Structured - BNP Paribas

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United Kingdom Ireland United Kingdom VOLUMES & KEY PLAYERSVolumes rose by about 9% between 2003 and 2004 but remainmodest, reaching £6bn. 2003 was a difficult year, owing to newmore restrictive regulations, particularly for reverse convertibles.In 2004, investors proved sceptical as regards equities preferringinstead to place their savings in interest rate products or dividends.Lastly, by raising the cost of property loans, the interest ratehikes over the year have tended to keep a lid on the availableliquidity of British households. The most active issuers wereHBOS, HSBC, Lloyds, NS&I and RBS.PRODUCTS & STRUCTURESThe UK market remained rather conventional, with a dominanceof growth structures and simple pay-offs.Many Asian and Cliquet options have been popular, often withvariations: as part of a best-of equity/fixed income structure,Asian with lock-in to secure potential gains throughout theproduct’s life provided the underlying asset reaches a givenlevel of performance. An environment of high interest rates andlow volatility has indeed made such pay-offs affordable.Several Digital options also traded.Growth structures were predominant and are increasinglytaking a lion share of the market. The low volatility levels andrisk aversion over the period, which made Reverse Convertibletypestructures less appealing. The marketing of such productspenalised further by a toughening of legislation on this productcategory in 2003.Starlight structures were still in demand, as they offer investorsthe chance to rapidly reallocate their capital to another investmentwhile benefiting from a capital gain. Exotic options also includeda number of Napoleons and capped Ladders, as well as Asianoptions with out-of-the-money strike prices allowing investorsto benefit from higher rates of participation in the underlying’sperformance.There was little change on underlyings used in 2003, withcontinued large-scale use of single underlying structures basedon the FTSE 100. Several structures were based on index basketsbut no emerging country indices could be noticed (except one,the ‘China Bonus Plus Fund’ based on the FTSE Xinhua index).Later in the year options based purely on gold, oil or the GoldmanSachs Index, usually in the form of Asian calls developed. Stillno record of structures combining the equity markets and otherasset classes, with the exception of the Halifax House Price Index.There is a rising, though limited, interest for commodities and, toa lower extent, for hybrid underlyings.There was an increasing number of products based on basketsof hedge funds as this fit in with investors’ need to diversifysince they do not expect the equity markets to make any realprogress in 2005.PRIVATE BANKING MARKETVolumes issued in early 2005 clearly exceed those recorded overthe same period in 2004. The average size is e5mn. There is astrong demand for short-term income products (typicallyAthena and Worst-Of Reverse Convertible) and very vanilla calloptions. Unlike the retail segment, hybrids tend to gain marketshares over pure commodity underlyings and there is a growinginterest for emerging markets stock indexes. Stock indexes arepreferred to stock baskets for safety reasons, especially as thematurity shortens. Some Certificates on the CSFB Tremont andMSCI have been recorded. A significant proportion of fixedincome pay-offs in the form of Range Accrual, Callable RangeAccrual (many fixed income products embed the callable featurefor pricing reasons) was also seen in this market.CPPI products continued to grow but ODB failed to gain anyacceptance. More open-ended lookback CPPI funds were launchedin the second half of the year as well as some more traditionalCPPI products.Most investors have subscribed to capital-protected structures.Many structures even offered a guarantee to redeem an amountgreater than the capital at maturity. Still, there was a continuedinterest in capital at risk products, mainly Athena and Airbagtype products (the latter with high gearing on the upside).However, volatility conditions did not help the terms that couldbe offered on these products with the consequence that salesfell off in the latter part of the year.14
United KingdomExamples of successful product issues in the UKNetwork HBOS (Halifax Life) MatrixProduct launch Throughout 2004 - 2005 June 2004 and October 2004Size of deal N/A N/AProduct name Guaranteed Investment Plan Ascension Plan (I and II)Product type UK Life Bond ISA – Special Purpose Company -Guernsey, PensionProduct maturity5 years with open end(4 guarantee dates per annum)7 yearsUnderlyings FTSE100 Winton Futures FundCapital protection 100% at maturity 100% at maturityProduct descriptionAdvertisingReason forlaunching productMinimum capital redemption=100% at maturityMaximum equity allocation at anytime is 80%Promoted through Halifax sharedealing serviceContinuous issues of CPPIs in 2004.Growing appetite for CPPIs in theretailThis product is based on the WintonFutures Fund and offers at maturitya minimum 100% capital returnminus 4% initial feesIt offers 100% of the growth inthe Winton Trading Strategies Fund,net of feesShares can be sold at any time,although the guarantee will notapplyBrochureSingle hedge-fund product investedin commodity futuresWinton Futures Fund has deliveredannualised returns above 21% sincelaunch; <strong>BNP</strong> <strong>Paribas</strong> provided theguaranteeNetworkDawnay DayProduct launch 3 tranches: November 2004,March 2005 and April 2005Size of dealProduct nameProduct typeProduct maturityUnderlyingsCapital protectionProduct descriptionN/AProtected Commodity Accelerator(I, II, III)ISA – Medium Term Note, Pension4 years (first two tranches); 5 yearsAn equally-weighted basket ofeight commodities (crude oil, heatingoil, natural gas, aluminum, lead,copper, nickel and platinum)100% at maturity160% (200% on the 5Y version)of the rise in the commodity basketover the investment periodFinal basket level is calculated asthe average of daily observationsover the last week of investmentAdvertisingReason forlaunching productBrochure distributed through IFAsBullish sentiment on commoditiesalong with development of optionson baskets of commodity futures15
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