Structured products exchange Scoach Switzerland has introduced three benchmark strategy indices, covering participation, capital protection and yield enhancement products. The total return strategy benchmarks, developed by Derivative Partners Research AG in collaboration with the exchange, are designed to facilitate replication of each product category and enable the comparison of similar products. "This tool will enable investors and market participants to easily check whether a product is delivering on its promises," said Christian Reuss, CEO of Scoach Switzerland.
Derivatives Partners' CEO Andreas Kropf said the firm has spoken to issuers about creating products with the indices as an underlying. Some have responded with enthusiasm, he said.
Around 27,000 securities subdivided into investment products and leveraged products are currently traded on Scoach in Switzerland. The 8,000 investment products are divided into participation, capital protection and yield enhancement strategies.
The Scoach Participation Index - SCOP - replicates products characterised by direct participation in the performance of an underlying such as tracker certificates, bonus certificates, outperformance certificates and outperformance bonus certificates.
The Scoach Yield Enhancement Index - SCOY - replicates products that counts on sideways-trending or slightly rising underlyings, such as discount certificates, barrier discount certificates, reverse convertibles and barrier reverse convertibles. The index is benchmarked against a synthetic index comprising 60% SMI and 40% of Total Return Index of all Swiss bonds published by Bloomberg.
Finally, the Scoach Capital Protection Index - SCOC - replicates products aimed at investors who expect the value of the underlyings to rise but also want to hedge against reverses and price losses, such as uncapped capital-protected profiles, exchangeable certificates and capped capital-protected products. The benchmark is Bloomberg's Total Return Index of all Swiss bonds.
The first step to index construction involves selecting SMI-linked products that are typical of the product category in terms of product type, residual maturity and so on. The second narrows the search down to optimum products by including products with the best liquidity and lowest fair value gap.
Each strategy index consists of a minimum of five and a maximum of ten products. A minimum of three issuers must be represented.
The baseline for each index is 1000 points on 27 February 2009. AS SRP went to press SCOP stood at 1343, SCOC at 1059 and SCOY at 1183.
The indices are calculated by Six Swiss Exchange. Derivative Partners Research AG is responsible for selecting index components.