From Brazilian regulator greenlighting CLN to Korea Investment and Securities entering Indonesia’s structured warrant market, here is the weekly news highlights of the structured product industry and SRP's most read stories.

Brazilian regulators nod the issuance of credit-linked notes (CLNs) over a decade after structured notes became available on the market.

The new regulation expands the transactions available in the COE market, allowing issuing financial institutions to mitigate the credit risk of these transactions, which certainly will attract more investors - Walter Stuber

Starting today (2 September), Resolution no. 5166 proposed by the National Monetary Council has set out ‘less restrictive’ issuance requirements for certificado de operações estruturadas (certificates of deposits, or COEs) with a focus on credit-linked COEs, known as CLNs in international markets.

“The new regulation expands the transactions available in the COE market, allowing issuing financial institutions to mitigate the credit risk of these transactions, which certainly will attract more investors,” Walter Stuber, founding partner of law firm Walter Stuber Consultoria Jurídica, told SRP.

According to SRP data, the COE has been the sole wrapper used in Brazil in the past five years. An estimated BRL14.2 billion (US$2.9 billion) was invested in some 4,750 certificates of deposit during 2023.

Wrappers, indices

Previewing other Americas markets ahead of SRP releasing the regional Wrapper Guide, the US structured products market has gone from strength to strength in recent years. In 2023, the market was worth a record US$120 billion – an increase of five percent by sales volume YoY.

Fixed index annuity (FIA) sales had another record high as its sales totaled US$30.7 billion for the second quarter of the year, a 21% increase year-on-year, according to the US Individual Annuity Sales Survey released by Limra. For the first six months, FIA sales came to $59.3 billion, up 23% from the prior-year period, accounting for 27.4% of the total US individual annuity sales.

The Canadian market is dominated by medium-term notes (MTNs) with the only other wrapper of note being the certificate of deposit, while in Mexico certificates of deposit were the largest wrapper by sales volume and in each of the past five years it has held a market share of more than 50% – the exception being 2020 when its market share was 48%.

In an analysis piece, FVC’s Suzi Hampson examines why volatility controlled indices are an integral part of the structured products universe.

“Index providers continue to innovate and create new indices and there is a new generation of volatility-controlled indices that seeks to increase the frequency of rebalancing and make the use of assets more reactive to changes in the market,” Hampson wrote.

New products

Pivoting to the European market, Van Lanschot Kempen, the Dutch independent wealth manager, posted a net profit of €74.5m (US$83.2m) for the first half of 2024 – an increase of 44% YoY.

During H1 2024, VLK also distributed several products targeted at its private banking clientele – again all issued via Van Lanschot Kempen. Most of these structures were linked to a single equity index, of which the Eurostoxx 50 was the most frequently used, followed by the S&P 500, Eurostoxx Select Dividend 30, and Stoxx Europe 600 Oil & Gas Index, among others.

Three of its private placements were linked to exchange-traded funds, including the iShares MSCI Brazil ETF (two products) and iShares MSCI Emerging Markets ETF (one), while the bank also issued autocalls linked to the shares of Microsoft and Nestle, respectively.

In Asia Pacific, Korea Investment and Sekuritas Indonesia (KIS Indonesia) has listed 19 call warrants on the Indonesia Stock Exchange for retail investors to trade after its product debut in the market on 2 July.

The Korean issuer’s foray into Indonesia comes after it successfully listed structured warrants in several markets, including its home market, Vietnam in 2019, and Hong Kong SAR, which listed its first batch last December.

“Structured warrants were technically the first type of active derivative product in the Indonesian market, and it might lead further on to open up the listed option market, the single stock futures market, or other type of derivatives markets,” Jangwon Seo, head of global derivatives at Korea Investment & Securities Asia, told SRP in an interview. “Our strategy right now is to focus on growing the pie bigger to expand the structured warrant’s market size.”

Image: yaophotograph/Adobe Stock.

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