In this week’s In Brief, SRP looked at the performance of the US and French markets in 2022, and focused on how CME Group is positioned to benefit from growth in exchange-traded alternatives to OTC derivatives.

Vivek Kumar has been appointed as global head of FX and derivatives platforms & product management at HSBC based in Singapore.

He has been charged with “modernising and introducing new digital technologies and platforms” to provide an automated user experience across foreign exchange, structured products and derivatives solutions at scale, a spokesperson from the bank told SRP. In this newly created role, Kumar reports to Fidelis Oruche, managing director, global head of capital markets and investments and wealth solutions (IWS) platforms, global private banking and wealth at HSBC, also based in Singapore.

Also in Singapore, Olivier Pierlot has been promoted to global head of structured products & fixed income product management within the capital market products & solutions (CMPS) division at Standard Chartered Bank (SCB), SRP has learnt. Pierlot continues to be based in Singapore and report to Nicolas Rigois, managing director, global head of CMPS at SCB. His mandate has been expanded to fixed income and credit in addition to the management of the structured products business.

One of the big trends we have seen is the move from OTC to listed alternatives - Paul Woolman, CME Group

Wissam Mezrani parted ways with Citi in January where he was most recently head of quantitative market across Hong Kong SAR and Singapore from August 2018. He has joined Millennium, a US hedge fund with US$50 billion assets under management, as a senior portfolio manager based in Singapore specialising in quantitative strategies – one of the four primary strategies at the firm along with relative value fundamental equity, equities arbitrage and fixed income.

CME Group is positioned to benefit from growth in exchange-traded alternatives to over the counter (OTC) derivatives, as tailwinds emerge in the key US market. Speaking to Global Investor, Paul Woolman, the exchange's global head of equity index products, said the group plans to capitalise on regulatory changes like the Basel Uncleared Margin Rules (UMR), which had its widest implementation take effect in September last year. That has led to increased demand for products like its version of the total return future, called adjusted interest rate total return futures (TRFs).

“One of the big trends we have seen is the move from OTC to listed alternatives,” Woolman said. “That has been a key driver for our client base, who are bringing up capital efficiencies much more frequently in our recent engagement with them. Some of the bigger clients were already caught by regulations like UMR, but there was a lag between the regulations coming into effect and our clients ramping up their focus on how they can actively save margin and find capital efficiencies. That takes the form of total return futures, dividend futures, sector futures and more activity in the core futures suite. All of those are poised for further growth in 2023 as a result.”

Over in the US, 2022 was another bumper year for structured products with sales volumes reaching levels only bettered once in the past 17 years. Some US$6.8 billion was collected from 2,318 structured notes in December 2022 – down 19% by sales volume compared to the prior year month (Dec 21: US$8.4 billion from 2,782 products).

Sales volumes for full year 2022, at US$93.8 billion, were the second highest recorded since the launch of the SRP US database in 2005. Only in 2021, when sales of US$101.1 billion were gathered – breaching the US$100 billion barrier for the first time – products sold more. 

Issuance remained stable: 31,418 products in 2022 vs 31,614 in 2021. The average sales volume for 2022 was US$3m per product, slightly down from 2021 when products sold on average US$3.2m.

For the French market, SRP’s analysis for 2022 found that structured products continue to attract stable returns. Some 96% of products that matured or autocalled that year paid out a positive capital return. Just over three-quarters (78%) of products paid out 5% or more, down on the 85% seen in 2021. The average annual coupon paid out in 2022 was 6.9%, also slightly lower than the 7.7% paid out the prior year.

Autocallables, which continue to represent most of the structures issued in France, were responsible for 90% of products that have been redeemed in 2022. They returned on average 7.5% pa, against 8.1% in 2021. Over two-thirds (68%) of autocallables returned over 6% pa.

Among the underlyings that contributed to returning the highest coupon in 2022 were indexes with synthetic dividend (also known as decrement) (8.5% annualised return). It is worth noting that decrement index-linked products have shown similar early redemption call rates than products linked to a benchmark. In terms of redeemed notional, the former accounted for 17% and the latter for 39%. Products linked to benchmark indices delivered a coupon of 4.65% pa on average and products linked to single stocks returned 6%.

Image: Flaticon.