SRP Digest: Beyond the barriers

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Following the heightened?volatility?and global?sell-off at the beginning of August, SRP analysed the knock-in barrier levels of 12,600 live barrier autocalls – the most popular capital-at-risk structured product – based on their current position.

For this study, we focused on products linked to the most used market cap indices, decrement indices, sector benchmarks and high dividend yield indices.

The conclusion: even though limited to the sample, which represents approximately 70% of the live barrier autocalls in Europe, there will not be any index-linked products that will lose money in sideways markets.

MerQube is capitalising on the support from several structured products issuers in the US and its speed to market to increase its footprint globally. Sales of structured products linked to its indices have increased by 200% in 2024 - from US$350 million across 651 products in 2023 to US$1.1 billion across 748 products year to date.

The MerQube US Large-Cap Vol Advantage Index has sold close to US$500m in 2024 with a further US$325 million invested in products linked to the MerQube US Tech+ Vol Advantage Index.

As a security house we can set all these kinds of AMCs and trades but our capabilities as a paying agent to settle trades between other parties is a very important differentiator in our offering - Fabio Oertle, ISP Group

Swiss investment manager ISP Group strengthened its infrastructure to improve product issuance with the launch of a new special purpose vehicle through the GenTwo Pro platform.

The collaboration with GenTwo complements the ISP Group independent Jersey setup that focuses on the issuance of actively managed certificates (AMC).

“As a security house we can set all these kinds of AMCs and trades but our capabilities as a paying agent to settle trades between other parties is a very important differentiator in our offering,” said Fabio Oertle, CFA, head of structured products, ISP Group.

SRP continued its markets coverage with four market reviews this week. In Asia, sales figures in South Korea for July, at just under KRW6 trillion (US$4.5 billion), reached their highest levels since January while in Hong Kong SAR the average daily turnover for structured products on Hong Kong Exchanges and Clearing – consisting of derivative warrants and callable bull/bear contracts – recorded HK$10.6 billion (US$1.36 billion) in July, up 3.6% month-on-month.

Over in Europe, autocalls captured a 75% market share in the UK while in Switzerland there was a significant shift in the allocation between capital protection products and yield enhancement products in July with the market share of the former decreasing by half: from 14% in June to seven percent this month. Meanwhile, the market share of yield enhancement products increased from 82% to 91%, reflecting a stronger focus on higher returns.

Barclays reported attributable profit of ￡1.2 billion (US$1.5 billion) in a second quarter of 2024 where it sold US$3.55 billion notional across 861 structured notes registered with the US Securities and Exchange Commission. The bank's activities rebounded from the prior-year period when structured product trading was still marred by the bank’s over-issuance incident in the US. In Q2 2024, its structured products sales almost doubled while issuance was up 50.8% year-on-year (YoY).

Keeping with Q2 earnings, HSBC reported revenues for its investment distribution business , at US$1.4 billion, were up 13% YoY, driven by structured products, mutual funds and bonds due to the combination of the execution of the bank’s strategy and improved market sentiment, notably in HSBC’s entities in Asia.

‘Customer growth and improved wealth penetration, primarily in Asia, helped drive growth in investment distribution,’ said Georges Elhedery, CFO, who has been appointed as group chief executive, with effect from 2 September 2024.

SRP also reviewed the interim results of the six main Italian structured products issuers . With combined sales of €8.4 billion, the big six manufacturers – Intesa Sanpaolo, Unicredit, Mediobanca, Banco BPM, Banca Popolare dell'Emilia Romagna (BPER), and Banca Akros – were responsible for 59% of the total volumes during the semester, despite issuing only 27% of all available products.

In the US, total individual life insurance new annualised premium was US$3.97 billion in the second quarter , level with prior year results, according to Limra’s preliminary U.S. Life Insurance Sales Survey. Policy count was flat for the quarter. Year to date, new premium totaled US$7.7 billion, down one percent, and the total number of policies sold was level with the prior year’s results.

Finally, UBS Asset Management agreed to transfer its Quantitative Investment Strategies (QIS) business to systematic investment manager Manteio Partners. Upon completion, Manteio will assume responsibility as investment manager of the QIS funds and mandates. As part of the transaction, the QIS portfolio management team is expected to move to and operate as a distinct group within Manteio.