Structured products are formed from a combination of two or more financial instruments (e.g. equities, bonds, futures).
These products guarantee that at least one derivative instrument is included within this combination.
Structured products are characterised by a high pace of innovation (renewal) and a wide range of variations as a result of numerous different packages adapted to market conditions.
These products include, among others, “Autocallable bonds”, Phoenix autocall” or “Airbag certificates”.
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A structured product can use as underlying instruments any asset with listed options or assets which have been on the market long enough for their volatility and performance profile to be assessed properly.
The most popular underlying instruments are individual stocks, equity indices, sector equity indices, rates, currencies and commodities.
It is equally possible to structure products using UCITS, real estate instruments or even climate indices.
A structured product may qualify for distribution for either public offering or private placement.
Following Ordinance no. 2008-1, dated 22 January 2009, the French concept of “Appel Public à l’Epargne” (initial public offering) was replaced with the European framework of “Offre au Public de Titres Financiers” (Public Offering of securities).
A bank is considered as conducting a public offering when it performs a listing on a public stock exchange.
In France, a structured product private placement is a placement addressed towards qualified investors or to a closed circle of investors
A qualified investor must have the skills and necessary means to understand the inherent risks of derivative transactions.
The closed circle of investors should be limited to no more than 150 people.
Yes, one of the benefits of the structured product will be its greater flexibility.
EAVEST can support you with defining the specifications, as well as the optimisation of the conditions and the listing for your tailor-made product.
Structured products guarantee the value of your investments, irrespective of whether you expected an increase, decrease or a lateral change in share prices.
In response to your needs, part of the potential increase in value may be converted into a protection – or vice versa.
You benefit from a predictable performance which is only correlated to changes in the underlying asset.
You will be able to take advantage of short-term opportunities and react promptly to market changes by using innovative products.
Taking advantage of these opportunities does not require heavy expenses.
EAVEST will help you to find both the ideal financial instruments as well as the optimal transaction timing.
A structured product under an EMTN/BMTN/ Certificate is considered as a bond with a redemption linked to the evolution of an underlying asset
Thus, in the same way as a “traditional” bond, the prime risk of a structured product relates to its issuer.
If the issuer of a structured product goes bankrupt, the reimbursement of the products formula to the investor may not be guaranteed.
If the issuer’s creditworthiness deteriorates, the price may drop in the secondary market.
It is therefore very important to select the right issuers when creating a tailored product or selecting an existing product.
EAVEST has implemented tools for analyzing and monitoring the various issuers of structured products.
In the case of a structured product designed under a mutual fund framework, there is no risk associated with the issuer.
Indeed, the reimbursement of the formula is guaranteed by the UCITS through the collateralised assets.
The taxation of structured products involves many parameters such as: the nationality of the issuing institution, the legal structure of the product, the time of disposal, etc.).
Structured products may be subject to the following taxes:
Structured products with an EMTN or Bond structure are not eligible for PEA (French personal saving scheme).
Only structured products with a mutual fund structure and labelled as PEA-eligible may be placed in a PEA.
Each life insurer reserves the right to include structured products in its life insurance contracts.
They must meet the insurer’s criteria in terms of liquidity, transparency and financial strength.
Like any other unit linked contract, the structured product will not create a tax event if it is sold within the contract and without contract redemption.
Strictly speaking, no entry fees, exit fees or management charges are attached to the product.
The securities deed envelopes or life insurance deeds may however charge a fee on the purchase or sale of the product.
Yes, a structured product can be sold at any time during the hours of the underlying market for the product.
The sale of the product will occur at the bid price.
The issuing bank has a contractual commitment to ensure the liquidity of its product.
Yes, the issuing bank publishes real-time values of the product on different information systems (Bloomberg, Reuters, SIX, etc.).
This valuation takes the form of either a single price or bid-ask range.
A closing price is published and recorded by depository banks or insurers to establish portfolio statements or calculate performance.
