Structured financial product

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Structured financial product (or structured product ) in finance is a financial product that consists of one or more base values plus a derivative component .

General

A financial product becomes a structured financial product when at least two financial instruments , of which at least one must be a derivative, are combined. The term “structured product” is to be understood as a financial product with a derivative component. Structured financial products are securities and should correspond to a specific risk profile ; they are therefore tailored to a certain expectation of the market development of the underlying. The multitude of possible combinations of all imaginable underlyings ( foreign currency , interest-bearing , stocks , bonds or commodities ) with derivatives means that all imaginable scenarios and combinations of underlyings can be covered by structured financial products.

Authors first used the term “structured investment product” in 1996 and used it to describe a financial product consisting of a combination of several investment instruments with asset insurance characteristics.

Legal issues

The legal term of the structured financial product according to Art. 2 Para. 1 No. 28 of Regulation No. 600/2014 of the European Parliament and of the Council of May 15, 2014 on Markets in Financial Instruments is "Securities that are used to secure and transfer the Credit risk associated with a pool of financial assets has been created and entitles the Securityholder to receive regular payments that depend on the cash flow of the underlying assets ”.

The Securities Trading Act (WpHG) defined on this basis in § 2 , para. 34 WpHG a structured financial product as a value paper, "that the securitization and transfer of a selected range of financial asset was created associated credit risk and the security holders regular for receiving payments entitled that depend on the cash flow of the underlying assets. "

In accordance with Section 33 of the Derivatives Ordinance, a structured product may only be acquired for an investment fund if it is ensured that only those components have an influence on the risk profile and the pricing of the product that may also be acquired directly for the investment fund. According to § 64 para. 4 WpHG must be an investment services company after the investment advice to retail investors on a permanent data carrier before conclusion of the contract a written statement about the suitability of the recommendation forum ( suitability declaration ).

species

A standard bond becomes a structured financial product, for example, if the issuer grants its creditor the right to exchange it for shares at a predetermined ratio during a conversion period ; otherwise the bond is due for repayment at the end of the term. This convertible ( English convertible bond ) is one of the first structured financial products. Conversely, there are the Aktienanleihe ( English reverse convertible ), in which the issuer has the right to redeem at maturity either the nominal amount of the bond or to provide a predetermined number of shares.

Other important structured financial products are securitisations , certificates (such as bonus certificates , discount certificates , leverage certificates or guarantee certificates ) and asset-backed securities . Also warrants that in insurance , securities and banking products are packaged, are among the structured financial products.

Delta-1 products, for example index certificates , are also structured financial products, but - unless the underlying is itself classified as derivative - are not classified as structured products within the meaning of Directive 2007/16 / EC, as they have no leverage component.

economic aspects

The combination of at least two financial instruments with a derivative creates a new product with the structured financial product. This has a different risk profile than any of the financial instruments involved. The combination creates both new product features and features of the financial instruments involved. Structured financial products therefore require a higher level of advisory work by credit institutions , investment firms and investment services companies , which, before entering into a structured financial product, must submit a written declaration of suitability to private investors in accordance with Section 64 (4) WpHG , which must name the advice provided and explain how it relates to the Preferences , investment goals and other characteristics of the customer is coordinated. Structured financial products have at least one issuer risk . In addition to financial risks such as market risk ( interest rate risk , currency risk , price risk ) occur. Therefore, they are assigned to the worst asset class and are only suitable for investors who belong to the highest risk class. With these products it is also possible for small investors to speculate on certain stock market scenarios .

literature

Individual evidence

  1. ↑ Claudia Cottin / Sebastian Döhler, Risk Analysis , 2013, p. 260
  2. ↑ BaFin of July 22, 2013, catalog of questions on assets that can be acquired
  3. ↑ Erwin W Heri / Jean-Pierre Hunziker, Structured Investment Products at Banks and Insurance Companies , in: Finanzmanagement und Portfolio Management 2/96, 1996, p. 172
  4. ↑ BT-Drs. 18/10936 of January 23, 2017, draft of a second law to amend financial market regulations on the basis of European legal acts , p. 235
  5. ↑ Questionnaire on eligible assets. Federal Financial Supervisory Authority (BaFin), July 5, 2016, accessed on June 27, 2018 .