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EUSIPA Derivative MapA new standard in product categorisation across Europa
Structured Products Europe, Park Plaza Victoria, London
Eric WaseschaExecutive Director, Swiss Structured Products Association SSPAMember of the Board, European Structured Investment Products Association EUSIPA
19 November 2009
Short profile of the association and its goals
Introduction to the product categorisation and its logic
Initiatives of our membersCollateralized investment solutions
Product risk rating
Questions & Answers
19 November 2009 www.eusipa.org 2
Agenda
EUSIPA Facts
Founded in 2008
Based in Brussels
Founding membersAustria (ZFA), Germany (DDV), Italy (ACEPI), Switzerland (SSPA)
1. Contact with regulator
2. Uniform standards
3. Product transparency
& understandability
19 November 2009 www.eusipa.org
Profile & Goals
3
EUSIPA – Members 2010
19 November 2009 www.eusipa.org 4
Code of Conduct (planned)
I. Issuer: The solvency of the issuer is to be openly disclosed at any time.
II. Underlying Assets: The underlying assets are to be disclosed in a transparent form and have to be indentified free of doubt.
III. Product: The description of the products follows the principle of product clarity in a balanced and comprehensible manner.
IV. Price: Products are to be offered at a price which stands in an adequate relation to the product structure and the market situation
19 November 2009 www.eusipa.org 5
Code of Conduct (planned)
V. Trade: The issuer guarantees a liquid market for his products.
VI. Compliance: The issuer commits himself to the compliance of these principles. He provides the organizational conditions to deal with conflicts of interests and the trading of his employees.
VII. Education and Training:In this new part issuers of structured products will be obliged to provide training documents especially targeted to sales people, resellers and investors (online, print, seminars).
VIII.Product Classification:The European product classification will be inserted.
19 November 2009 www.eusipa.org 6
EUSIPA Derivative Map
Hierarchy and grouping for similar product types
Payoff charts of product types
Description of main characteristics
Available, free of charge www.eusipa.org
Poster (70 x 100cm)
Flyer (30 x 42cm)
Order a free copy on our website www.eusipa.org!
19 November 2009 7
EUSIPA Derivative Map
2 main categories: Investment / Leverage
5 subcategories
25 product types
19 November 2009 www.eusipa.org 8
EUSIPA Derivative Map
Investment ProductsCapital Protection(Payoff with unconditional floor on downside)
Yield-Enhancement(Payoff capped on upside)
Participation (Payoff open up- and downside)
Leverage ProductsWithout Knock-Out(Payoff with full leverage on down- and upside)
With Knock-Out (Payoff with full leverage on down- and upside)
19 November 2009 www.eusipa.org 9
EUSIPA Derivative Map
Description of market expectationPayoff profileSummary of product characteristics
19 November 2009 www.eusipa.org 10
All product types are represented in the EUSIPA Derivative MapSome of the product types are known in all member countries…… other product types may be not available in all member countries
19 November 2009 www.eusipa.org 11
Supporting Partners
Associations, stock exchanges, issuers and other market participants
Commitment to use the eusipa categorisation or its respective national version
19 November 2009 www.eusipa.org 12
EUSIPA Derivative Map
19 November 2009 www.eusipa.org
Bloomberg Screenshot
13
EUSIPA Derivative Map
19 November 2009 www.eusipa.org 14
Benefits for all market participants
Strenghtening product transparency in general
Usefull tool for investors, advisors and other stakeholders alike
Comparability across countries
Meaningful market statistics and data feeds
Improved and consistent communication within the industry
Interesting initiatives of our members
Ambition:Minimizing issuer risk
Initiative of Scoach Switzerland and SSPA
Depositing of collateral (stocks, cash) by issuer at SIX Swiss Exchange
Fair value of outstanding issues and value of collateral is calculated by SIX Swiss Exchange (daily)
Different „haircuts“ according to collateral quality
Competitive cost structure (approx. 30-40 Bps in total, 9 Bps for SIX plus cost of collateral for issuer)
Going live in September 2009, 3 issuers already participating, more to follow
19 November 2009 www.eusipa.org
COSI – Collateralized Secured Instruments
15
Interesting initiatives of our members
19 November 2009 www.eusipa.org
COSI – Collateralized Secured Instruments
16
IssuerInvestor
…invests in a COSI structured product
… Market making for the product
Deposit of collateral
Sells collateral in case of an issuer default and compensates the investor with the equivalent of the transaction
Daily valuation of collateral and fair-value for open-interest
Interesting initiatives of our members
Benefits for investors:
Eliminating issuer risk
Competitive fees
Benefits for issuers:
Lower costs than special purpose vehicles (SPVs)
Fast roll-out of new products (within days)
Overcome of counterparty limitations
Solution for formerly „unreachable“ investor segments
Potential substitute for ETFs
19 November 2009 www.eusipa.org
COSI – Collateralized Secured Instruments
17
Interesting initiatives of our members
Ambition: Comprehensive and yet easily applicable risk classification system for advisors as well as for private investors…
Structured products risk figure implemented by DVV, ZFA and SSPA
Method: Value at Risk (VaR)“If I lose money, how much could I most probably lose?”
VaR might indicate that with a probability of 99 percent, a certain investment will lose no more than a specific amount in a given investment period
Example: A 13% VaR tells us that a loss on a EUR 10,000 investment should with high probability not exceed EUR 1,300 within the next 10 days
19 November 2009 www.eusipa.org
Risk Rating
18
Interesting initiatives of our members
SSPA risk figure (VaR) implemented in July 2009
10-day time horizon, 99-percent confidence interval
Daily calculation of VaR for all 30’000 listed products in Switzerland (calculated by independent third party providers)
Monte Carlo / Historic simulation, time window of 250 days
Six different risk categories
19 November 2009 www.eusipa.org
Risk Rating
19
Interesting initiatives of our members
19 November 2009 www.eusipa.org
Risk Rating
20
• Available on SSPA website and over 10 issuers in Switzerland
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Jun-09 Jul-09 Aug-09 Sep-09 Oct-09
Interesting initiatives of our members
Mini-Future on Nestlé, ISIN: CH0025899151, Symbol: NESMB
19 November 2009 www.eusipa.org
Risk Rating
21
456 3
Value at Risk(right scale)
Mini-Future on Nestlé(adjusted)
Nestlé(adjusted)
% %
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Jun-09 Jul-09 Aug-09 Sep-09 Oct-09
Interesting initiatives of our members
Bonus-Certificate on SMI, ISIN: GB00B0XP4V03, Symbol: SMIXL
19 November 2009 www.eusipa.org
Risk Rating
22
4 2 13
Value at Risk (right scale)
Bonus-Certificate on SMI Index
SMI Index
% %
Interesting initiatives of our members
Benefits for market participants
Comprehensible, easy to understand risk information
Change in risk can be tracked and monitored
VaR is calculated by an independent institution (assocation or third parties) no legal risks for issuers
Informed customers are better customers
Risk transparency helps to regain trust and credibility
19 November 2009 www.eusipa.org
Risk Rating
23
Questions & Answers
19 November 2009 www.eusipa.org
Thank you for your attention!
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Eric Wasescha
+41 79 209 36 90