broker seminar march 2018 · agenda • the structured investment journey ... 2015 2016 2017...

BrokerSeminarMarch2018

Agenda

• TheStructuredInvestmentJourney• TheSRPMarketfrom2014to2017• ComparingIrelandandtherestofEurope

• ItsnotallaboutCapitalProtection• HowacceptingsomeCapitalatRiskallowsforcreativityinManaging

RiskandGeneratingReturns• Thingstowatchoutfor

• Somenewproductinnovations/featuresaregoodandsomearelessso• OurCurrentRangeofStructuredInvestments

• ReminderoftheKeyFeaturesofour3CoreStructuredInvestments• OtherUpcomingBrokerTraining&Education• ClosingSummary,Questions&Answers

StructuredInvestmentJourneyIreland&Europesince2015

TheStructuredInvestmentJourney

• Facts&Figures(2015to2017)• IrelandvRestofEurope• ProductTrends

• TheIrishStructuredInvestmentmarketaveraged€1.1bnandachievedsalesofover€1bneveryyearinthe15yearsfrom2000to2014

• Themarketshrankfrom2015whenBankAssurersbegantofocusona“fundsonly”investmentsolutionsandplatforms

• ThebreakdownoftheIrishmarketismoreinteresting

StructuredInvestmentsalesinIreland

2015 2016 2017

921,000,000 719,000,000 522,000,000

Facts&Figures– TheIrishSRPMarket

BreakdownoftheIrishSRPMarket

2015Sales Share 2016Sales Share 2017Sales Share

CapitalatRisk

180,000,000 19.54% 304,000,000 42.28% 277,000,000 53.07%

PartialCapitalProtection

479,000,000 52.01% 359,000,000 49.93% 219,000,000 41.95%

100%CapitalProtection

262,000,000 28.45% 54,000,000 7.51% 26,000,000 4.09%

>100%CapitalProtection

0 0% 2,000,000 0.28% 0 0%

Total 921,000,000 719,000,0000 522,000,000

BreakdownoftheEuropeanSRPMarket

2015Sales Share 2016Sales Share 2017Sales Share

CapitalatRisk

49,560,000,000 52.20% 50,247,000,000 52.35% 48,990,000,000 68.17%


19,639,000,000 20.69% 11,501,000,000 11.98% 7,822,000,000 10.88%


20,709,000,000 21.81% 26,156,000,000 27.25% 10,725,000,000 14.92%


5,027,000,000 5.30% 8,072,000,000 8.41% 4,328,000,000 6.02%

Total 94,935,000,000 95,976,000,000 71,865,000,000

CompareIrish&EuropeanSRPMarket

2015 2016 2017

Ireland Europe Ireland Europe Ireland Europe

CapitalatRisk

19.54% 52.20% 42.28% 52.35% 53.07% 68.17%


52.01% 20.69% 49.93% 11.98% 41.95% 10.88%


28.45% 21.81% 7.51% 27.25% 4.98% 14.92%


0% 5.30% 0.28% 8.41% 0% 6.02%

IrishvEuropeanSRPMarketTrends

2015 2016 2017 3YearChange

Ireland Europe Ireland Europe Ireland Europe Ireland Europe

CapitalatRisk

19.54% 52.20% 42.28% 52.35% 53.07% 68.17% +53.89% -1.15%


52.01% 20.69% 49.93% 11.98% 41.95% 10.88% -54.28% -60.17%


28.45% 21.81% 7.51% 27.25% 4.98% 14.92% -90.08% -48.21%


0% 5.30% 0.28% 8.41% 0% 6.02% -100% -13.90%

NotallaboutCapitalProtectionCapitalatRisk=Creativity&Innovation

ItsnotallaboutCapitalProtection

• TherelationshipbetweenRisk&Return• HowStructuredInvestmentswork?

