This past week so a few regulatory developments in some of key markets, as well as the launch of a new player in Switzerland.
The UK Financial Conduct Authority (FCA) has finalised stronger rules to help tackle misleading adverts that encourage investing in high-risk products. Under the new rules, firms approving and issuing marketing must have appropriate expertise, and firms marketing types of high-risk investments will need to conduct better checks to ensure consumers and their investments are well matched. Financial firms offering investment products will also need to use clearer and more prominent risk warnings and certain incentives to invest, such as ‘refer a friend bonuses,’ are now banned.
The US Securities and Exchange Commission (SEC) has fined New York-based Aegis Capital US$2.3 million for failing to prevent 14 of its brokers from fraudulently selling unsuitable structured products to investors that included retired elderly clients who lost up to hundreds of thousands.
The US regulator is seeking a jury trial for former Aegis managing director Alan Appelbaum, who allegedly sold 140 of the variable interest rate structured products (VRSPs) to seven customers, often in unauthorised trades. According to the regulator’s complaint, the firm’s MD and several of its registered representatives made unsuitable recommendations of highly complex variable interest rate structured products ‘despite the risky nature of the VRSPs’. The SEC's complaint alleges that the firm’s MD made more than US$1 million in commissions from the fraudulent transactions.
The Financial Supervisory Commission (FSC) in Taiwan on 17 July released the Regulations on Custody and Disposal of Equity-linked Offshore Marketable Securities Acquired by Customers through Physical Delivery of Onshore Structured Products or Structured Bonds to ‘enable investors to benefit from holistic investment and transaction management services and to enhance the R&D capabilities of banks’. The rules are effective immediately - the existing offshore equity-linked structured products provided by banks onshore can be settled in cash or delivered physically at maturity. Previously, banks were required to transfer the physically delivered securities into the client’s securities firm account.
Some 33 listed derivative warrants (DWs) on the MSCI China A50 Connect Index are going live on today, 8 August, in Hong Kong SAR. Morgan Stanley, J.P. Morgan, BNP Paribas and Goldman Sachs launched a combined 33 DWs on the MSCI China A50 Connect Index on 3 August, respectively, three trading days from the listing date as required by the Hong Kong Exchanges and Clearings (HKEX).
“The launch of the MSCI China A 50 Connect Index derivative warrants provides investors with alternative access to the A-share market,” said Cedric Cheung (pictured), head of listed structured products sales for Asia at J.P. Morgan. “The broad diversification of the index enables investors to gain potential exposure to A-share markets and a new tool to hedge their investment portfolios.”
Singapore cryptocurrency exchange Bybit has launched the Bybit Shark Fin, a new structured product aimed at investors with a low-risk appetite seeking to access the crypto market. Bybit Shark Fin offers capital protection and uses up-and-out call options to generate the yield from the underlying strategy. The product offers a seven-, 14- or 21-day plan and the final yield is calculated based on the settlement price of the underlying asset when the plan expires, in comparison to the preset price range. At the end of the period, if the final price is within the preset range, users can receive a maximum yield of up to 20%. If the price settles below or above the range, they can receive up to 3% or 10% respectively.
A major people move announcement came out of France last week. Julien Lascar, global head of equity derivative sales at Société Générale (SG), has joined BNP Paribas also as global head of equity derivative sales. He will remain in Paris and report to Renaud Meary, global head of equity derivatives at BNP Paribas, SRP understands. Lascar's exit comes after SG swung to profit following the restructuring of its equity derivatives business in late 2020 after making a €200 million loss on autocall structures early in the pandemic. In the first quarter of 2022, SG reported revenues of €1 billion, up 20% YoY, in equity activity with strong client activity in listed products and prime services - the structured products portfolio remained stable, with good risk management, stated the bank.
The structured products market in Switzerland has added a new provider: Meleleo Consulting is an independent company that focuses on tailor-made structured investment products and optimally coordinated pension solutions. The company was founded earlier this year by Gianni Meleleo, managing partner, who has over 30 years of experience in the insurance sector, including 11 years with a focus on structured products for insurance brokers. Most of the structured products Meleleo offers are developed by the company itself, although there are occasions it gets approached directly by one of its insurance broker clients with a specific idea.
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