sales force that historically sells products to more experienced and sophisticated investors. Traditional buyers of our structured products are HNWI, Otkritie private banking clients. Financial institutions is the fourth channel.
What would you highlight about the Russian economic market environment?
Anton Plyasunov: We are definitely seeing sales volume going down now, but the numbers are not that dramatic yet. Some of our products have a cooling period of two weeks, so we still see volumes actually being sold at the mid-March level. Given where we are now, and that quarantine hopefully does not extend from 1 June, we believe that only the second quarter will be severely affected, and we expect a slowdown from 10% to 30% in different product lines. Hopefully, the situation will be back to normal before the third quarter, and we expect a market revival in the second half of the year.
What are the best-selling products?
Igor Sorokin (left), head of structured products trading desk: Out of all structures, autocallables are still the best-sold type of product. We produce both capital-protected and non-capital-protected autocallable structures linked to Russian stocks. And we don’t see significant drop in sales volumes. One of the explanations is that this type of product is being sold mainly to experienced investors, who understand that low correlation between assets from different sectors allows us to increase coupon rates using attractive underlyings, therefore, the volume keeps quite well.
Considering current market conditions, what is your demand forecast for capital protection offer, or this is still not an issue in Russia?
Yana Chernyateva (right), structured products business development: Last year, we successfully debuted in issuing of exchange-traded investment bonds (capital-protected bonds with embedded structured component) and named them BIO2 (Birzhevye Investizionye Obligatzii Otkritiya). Since then, we’ve launched five issues and the next one is on the way. We’re actively developing this type of product now since in such difficult market conditions clients prefer to invest in more conservative products. We expect to extend our business here this year including but not limited to widening the range of payoffs and underlyings.
What changes are required to stimulate the growth of the Russian structured products market?
Daria Plyplina (left), new project initiatives: For years, the structured product market in Russia consisted of structured notes issued by international banks and some OTC derivatives contracts. The Russian legislative environment started to accommodate structured products only a couple of years ago. First, exchange-traded investment bonds with a structured component and capital protection appeared on the market in 2016. Structured bonds without capital protection were allowed starting only in 2018, with the first issues appearing last year.
There is still a lot to be done irrespective of current market conditions. The products should have a much shorter time-to-market period - be less capital consuming - whereas the legal infrastructure for such types of bonds should be further improved. So far, the Central Bank, our regulatory body, is ready to talk to market participants. We hope that the current turmoil won’t stop market development.
Compared to other market players, what are your key competitive advantages?
Kirill Klesov (right), head of product: Historically, our platform has been very flexible in terms of addressing individual demands of various types of investors. We provide products with different wrappers, payoff structures and capital protection.
There are a few competitors matching us in terms of the legal wrapper variety. We can produce similar structures in-house with various strikes and tenors. We also resell quite a large number of structured notes issued by international banks. Now we are seeing increased interest in existing issues with high-grade underlyings. On the other hand, the variety can be managed only with proper automation of processes provided. That is our area of improvement.
Structured Product Factory is a part of the Otkritie Investment business unit that brings together people and investment expertise from different legal entities of Otkritie financial group. Otkritie is a large-scale financial group that includes companies holding leading positions in the Russian financial market, such as Rosgosstrakh insurance company, Otkritie Non-State Pension Fund, Otkritie Asset Management Company, Otkritie Broker, Baltic Leasing, and Customs Payment System.