Leonteq's made the headlines in the middle of 2016 after reporting a combination of lower revenues and increased costs, the collapse of the 'Land project' with DBS, Avaloq and Numerix, and the halt of its expansion plans in China and South Korea. SRP spoke to Jeremy Ng, (pictured), chief executive Leonteq Securities (Singapore), about what is driving activity and how the firm can add value to investors with its offering.
According to Ng, the market for structured products in Asia is a "very market performance driven". "In general, clients are more active in structured products when the equity market performs well," he said. "We are starting to see investors in Asia diversifying into multiple asset classes, such as foreign exchange, credit, rates, and fund-linked products."
Asia is the fastest growing region and remains important for Leonteq, which is expanding its front and back office headcount, particulalry for Japan and Taiwan, according to Ng. "On banking solutions, the platform service is very relevant for financial institutions that are looking to serve internal clients with a feasible solution that overcomes high economic cost in manual processes and regulatory requirements," said Ng. "Leonteq continues to enhance its platform in order to offer securitised and OTC products more efficiently to our diversified group of clients in Asia."
The bank has seen increased demand for its products through the institutional intermediary channel, according to Ng. "Typical underlyings would be single stocks or basket of single stocks listed in the US and Hong Kong, tenors are generally less than a year," he said. Moreover, "although yield enhancement is still the main focus, more and more clients are looking at participation products".
Structured products can add value in all market situations as they can extract value from market moves, according to Ng. "Right now, participation products with downside protection keep gaining traction, as investors do not want to miss the rally, but, at the same time, feel a correction could be just around the corner," he said. "The low interest rate environment also has created a push factor towards higher demand for structured products."
But capital protection is not the only driver. "The slight pick-up in interest rate since the second half of 2016 and the continued cheapen implied volatility has created a fresh demand for capital protected products, especially those that are linked to bond funds," said Ng. "In the past, six-week equity-linked notes were the most popular products on the market," he said. "Currently, low implied volatility has in general extend the minimum tenor of a product to three-month and more clients are starting to trade basket of two, three, even four underlyings instead single underlying products." Additionally, the increase in interest rate in the past 12 months has opened up possibility of capital protected products in three to five-year tenor, according to Ng.
Leonteq is the only player in the market manufacturing and distributing structured products on a white-labelling basis with its "high-powered, modern technology platform for other banks", according to Ng. "Our proprietary technology platform makes it possible to instantly calculate complex structured financial products, even when tailored to individual customer requirements, and produce all the necessary documentation automatically in four languages," he said. Leonteq systems accesses over 1,200 share values and other asset classes, as well as around 800 indices as underlying assets. In addition, the Leonteq system suggests optimised, tradeable alternative combinations, according to Ng. "In insurance solutions, the system makes it possible to manage investments 100% online at the individual policy level, complete with visualisations of all business transactions that have taken place during the term of the policy," said Ng.
The upcoming regulatory changes are the biggest challenge for the industry. "For that reason, we have dedicated teams in place to ensure that we are fully complaint with all the regulatory requirements," he said. "At the same time, it also offers opportunities since we are specialised only in structured products and are able to benefit from its great expertise.
Leonteq's global net estimated sales this year are US$2.4bn, according to SRP data. Compared to the same period last year, net sales have decreased by 12%. However, compared to the same period in 2015, net sales are up by 19.2%. This year, 1185 new products of Leonteq were added into the SRP database.
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