The UK bank has remained an active provider of custom & strategy indices to the structured products market across regions over the las two years.

SRP data shows that there are a number of HSBC’s custom & strategy underlyings including the HSBC AI Global Tactical Index (HSBC AIGT), HSBC AI Powered Multi-Asset Investing Indexes (AiMAX) and HSBC ESG Risk Improvers Index, featured on live structured products across jurisdictions.

Other indices used in the indexed annuities space include the HSBC AI Powered US Equity Index (AiPEX) and HSBC AI Powered Global Opportunities Index 8% Volatility Controlled (AiGO8).

Custom and strategy indices are a central and increasingly important part of our structured products offering - Joel Abrahams

“Custom and strategy indices are a central and increasingly important part of our structured products offering,” Joel Abrahams, director, structured products sales at HSBC told SRP.

“HSBC has been a major issuer in the US market for over 25 years, consistently prioritizing solutions that meet evolving client needs.”

As investor demand for these strategies has grown significantly in recent years, custom and strategy indices have become a more distinguished and prominent part of the issuer’s product suite as they can contribute to improving the pricing of products and enable investment banks to deliver rules-based investment products aimed at outperforming benchmark index-linked products.

HSBC divides its custom strategies into those relevant for principal protected products, like certificates of deposits (CDs) and those for principal at risk products.

Over the past eight months, HSBC has launched new flagship indices in both categories to address specific client requirements. These new indices – including the HSBC 3D Edge Index and the MerQube 40% vol target index series – reflect HSBC’s commitment to meeting the market’s demand for more tailored and differentiated investment solutions, according to Abrahams.

“These indices are now considered flagship products and are central to HSBC’s current structured product offerings,” he said.

Shift towards personalization, customization

Joel Abrahams: HSBC’s focus on structured products is closely tied to the market’s shift towards greater personalization and customization, according to Abrahams.

HSBC has been a leading issuer in the US structured products market for over 25 years, and throughout that time, the company has prioritized providing solutions that evolve with client needs.

As investor demand for personalized and customized strategies has increased in recent years, HSBC has responded by making these strategies a more prominent part of our offering.

USP of QIS, market dynamics

Joel Abraham: Quantitative Investment Strategies (QIS) provide a solution-oriented approach within the structured product space, as they are designed to address specific investor pain points and optimize the experience of trading structured products.

We see some differences between the US and European markets. Europe historically has offered a broad range of thematic index underlyings for Structured Products - these never really translated to the US SP market to the same degree though, possibly in part due to the broader range of investment vehicles and alternatives available to US retail investors.

In the US, QIS is not about innovation for its own sake but about building strategies that serve a clear purpose—such as providing consistent coupons in volatile environments or generating yield in low-rate settings.

US investors have many choices, so our focus is on creating functional, purposeful products rather than overly complex or novel ones. Despite the number of custom underlyings available, the market has seen a ‘flight towards simplicity’. We prioritize straightforward, easy-to-understand strategies that still deliver value to clients.

Complexity, performance

Joel Abrahams: Looking at the performance of these underlying strategies, the ultimate test of a custom index is whether it delivers value to clients in terms of investment returns. Performance should be assessed in conjunction with the product’s payoff, structure and associated features (such as principal protection, defensive features, and coupon mechanisms), not just the index in isolation. It is also important to consider an investment in conjunction with its historical back-test and provide transparency. Technology platforms have helped to enhance transparency as they allow advisors to see how products and indices would have performed historically, in various market cycles which helps in evaluating their value, risk and suitability.

Responding to investor needs

Joel Abrahams: The rise of high vol decrement indices is a direct response to the needs of experienced users of structured products—particularly those who have used yield notes and may be dissatisfied with inconsistent product economics due to market volatility or risks associated with single-stock underlyings or worst-of baskets.

Custom indices, such as those from the MerQube 40 Index Series are designed to address specific pain points, such as inconsistency in returns, idiosyncratic risk and underwhelming terms in low volatility environments. While these indices may not be the most “exciting” innovation in terms of their building blocks, the end result is a product that clearly deliver value.

This is evidenced by the significant growth in the popularity of risk control and decrement indices over the past few years. The widespread adoption and investor appetite for these products demonstrate their success in meeting market needs and opens opportunities to leverage our capabilities. The market is only at the beginning of this trend, with more growth and innovation to come.

Broker dealer challenges

Joel Abrahams: A challenge in the growth of custom and strategy indices is the inconsistency in how broker dealers review and approve new products. This is a problem all issuers face as each broker dealer has its own process and there seems to be a lack of standardized due diligence.

This fragmentation makes it difficult for new indices to gain widespread acceptance, even when they may offer better solutions than existing products. We are advocating for a more standardized approach to due diligence. The market has evolved and there are now independent firms that rate indices and show how these indices perform. We believe that a broader adoption of such standards could help accelerate growth in the custom & strategy index space.

Education

Joel Abrahams: When it comes to custom indices in structured products education is critical. QIS are often more complex than benchmark indices and while complexity can deliver value, it is essential that the risks are very well advertised and communicated to clients.

HSBC’s approach is to ensure that products are appropriate for their end customers—primarily retail investors—as not every custom index or QIS strategy is suitable for every investor. For a strategy to have widespread impact, it must be accompanied by robust education and clear explanations of both the risks and benefits. We are prepared to go into detail with clients as needed. We see transparency and client understanding as key factors to the responsible development and distribution of these products.

This article is an abstract from the ‘SRP Index Report 2025: Custom & Strategy Indices’, which can be downloaded here.

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