• CapitalProtectedBonds• CapitalatRiskBonds

• IntroducingCapitalatRisk• AcceptingsomeCapitalatRiskallowsforcreativityin

• ManagingRiskand/or• GeneratingReturns

• OurCurrentRangeofStructuredInvestmentsinclude2ofthemostcommonCapitalatRiskstructures• AutoCallable– KickOutBondsforCapitalGrowth• ReverseConvertible– FixedReturnBondsforIncome

RelationshipbetweenRisk&Return

HowStructuredInvestmentswork?

• Firstly,CapitalProtectedBonds• FormerlyTrackerBonds• NowmostlylistedNotes/Certificates

• AllCapitalProtectedBondshave3parts:1. CapitalProtectionPart:theamountsetasidetopayfortheCapital

ProtectedLevel2. InvestmentUpsidePart:theamountspentontogeneratereturns3. UpfrontFees:amountpayabletoBroker&Manufacturer

Example90%CapitalProtectedcont.

• Example5YearCapitalProtectedBond:1. 90%CapitalProtection:86.2%setasideinitiallywillbeworth90%at

maturity2. InvestmentUpsidePart:9%ofthetotalspend3. UpfrontFees:4.8%ofthetotalspend

• InvestmentPart:Whatcan9%buy?• AEuroStoxx 50calloptionpremiumisaround18%=50%Participation• ABasketofLowVolAbsoluteReturnFunds/BondFundscalloption

premiumisaround4.5%=200%Participation• OurSolactive EuropeanEquityIndexcalloptionpremiumis6%=

150%Participation

Note:Allfiguresareforillustrativepurposesonly

HowStructuredInvestmentswork?

• CapitalProtectedBonds• CapitalatRiskBonds

1. MorethanFullCapitalatRisk2. FullCapitalatRiskwithNoProtection3. FullCapitalatRiskwithSoftCapitalProtection4. FullCapitalatRiskwithConditionalCapitalProtection5. OtherDerivatives

IntroducingCapitalatRisk

• AcceptingsomeCapitalatRiskallowsforcreativityin• Managingriskand/orGeneratingreturns

• ManagingRisk• SoftCapitalProtection• DownsideBarrier(above=good,below=potentialforloss)

• GeneratingReturns• Fixed/GuaranteedReturns• ReturnsfromRising,FlatorFallingMarkets• HigherProductPerformancethanMarketPerformance• NewAssetClasses/Regions/Sectors/Futures/Optionsetc.

• OurCurrentRangeofStructuredInvestmentsinclude2ofthemostcommonCapitalatRiskstructures• AutoCallable– KickOutBondsforCapitalGrowth• ReverseConvertible– FixedReturnBondsforIncome

CapitalatRisk– forFixedReturn/Income

Typical FixedReturn/IncomeBond

BondParts BrokerSolutionsandInvestors

TheIssuingBank

DownandInKnockInPutOption

BenefitAboveBarrier Benefit BelowBarrier

Reason forTrade AnnualCoupon

Example3.833%(23%over6years)

UsingLongPositions/DividendsinEquityIndices

Corresponding Derivative(HedgeDIKIP)

CaptheReturn

Fee UpfrontFees Execution FeeTotal 100% 100%

CapitalatRisk– forCapitalGrowth

Typical KickOut/AutoCall Bond

BondParts BrokerSolutionsandInvestors

TheIssuingBank

DownandInKnockInPutOption

BenefitAboveBarrier Benefit BelowBarrier

Reason forTrade KickOut/AutoCall

Example5%every6monthsifgreaterthan90%

UsingLongPositions/DividendsinUnderlying Equities

Other DerivativestoHedgeexposuretoDIKIP&AutoCall

CaptheReturn

Fee UpfrontFees Execution FeeTotal 100% 100%

ThingstowatchforNotallinnovationsandfeaturesarepositive

Thingstowatchoutfor….

