Annual gross sales and assets invested in retail structured products in the USA (USDbn)

Probably the main reason for the slower development of the industry in the US compared to Canada and Europe is that US investors have traditionally invested in equity via stocks and mutual funds. They therefore prefer direct investment compared to partial exposure via structured products.

The USA is by far the largest market in the region, although it still lags behind Europe in both annual sales and assets invested. In Europe, however, sales were down 21% from USD 289bn to USD 227bn in 2009, enabling the US to narrow the gap against Europe from over four times in 2008 to under four times in 2009. European assets invested were USD 1091.9bn. The disparity between the two markets appears to indicate significant opportunity for further longer term growth in the USA; the fact that the gap has shrunk in the last year may indicate that it is already beginning to fulfil that potential.

The US retail structured products market has grown significantly over the past five years. This has been due both to the ongoing popularity of equity indexed annuities within the life assurance sector and the growing market for structured notes and CDs, in particular so called accelerator products and reverse convertibles. In the current low interest rate environment and with a newly rising stock market, structured products have once again become appealing to investors following the economic crisis of 2008-9.

In 2009, however, in common with most global structured product markets, the USA witnessed some of the lowest sales and issuance levels since 2006. In the first quarter, sales fell 45.4% and issuance fell 34.5% compared to the first quarter 2008.

This reflected the sharp falls in equity markets during this period with the local S&P500 index reaching a 13-year low in early March. This market low, coupled with recent events such as the Lehman Brothers default, Finra notices regarding risk disclosure and product suitability, and the fear of further bank defaults, created a deluge of negative media coverage and class action law suits against distributors and issuers. Many products fell out of favour with the investor, particularly the reverse convertible, which in 2008 had contributed almost USD 8.7bn to sales.