In a week that saw SRP launch its first wrapper guide for Europe, Belsipa announced Q4 2023 primary market sales of structured products increased by 289% from the previous quarter.
SRP launched its inaugural Wrapper Guide Europe 2024, which looks at the five main wrapper groups across the main European markets including securities, life insurance products, deposits, funds, and pension wrappers.
AMCs capabilities have evolved over time to include equity long/short and then options, futures, bonds as well as QIS strategies - Giulio Alfinito, UBS
The guide includes an interview with Didier Imbert, head of public distribution Europe at Société Générale who told SRP that the bank’s public distribution business activity serves the needs of a market niche which cannot be compared with the size and volumes of investments collected on the structured products distribution business aimed at the investment advice market.
“We estimate for example that in Germany, which is by far the largest market for listed products in Europe, the number of active investors in such products probably does not exceed 500,000, which is still very small in the context of the overall retail market,” Imbert said.
Another wrapper highlighted in the report are actively managed certificates (AMCs), which, according to Giulio Alfinito, global head of QIS structuring at UBS, started as an equity long only business where clients would manage synthetic equity certificates and effectively deliver their strategies to investors.
“AMCs capabilities have evolved over time to include equity long/short and then options, futures, bonds as well as QIS strategies which can be delivered not only in certificate format, but also in swaps and bankruptcy remote vehicles,” Alfinito said.
In regulatory news, losses from equity-linked securities (ELS) on the Hang Sang China Enterprises Index (HSCEI) could reach KRW5.8 trillion (US$4.4 billion) if the index remains at the current level, according to an investigation from the South Korean Financial Supervisory Service (FSS).
The FSS stated its on-site inspection of 11 local banks and brokerage houses conducted since 8 January in relation to large-scale losses in HSCEI-linked ELS confirmed ‘poor management of sales policy and consumer protection,’ ‘incomplete sales at the sales system level’ and ‘various incomplete sales during the individual sales process’.
More mismanagement was seen in Singapore, where a relationship manager at Citibank was accused of misplacing client money by investing it in non-capital guaranteed products, including structured products, rather than in fixed deposits as was intended.
Also in Singapore, SBI Digital Markets, the digital asset arm of Japanese conglomerate SBI Group, has partnered with CAT Financial Products in Zurich to establish a strategic manufacturing and distribution channel of structured products between Asia and Europe.
SRP’s Nikolay Nikolov, analysed the performance of equity-linked structured products, which, despite losing some of their market share to rates-linked products, continued to grow in terms of sales during 2023. Products linked to baskets of stocks grew in popularity, representing 30% of the notional in 2023, while single stock-linked products stayed flat and consistently accounted for just below 20% of the offer.
The latter were examined by FVC’s Tim Mortimer, who looked at decrement indices which started out as alternatives for equity indices such as the Eurostoxx 50 but recently have become popular for single stocks. According to Mortimer, one of the principal objections to decrement indices is their complexity as they add an extra layer for the investor to consider: “Education and disclosure are key to a successful investor outcome,” he said.
More indices were discussed by MerQube’s Roby Muntoni whose collaboration with QueensField AI Technologies led to the launch of a suite of AI powered indices covering the US large cap market.
“We strongly believe that technology and AI will drive the proliferation of next generation index strategies,” Muntoni told SRP.
The US structured products market posted a solid performance in the fourth quarter of 2023, registering 8,550 structured notes on the Securities and Exchange Commission (SEC) with combined sales of US$24.7 billion – an 18.3% year-on-year (YoY) increase.
Also in the US, Q4 sales of fixed indexed annuities, at US$24.9 billion, were up 12% YoY, while registered index-linked annuity (Rila) sales stood at US$13 billion by the end of the fourth quarter, up 29% compared to the prior year quarter, according to the US Individual Annuities Sales Survey released by Limra.
Meanwhile, the Belgian market bounced back from a poor third quarter, when structured products sales across all asset classes were impacted by the issuance of government bonds with tax benefits. In Q4, sales on the primary market reached €1.2 billion (US$1.3 billion), a 2.9-fold increase compared to Q3 23 and up 10% YoY, according to the latest figures released by the Belgian Structured Investment Products Association (Belsipa).
Image: Melinda Nagy/Adobe Stock.
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