The majority of certificate providers in Germany claim that structured products developed further in 2014 and have a positive outlook despite regulatory constraints, according to an annual poll conducted by the DDV, Germany’s derivatives association, with responses from 23 issuers representing 95% of the domestic structured products market.
Following the decline in issuance of certificates with full capital protection in Germany during 2014, as a result of the low interest rate environment which led to less attractive product terms, there was a clear upward trend for classic investment certificates with built-in safety features to minimise market risks including reverse convertibles, discount and bonus certificates, said Lars Brandau, managing director of the DDV.
More than half of the issuers polled expect no changes during the first half of 2015, with a third of respondents optimistic about growth, according to the survey; 9% fear that the certificates issuance volumes will worsen. Overall, 57% respondents expect to increase structured certificates issuance in 2014 compared with 2013, while 39% saw no difference and 4% judged issuance to be in worse shape.
Over 60% of respondents said they expect the resources required to comply with regulation will increase in 2015, with 22% expecting a big increase in regulatory resources and 13% expecting no changes. Only 4% expect these resources will reduce by a large amount. “We need good regulation, but more and more regulation initiatives lead to distortions of competition. Only major issuers are in the position to deal with the increasing regulation efforts,” said Christian Vollmuth, managing director at the DDV. “Smaller issuers can hardly afford it. We need to urgently ask the question if more regulation results in less competition in the long run.”
According to the survey, 78% of the issuers saw increased competition in the retail market and expect more pressure from competitors in 2015 with a third of respondents expecting further consolidation of the market over the next 12 months. However, 56% believe the number of providers will remain the same in 2015, with 9% expecting new providers to enter the German structured products market in 2015.
The survey also revealed that over 50% of manufacturers will concentrate on the services provided with 35% of respondents pointing at an increase pressure on certificates pricing.
The majority of the issuers (43%) agreed that express certificates will experience the biggest growth in 2015. However, 17% expect that credit-linked notes will be the most sought after structures by retail while 13% anticipate that structured bonds will be the most popular product among retail investors. Bonus certificates are the first choice of 9% of retail investors. With regard to leverage certificates, over 50% of the issuers said that factor certificates will have the highest increase in demand.
In addition, the survey found that the majority of providers (52%) believe single indices will be the preferred underlying asset for investment products with 35% pointing at stocks as the underlying of choice for investors. For leverage certificates, 57% of respondents expect single indices as the underlying assets with the highest demand in 2015.