Structured products linked to single shares will see a drop in the Japanese retail space due to the diminishing number of smaller players in the market.
A senior source from the market-leading provider told SRP that distributors offering products linked to single shares are usually securities companies that operate on their own and in most cases hold securities for trading purposes, as opposed to the majority of firms which are subsidiaries owned by banks.
"Single-share based products are usually settled by physical delivery at maturity if the underlying falls below the initial strike," he said. "And therefore smaller securities firms which also trade the underlying share in their own book would have the flexibility to fulfill the delivery requirement."
However, he stressed that the number of small firms providing these products has decreased. Mizuho Investors Securities merged with Mizuho Securities recently and since then no structured products linked to single equity shares have been issued.
This situation, said the source, will accelerate the fall in the use of single shares as underlyings, unless new providers enter the market.
SRP data also shows that Okasan Securities and Tokai Tokyo Securities remain the most active providers for single share-linked structures.
According to SRP data, there were 215 products striking in 2012 tied to single equity shares, with Okasan Securities being the most prolific providers having marketed 75 products. It was followed by Mizuho Investors Securities with 36 products.
The most popular stocks in 2012 in the Japan market were Komatsu (18 products), JFE (10) and Hitachi (6), and a number of other shares including Kawasaki Heavy Industries, JX Holdings, Isuzu Motors, and Fuji Heavy Industries with 5 products apiece.