Structured products: Double your guess for retail market’s size


John Ferry
Published on:

The European retail structured products market could be more than twice the size previously thought, according to Greenwich Associates.

A survey by the financial services consultancy of 115 third-party distributors including private banks, savings banks, insurance companies and fund managers from across Europe reported a total annual notional volume in non-delta one retail structured products of €135 billion for the 12 months before the research.

"Extrapolating these results to the entire market suggests that total annual volume for European retail structured products could exceed that reported volume more than two-fold," says Greenwich Associates consultant Andrew Awad.

Third party

The consultancy estimates that European retail investors could be purchasing more than €270 billion in structured products from third-party distributors every year.

The survey found that income protection was the most common reason for interest in structured products, followed by income enhancement and access to otherwise difficult-to-obtain underlyings. Equity underlyings currently account for about 70% of reported volume, followed by fixed income at 22%. Foreign exchange constitutes 3% and commodities about 2%.

The largest markets for structured products in Europe are Switzerland, which accounts for 21% of the total volume, followed by Italy (17%), Benelux (15%), and Germany/Austria (14%).

The survey also revealed that a top tier of structured products manufacturers, consisting of Barclays Capital, Société Générale, BNP Paribas, JPMorgan, Deutsche Bank and Lehman Brothers, dominate the production of retail structured products.

More than half the third-party distributors participating in the study say they did a retail structured product transaction with Barclays Capital and/or Société Générale in the past year, and more than 45% say they completed a deal with BNP Paribas, JPMorgan, Deutsche Bank and/or Lehman Brothers.

In terms of the overall service quality, third-party distributors chose BNP Paribas, Deutsche Bank and JPMorgan as their favourite providers. ABN Amro was also highly ranked but by a much smaller client base.

When asked to rate the most important factor considered in selecting a manufacturer of structured products, a large majority of distributors – 80% – cited competitiveness of pricing.

"Despite the fact that product manufacturers pride themselves on innovation, our research findings suggest that distributors are very focused on price competitiveness and turn to a number of counterparties to price product," says Awad. "Innovation is clearly important, though, as is ensuring that documentation and operations is seamless."