In less than a year MerQube’s indices have more than trebled their AuM in the global retail structured products market with the US market and other European markets driving most of the activity.
Sales of structured products linked to the MerQube US Tech+ Vol Advantage Index launched with J.P. Morgan in 2021 have reached US$2.1 billion. Since then, the index specialist fintech has deployed 56 other indices used across around five thousand products worth US$8 billion.
We see significant potential in creating tailored solutions that can be applied across different European markets - Ian Merrill
The top three MerQube indexes by AuM are part of its Vol Advantage custom range which uses intraday volatility overlays and includes the MerQube US Tech+ Vol Advantage index 50%; MerQube US Large Cap Vol Advantage index 48%; and MerQube US small cal Vol Advantage index 2%.
Other indices deployed in the indexed annuity market include a new suite comprising the Multi-Asset Dynamic Managed 5 (MQIMDM05); US Multi-Asset Diversified 5 (MQIMUD05) and US Multi-Asset Risk Managed 5 (MQIMRM05).
MerQube’s key growth drivers in the European market include our institutional business which has a strong focus on Quantitative Investment Strategies (QIS) services, particularly in the UK, where we provide calculation and verification services for investment banks.
“On the custom indices side, we continue to develop thematic and specialized indices like the Europe Defence 10 basket, targeting specific market segments,” Ian Merrill, chief revenue officer, MerQube, told SRP.
“We are evolving our product offering and focusing on complex strategies with simple building blocks, particularly in options-based products and structured notes.”
MerQube’s plan is to leverage its adaptability to provide infrastructure and platforms that enable sophisticated financial engineering and the development of custom strategies for institutional clients.
“We see significant potential in creating tailored solutions that can be applied across different European markets, with a particular emphasis innovative index methodologies,” said Merrill.
QIS market
Ian Merrill: Our calculation services have become key to serve the increasing QIS activity in the market as investment banks developing their own strategies require calculation and verification services to handle complex strategies like intraday volatility and dispersion.
We have developed sophisticated API and UI platforms to be able to offer a comprehensive service for QIS such as covering corporate actions and complex financial mechanisms.
Retail Market
Ian Merrill: Our retail business strategy is based on tapping into the market evolution and gradually expand from institutional to this part of the market. Our main focus on growing our retail presence is in the US where we are developing new indices to be used in option-based and defined outcome ETFs as well as income-generating products, annuities and structured products.
We want to leverage our institutional expertise to design retail products and create products with derivatives for income and protection. We think there’s scope in the retail market for tax-efficient and flexible investment solutions.
Some of the market trends we observe include the increasing liquidity in the derivatives market and a growing advisor comfort with complex products. There is clearly a shift towards more sophisticated retail investment strategies as well as more emphasis on customization and specific investor needs
Product innovation in the retail market can be seen with the expansion of buffer and yield ETFs with systematic call selling as well as tax-advantaged distribution strategies and customizable payoff structures.
There is scope to transfer some institutional strategies to the retail market if we focus on income and protection. Our strategy is focused on creating sophisticated yet accessible investment products for retail investors.
Market Differences
Ian Merrill: The US market is more retail-driven whereas the European market is more institutional focused. The different regulatory frameworks are also affecting product development.
We see emerging opportunities in both regions such as direct indexing for options, personalized portfolio protection strategies, systematic investment approaches and increased use of AI in product development.
Custom indices, risk control
Ian Merrill: The custom index space is one of the areas where we have a strong presence, especially in the US where our risk control offering has created a standard.
Our goal with volatility control was to leverage our technology and develop an intraday volatility estimation to reduce further option pricing complexity. Risk control indices have evolved from end-of-day to multiple daily estimations and that has allowed for improved pricing accuracy and cheaper optionality to deliver higher payoffs.
We continue to look at overlay methodologies with the aim to develop sophisticated overlay techniques and new vol advantage approaches combining intraday volatility estimation, forward-looking volatility and decrement controls.
Key Innovations in this space have resulted in reduced trading costs and better hedging strategies.
Proprietary indices, thematic baskets
Ian Merrill: Some of the most recent launches at MerQube include the MerQube Europe Defence 10 basket which was developed with J.P. Morgan and has been deployed by Strivo in Sweden and the MerQube Global Humanoid index which has been licensed to be used in a Krane Shares ETF.
Some of our most recent collaborations have been focused on creating specialized thematic indices. Our index creation principles aim at keeping methodologies simple and explainable, conduct sector and asset analysis, avoid overly complex AI-driven selection and focus on high-level, accessible thematic approaches.
Some of the trends we see around custom indices and beyond include a thematic focus including the defence sector, emerging technologies (humanoids, AI), multi-asset baskets and sector-specific exposures.
At a product development level, we want to collaborate with specialized providers to create indices with clear investment narratives. Our goal is to develop indices across different markets and maintain flexibility in index construction.
Technology integration will continue to play a key role on our development. We are looking at exploring AI for future index development, focusing on infrastructure enhancement and explore potential AI applications in platform development, index selection and strategy optimization.
AMC market
Ian Merrill: Our focus on the active management certificate (AMC) is increasing as the market expands. We see this as a key space to offer our services and grow our footprint.
AMC providers need portfolio validation services and real-time basket submission validation as well as checking portfolio consistency with documentation and ensuring portfolios meet predefined criteria.
We can offer that as well as handling multi-asset baskets (equities, options, futures, FX forwards) and provide valuation infrastructure, reference portfolio level calculations, managing complex portfolio workflows, handling corporate actions and cash management and supporting ad-hoc portfolio rebalancing.
The main characteristics of AMCs are portfolio complexity and increasingly sophisticated basket compositions including multi-asset strategies. Players in this space are seeking customizable portfolio submissions and flexible rebalancing mechanisms which we can also deliver.
Cross-asset AMCs have a strong presence in Asia and limited development in Americas and we also see growing interest in Europe.
Our unique value proposition enables asset managers to trade across different regions with infrastructure for complex portfolio management. We can support strategies with difficult-to-trade assets and real-time validation capabilities enabling global investment strategies without regional limitations.
Market positioning, outlook
Ian Merrill: We want to differentiate our offering through unique thematic offerings while providing customizable index solutions and supporting client-specific investment strategies.
We expect custom and strategy indices to continue driving activity and growth in the structured products market as they provide a space for continued innovation in thematic indexing and expanding AI and machine learning capabilities to develop more sophisticated, targeted indices.
Index innovation is subject to regulatory considerations as well as navigating complex regulatory environments in some markets. Balancing innovation with regulatory compliance will be key to continue growing which is why our focus is on transparent, understandable methodologies.
Our technology allows us to create custom indices with multiple overlays as well as developing new thematic baskets focused on simplicity and explainability. We have a responsibility to maintain product transparency while balancing sophisticated techniques with market understanding.
Aside of increasing our customization capabilities, we also want to democratise access. The MerQube "Garage" platform is part of that journey and the evolution of the market for strategy creation.
This article is an abstract from the ‘SRP Index Report 2025: Custom & Strategy Indices’, which can be downloaded here.
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