In order to calculate the price of the product on the secondary market, the issuing bank updates all the market parameters of the structured product such as the evolution of the underlying instruments, volatility, rates, dividends and funding of the issuer.
Yes, and not only the underlying asset value.
The valuation of the structured product also depends on the market volatility, rates, dividends and the funding of the issuer.
Therefore fluctuations of the underlying assets may not be replicated in a proportional or instantaneous manner on the secondary market.
The secondary market follows the life of the product immediately following its launch or Strike.
It reflects the value of the product according to market parameters.
No, the marketing window is often the prerogative of products which relate to public offerings and which are intended for a potentially large number of investors.
When the structured product is designated for a select group of investors, the marketing period is often not necessary.
The structured product is a security with an international identifier (ISIN), so it can be purchased from any securities account either in France or in any other country.
The settlement will then be processed through the usual clearing systems.
However, depending on the product, the custodian may reserve the right not to reference the product. Then it is preferable to present the product documentation for validation in advance.
Structured products can be used by investors both to improve the strategic allocation of their portfolios and to make tactical short-term gains.
Structured products can help investors to improve the strategic allocation of their portfolios by enabling them to increase exposure to high risk assets without increasing the overall portfolio risk; to incorporate new classes of weakly correlated assets; or to deepen the geographical or sectoral diversification, etc.
Structured products can also be used to make short term bets (eg bet on a market trend or an event) or to hedge against particular spot risks (currency, interest rate, inflation, currency …).
The issuers undertake to ensure the liquidity of their products. They are known as the ‘market makers’ of the product. During market opening hours, the market maker provides purchasing and selling prices on all the structured products it has issued.
Some insurers accepting structured products in their life insurance policies require issuers to sign contracts (or Letters of Liquidity) detailing precise liquidity conditions.
As with any security, there is a purchase price (Ask or Offer) and a selling price (bid) for a structured product.
The Bid-Ask or Bid-Offer or “range” is the difference between the bid price and the ask price.
The market convention for structured products is a 1% range.
The practice of calculating the price of a structured product uses percentages as opposed to actual currency.
The initial price of a structured product is often set at 100%
A price below 100% in the secondary market means that the product has depreciated.
Conversely, a quoted price above 100% means that the product has appreciated.
More present in the vocabulary related to structured products than those of UCITS, volatility is a central concept for understanding of financial markets.
Volatility measures the extent of fluctuations in the value of a financial asset. It is mathematically calculated using the standard deviation of asset returns.
This is therefore more an indicator which reflects changes in anticipations than a risk indicator.
We make a distinction between the implicit volatility and the historical volatility.
Historical Volatility reflects the past fluctuations of an asset.
The implicit volatility however measures the fluctuations anticipated by the market operators on a particular asset.
As one might anticipate, there are different levels of volatility according to the maturity of the asset.
The main indices used to measure the volatility of the stock market are the VIX Index, based on option prices (Call and Put) on the US S&P 500 index and the V2X index for the Euro Stoxx 50.
Distance to early redemption is a value that is automatically calculated on consultation date (calculated on the last closing price). This value is calculated only on live products (« On going » products in our Product Data Base)
At any consultation date, this Distance represents :
If at this date the underlying asset is above its initial level : the maximum drop the underlying asset must not exceed in order to be early redeemed at the next observation date.
If at this date the underlying asset is below its initial level : the rise that must be recorded by the underlying asset in order to be early redeemed at the next observation date.
If there is no early redemption date on the product, this Distance at the consultation date represents :
If at this date the underlying asset is above its initial level : the maximum drop the underlying asset must not exceed not to fall under the initial level.
If at this date the underlying asset is below its initial level : the rise that must be recorded by the underlying asset to reach the initial level
Illustration on our website:
On Eavest website, the illustration of this Distance will be green if the underlying asset is above its initial level and red if the underlying asset is below its initial level