Transparent structured products for retail investors

Since the introduction of ELS (Equity-linked securities) in 2003, the structured products have become one of the most important investment vehicles to Korean retail investors. However, the rapid growth of those structured products has induced the imbalance of Korean financial markets and may have eventually damaged the financial stability of Korean economy. In this paper, we investigate how Korean securities companies issuing the structured products hedge their positions and how their activities affect the financial stability. In addition, we conduct a simple empirical analysis to examine the relationship between the issue of ELS and the financial stability using FSI (financial stability index) provided by Bank of Korea. According to the results, the balance of ELS affects the financial stability negatively and this is significant even after adjusting for the control variables such as the KOSPI index, VKOSPI, the risk-free interest rate, and CPI. More specifically, the balance rather than the amount of monthly issuance is significant to financial stability. In addition, the decrease in underlying indices reduces the early redemption, thereby damaging the financial stability. Lastly, we suggest several solutions to alleviate the negative effects.

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STRUCTURAL PRODUCTS WITH CAPITAL PROTECTION AS AN ALTERNATIVE TO INVESTING IN CLASSICAL FINANCIAL INSTRUMENTS

EKONOMIKA I UPRAVLENIE: PROBLEMY, RESHENIYA ◽

10.36871/ek.up.p.r.2020.12.04.010 ◽

2020 ◽

Vol 4 (12) ◽

pp. 68-72

Author(s):

S. S. ROGOZIN ◽

Keyword(s):

Interest Rates ◽

Market Development ◽

Financial Instruments ◽

High Demand ◽

Structured Products ◽

Retail Investors ◽

Low Interest Rates ◽

Work Mechanism ◽

History Of ◽

Investment Object

The article is devoted to the features of structured products as an alternative investment object. Under historically low interest rates, structured products are provoking high demand from retail investors. The author examines a history of structured products market development, focusing on the analysis of construction principles and work mechanism of structured products with capital protection. In addition, the author elaborates on some features of Russian structured products market and reviews risks, associated with investments in structured products.

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Suitability Checks and Household Investments in Structured Products

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109015000265 ◽

2015 ◽

Vol 50 (3) ◽

pp. 597-622 ◽

Cited By ~ 11

Author(s):

Eric C. Chang ◽

Dragon Yongjun Tang ◽

Miao Ben Zhang

Keyword(s):

Hong Kong ◽

Empirical Evidence ◽

Lower Risk ◽

Financial Protection ◽

Structured Products ◽

Financial Products ◽

Retail Investors ◽

Using Data ◽

The U.S

AbstractThe suitability of complex financial products for household investors is an important issue in light of consumer financial protection. The U.S. Dodd–Frank Act, for instance, mandates that distributors check suitability when selling structured products to retail investors. However, little empirical evidence exists on such transactions. Using data from Hong Kong, we find that investors purchase 8% more structured products, on average, when the suitability is not checked. The effect of suitability checks is more pronounced for less financially literate investors. Moreover, investors tend to buy products with lower risk-adjusted returns when product suitability is not checked.

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Selling structured products to retail investors in the US

Journal of Investment Compliance ◽

10.1108/joic-06-2017-0041 ◽

2017 ◽

Vol 18 (3) ◽

pp. 59-63

Author(s):

Margaret Sheehan

Keyword(s):

Financial Services ◽

Regulatory Agencies ◽

Content Type ◽

Structured Products ◽

The Us ◽

Retail Investors ◽

Investment Advisers ◽

And Control ◽

Practical Implications ◽

Do So

Purpose To explain the inherent risks, draw attention to SEC and FINRA guidance, and suggest ways to limit and control the sale of structured securities to retail investors. Design/methodology/approach Explains potential problems with the sale of structured securities to retail investors; recommends marketing, disclosure, training, suitability, and supervision guidelines; summarizes the results of an SEC sweep examination; draws conclusions. Findings Both the SEC and FINRA have stopped short of saying that retail sales of structured products is unsuitable per se, but both have demonstrated unease about this activity and clearly indicated that firms who engage in it have heightened and specific disclosure, training, suitability and supervisory obligations. Practical implications Although firms certainly can sell these products in the retail market in a responsible and compliant manner, they should do so with thought, preparation and caution, because the regulatory agencies are watching. Originality/value Practical guidance from experienced financial services and securities lawyer concentrating on investment advisers and broker-dealers.

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Overpricing and Hidden Costs of Structured Products for Retail Investors: Evidence from the Danish Market for Principal Protected Notes

SSRN Electronic Journal ◽

10.2139/ssrn.1863854 ◽

2011 ◽

Cited By ~ 5

Author(s):

Peter Løchte Jørgensen ◽

Henrik Nørholm ◽

David Skovmand

Keyword(s):

Structured Products ◽

Retail Investors

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Are Issuer Margins Fairly Stated? Evidence from the Issuer Estimated Value for Retail Structured Products

Forecasting ◽

10.3390/forecast2040021 ◽

2020 ◽

Vol 2 (4) ◽

pp. 387-409

Author(s):

Janis Bauer ◽

Holger Fink ◽

Eva Stoller

Keyword(s):

Product Information ◽

Fair Value ◽

Future Research ◽

Information Sheet ◽

Gross Margin ◽

Structured Products ◽

Retail Investors ◽

Product Valuation ◽

Good Guide ◽

Retail Structured Products

From 2014 to 2018, issuers of retail structured products in Germany established and calculated the Issuer Estimated Value (IEV), a fair value designed to offer more transparency for retail investors. By reporting the IEV in the product information sheet, banks implicitly make a statement on their expected gross margin and, as one of the first papers, we provide an empirical study of the fairness of these disclosed figures. On a sample of discount and capped bonus certificates, we find that reported issuer margins can be verified using standard option pricing models and we illustrate that hedging costs take on an important role for structured product valuation. Consequently, the answer to the raised question in the title seems to be an (initial) ‘yes’ for our chosen product sample. Even though in 2018 the IEV calculations have been replaced by similar margin and cost statements due to the newly introduced Packaged Retail and Insurance-based Investment Products Regulation, this finding might still be a good guide for future research.

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