Market developments – such as the rate rises that started about two years ago – have offered some relief to a sector that is still recovering from the financial tsunami of 2008.

Data from a raft of European countries shows that turnover in structured products – a tool in the wealth space that has waxed and waned – rose in the three months to the end of September but weakened on a year ago. 

Turnover in investment and leveraged products rose 11 per cent on the previous quarter, but fell 10 per cent year-on-year, according to the European Structured Investment Products Association (EUSIPA). The data came from Austria, Belgium, France, Germany, Italy, the Netherlands, Luxembourg, Sweden and Switzerland. (The UK was not included.) The data was also analysed by Avaloq, the banking and financial sector technology firm.

Structured products enable investors to obtain exposure to a variety of markets and profit from upside performance or exploit other moves, in return for protection against losses. Other products give leveraged exposure – the ability to increase gains from a market move.

Investment products, which accounted for just under a third (31 per cent) of traded volume, showed little change on the second quarter of 2023. Leverage products accounted for 69 per cent of trade (the term applies to entities such as warrants, “knock-out warrants” and constant leverage certificates). These entities’ turnover rose 19 per cent on the second quarter, but fell 17 per cent on a year ago.

For Austria, Belgium, Germany, Switzerland, Luxembourg and Italy, the market volume of investment and leverage products issued as securities increased by 2 per cent from the previous quarter to a total of €392 billion ($421.9 billion). At the end of September, the market volume of investment products alone was €380 billion – up 2 per cent quarter-on-quarter. 

Recent rate rises, so it is argued, are positive overall for structured products. When issuing a structured product note, the provider essentially sells the client a zero-coupon bond and uses it to buy a derivative offering exposure to an underlying asset such as equities, foreign exchange, bonds, commodities, gold, etc. When rates are higher, structured products look more attractive because the coupon and funding rate goes up.

With interest rates so low – until hikes of about two years ago – the past decade has been difficult. The sector was mauled by the 2008 financial crisis when Lehman Bros – involved in many of these products and a key counterparty – went bust. The long rally of equities post-2008, was also a headwind because conventional long-only investors were able to ride rising markets by holding relatively simple entities such as ETFs, rather than going through a more complex route. (The same broad dynamic also explains why hedge funds’ fees were squeezed.) 

At the end of September, trading venues located in reporting EUSIPA markets were offering 426,859 investment products and 1,840,503 leverage products. The number of listed products increased by 2 per cent quarterly and by 10 per cent on the previous year.

Banks issued 1,496,606 new investment and leverage products in the third quarter of 2023, rising 5 per cent on the previous quarter and slipping by 12 per cent annually. In total, 137,296 new investment products were launched, accounting for 9 per cent of new issues; the 1,359,310 new leveraged products represent 91 per cent of the total, while 9 per cent fewer investment products were launched compared with Q2 2023.