Citi has launched market-linked certificates of deposit (MLCDs) linked to the bank’s Market Pilot 5 Excess Return Index, a benchmark with a rules-based methodology tracking the performance of a hypothetical investment portfolio that invests in global equities, US treasuries, commodities and money market instruments. The CDs offer a 1.75x leveraged return if held to maturity. The deposits are fully capital-protected and offer back invested capital if the index has depreciates by the time the product matures.
The US Securities and Exchange Commission (SEC) said, in May, that it will continue to scrutinise the use of complex or proprietary indices for structured notes for their disclosure and suitability. “Not all proprietary indices are appropriate for retail investors, mainly because they were not developed for retail investment needs,” said Barbara Mullaney, global head of Citi Private Client Solutions. “We work closely with risk management and wealth management to assess retail suitability on a product by product basis.”
The index was launched on March 2, 2015 and selects a hypothetical investment portfolio from a universe of eligible indices that represent a number of different asset classes and market sectors, and then seeks to select the portfolio that has the highest expected return without exceeding the index’s target volatility of 5%. A fee of 0.50% pa is deducted from the daily performance of the index, while transaction and exposure costs are deducted from the performance of the index.
There were 350 structured products issued in 2014 linked to proprietary indexes, accounting for $1.3bn in sales, according to SRP data. JP Morgan has the largest share, with 250 products linked to its proprietary indices, with sales of $955m in 2014. The US bank’s Efficiente is an asset allocation strategy driven by momentum and was originally used on cross-asset benchmark underlyings, mainly the S&P 500, Eurostoxx 50 and Nikkei 225. The index has been used in over 700 structured products marketed in the US market, with slightly more than $3bn raised in the US.
Year-to-date, Citi has sold $479m across 96 structured products, earning the bank a 2.1% share of its home market. In 2014, Citi sold $1.5bn across 258 products, a 3.2% share of the market.
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