Exchange Traded Products & Indexing Guide Switzerland 2013

InTErVIEW
«standardised and
reliable hedging.»
Matthias Müller, head of cosI Product
Management at sIx swiss Exchange, on
the multifaceted background of collateralisation
of structured Products.
MarTIn raaB
Matthias, in a nutshell, how can COSI and
its history to date be described?
As a result of the financial crisis, investors are looking much
closer at counterparty risks in their investments. There is a
general desire to hedge in the same way as professional market
players. With COSI, we meet the demand for standardised
and reliable hedging in contrast to issuer risk associated with
Structured Products. COSI was once a niche Product, but is
now widely accepted as a standard market Product.
What percentage of Structured Products
are collateral secured?
At present, 20% of all investment products traded on Scoach
Schweiz are collateral secured. In the case of warrants, the
proportion is 0.1%, which is much less. This is because when
compared with market risks, issuer risk for these Products
does not play a significant role.
Which Products, in particular, regularly
include a COSI feature?
19 ExchangE TradEd ProducTs & IndExIng guIdE Switzerland 2013
Barrier Reverse Convertibles account for roughly half the COSI
Products. Relatively, the largest market portion by far is made
up of investment Products with reference issuers. In Switzerland,
three quarters of these Products have a COSI feature.
Protection has its price. What are the costs
for a COSI feature?
Investors, who wish to have COSI as a hedge against issuer
risk receive on average 40 to 50 basis points less return per
annum. The costs for collateral security vary within this range,
as every issuer has different costs to cover in relation to the
security offered.
Is it possible for all types of securities to
perform as COSIs – which standards apply?
It is possible to implement securities which are accepted by
SNB or EZB, e.g. highly liquid stocks and book money in the
most important currencies. We only accept bonds with an
adequate minimum rating and sufficient liquidity. Based on
strict quality controls, presently only about 5% of all securities
accepted by the ECB are allowed to be used as collateral for
COSI. Individual selection criteria are constantly modified to
suit the current market.
Similar to collaterals for ETFs, are there plans
to allow the COSI securities for the individual
products to be accessible online?
In the case of an enforcement event, different to synthetic
ETFs, COSI investors are contractually entitled to receive their
money back after 30 days. This fast payoff requires the securities
to be immediately liquid. If the exact composition of
the securities were known at the time of enforcement, other
market players could use this information to their advantage.
In turn, this would have a negative effect on the proceeds level;
clearly disadvantageous for the investor.
Many thanks!