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Structured products regaining momentum
UBS E-News for Banks, October 2009
keywords: structured products, derivatives, efficiency, standardization, transparency, swiss market, innovation, wealth management
| Executive Summary |
Almost a year after the Lehman debacle, vendors of Swiss structured products can again look with hope to the future as investors regain trust in their wares. Several innovations – including collateralized instruments, daily updated Value-at-Risk calculations and better overall product information – are helping the industry increase transparency and security for investors. UBS is the first issuer in the industry to publish its standard product offering and conditions online, and it also provides custom solutions to clients up from an investment threshold of 20,000 Swiss francs. |
Trading volumes on the Swiss derivatives exchange Scoach rose 8.5 percent during September of this year, and this rise was no flash in the pan. After reaching a nadir last March, when structured products accounted for a mere 225 billion Swiss francs worth of the investment portfolios of Swiss banks, this number had risen to 237.59 billion Swiss francs by September. This is still a long way from the peak of 350 billion Swiss francs in September 2007. But the return of investor interest nonetheless indicates that this relatively young asset class has survived its baptism of fire to secure a permanent place for itself in the world of wealth management.
Increased protection thanks to COSI
Clearly the general recovery of equity markets is one important reason for this positive development. But industry innovation and flexibility has also played an important role, with a range of measures helping to fuel the structured product comeback. Take, for example, the Collateralized Secured Instruments (COSI), which were launched on September 28 of this year in Switzerland. COSI offers protection against default by issuers of structured products and thereby satisfies investor calls for increased security post-Lehman. COSI was developed by the Swiss Exchange, Scoach and Eurex in cooperation with the Swiss Structured Products Association (SSPA). The increased protection is gained by means of a simple hedging mechanism in which SIX SIS takes on the role of collateral holder (see graphic). Yet despite the fact that COSI represents certainly the most visible proof that the industry has learned from the Lehman debacle, investors have reacted rather cautiously, and it is still too early to say if COSI will be able to establish itself as an alternative to Exchange Traded Funds. Scoach CEO Christian Reuss sees these collateralized certificates as "one of the missing pieces of the puzzle in the world of passive investment products." He is confident this innovation will help win new types of clients for structured products, for example pension funds or insurance companies.
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Legend: The collateralization process at a glance. (Graphic: SIX Swiss Exchange.) |
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