Study Finds Issuer Margins on Structured Products are Lower Than Expected
A study by the European Derivatives Group (EDG) entitled ‘Issuer margins for structured products in Germany’ has found that issuer margins on structured products are much lower than commonly assumed. The research, conducted on behalf of the German derivatives association Deutscher Derivate Verband (DDV), collected a representative sample of 1,650 structured products from nine product categories, taking into account their market volumes as of 31 May 2013. For this representative sample, the EDG determined an average expected issuer margin of 0.36% per annum. To support the findings, the EDG analysed an additional random sample of 1,529 structured products on the same valuation date. The expected issuer margin in this sample averaged 0.46% per annum.
Structured products contain derivative components. Besides the theoretical value of these components, the price of a structured product includes the margin expected by the issuer and, where applicable, a sales commission paid as a fee for investment advice. The reasons for the study were explained by Hartmut Knüppel, CEO and board member at DDV: “Sales commissions charged to investors for selling financial products are transparent for a long time. Regarding issuer margins of structured products, there has been much speculation among regulators and other market participants, but no reliable data. The EDG’s study increases the transparency of this cost component. Unlike many other financial investments, structured products offer investors a financial instrument that represents very good value for money, and a firm promise to deliver. We hope this is also understood in future regulation at European level.”