Structured products are financial instruments consisting of combinations of derivatives and traditional securities (such as stocks and bonds). They are created in order to generate a payout profile (also a risk profile) that is independent of the underlying instruments.

To simplify life for the investor, the Swiss Structured Products Association (SSPA) has introduced the Swiss Derivative Map, which categorizes structured products by type, such as capital protection, yield enhancement and participation products. The broad variety available empowers the investor to tailor product selection to his or her individual market expectations.

The downside of this diversity in structured products is that integrating them into a bank’s processes and systems is challenging. Investment advisory, portfolio management, portfolio monitoring, and client reporting all must be managed in a way that takes into account the myriad structured products available and their widely varying characteristics.

Unsurprisingly, an understanding of those characteristics forms a prerequisite to success. One must understand not only how such products are composed, but also how they will behave under any given market circumstances. This also presupposes a good familiarity with the underlying securities and their markets.

Beyond these considerations, regulatory compliance further complicates matters, particularly in light of the increased attention that regulators pay to structured products in the wake of Lehman Brothers’ insolvency and the financial crisis of 2008.

Our Contribution

  • Redesign of control processes to allow for issuance of new structured products
  • Introduction of a system and associated processes for the fully automated issuance of customized structured products
  • Definition of a structured product risk classification system
  • Consideration of structured product issuances in suitability and appropriateness testing according to MiFID I
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