• ModernStructuredInvestmentsfacilitategreatinnovationandcreativityopportunitiesbutbeware:

Themajorityofadditionalfeaturesareaddedtomaketheproductlookbetterratherthanactuallyimproveit

Most“rinky dinks”maketheproductcheaperratherthanbetter

RuleofThumb:thesimpler theproductpayoff,themorelikelyitisthatitwillwork

Thingstowatchoutfor:Examples

UsuallyPositiveProduct Features UsuallyNegative ProductFeatures

Adding returnsto100%ofinitial Addingreturns to90%ofinitial

Averaging:For nomorethan12monthsandmonthly

Averaging:Formorethan12months,quarterly/6 monthly/annuallyetc.

EuropeanCapitalatRisk Barriers:observedatmaturityonly

AmericanCapitalatRisk Barriers:observedcontinuously

Constant KickOutBarriers StepDownKickOutBarriers

SyntheticIndiceswithpositive &negativefeaturesillustrated/marketedwithequalprominence

SyntheticIndiceswithnegativefeaturesnotclearlydisclosedorwithoutWarningBoxesinrelationtonegatives

Being clearthatUnderlyingInvestmentswithlowrisk/volatilityarelikelytogivelowinvestmentreturns

SuggestingthatUnderlyingInvestmentswithlowrisk/volatilitycanprovidehighreturnsormarketreturns

Example1Returnsaddedto100%or90%

• 5Year,90%CapitalProtectedBond• Option1:200%Participationaddedto90%CapitalProtectedLevel• Option2:150%Participationaddedto100%ofInitialInvestment

PerformanceofUnderlying Option1ProductReturn Option2ProductReturn

-15% -10% -10%

-10% -10% -10%

-5% -10% -5%

0% -10% 0%

+5% 0% 7.5%

+10% 10% 15%

+15% 20% 22.5%

+20% 30% 30%

+25% 40% 37.5%

Example1Returnsaddedto100%or90%

• Whyaddreturnsto90%ofinitialinvestmentamountratherthan100%ofinitialinvestmentamount• ResultsinHigherParticipation:Marketingofproductiseasierbutdoes

theclientbenefit?• YouhaveastrongviewthattheUnderlyingInvestmentisgoingto

producehighreturns(theHigherParticipationwillacceleratereturns)• SamplePricingDynamicsforProductlaunchedinFebruary

• ProductwithAbsoluteReturnUnderlyingwithreturnsaddedto90%CapitalProtectedLevelgave225%Participationand5%UpfrontFees

• ProductwithsameAbsoluteReturnUnderlyingwithreturnsaddedto100%ofInitialInvestmentgave100%Participationand2%UpfrontFees

Example2:Constantv StepDownBarriers

Feature ProductOption1 ProductOption 2KickOutBarrier

90% ofinitialAfter1Yearand6monthlythereafter

100%at endof years1& 295%atendofyear390%atendofyear480%atendofyear5

PotentialCoupon

10%afteryear1(5%every6monthsthereafter)

12%eachyear

ProbabilityofKickOut

Higher Lower

• Comparing2similarKickOutBonds

Example2:Constantv StepDownBarriers

• WhyisprobabilityofKickOuthigherinaBondwithConstantratherthanStepDownKickOutBarrier?

• BackTestingshowsthatKickOutsaremorelikelyintheearlyyears

• YouneedBarrierstobeaslowaspossibleatthestartofthetermratherthanattheendofthetermtomaximise theprobabilityofreturns

ExampleBackTestofKickOutBond7

• 2,6105yearperiodsfrom6January2003to6January2018Return Term Nooftimes Probability

0% N/A 0 0%

10% 1year 574 21.99%

10%to20% 1.5to2years 1,928 73.87%

20%to 30% 2to3years 58 2.22%

31%to 40% 3.5to4years 11 0.42%

41%to50% 4.5 to5years 18 0.69%

Negative 5years 21 0.80%

Minimum Return-49.69% AverageReturn:8.37% MaximumReturn: 50%

ExampleBackTestofKickOutBond7

Source:BNPParibas,January2018

CurrentRangeofInvestments3CoreInvestmentSolutions

OurCurrentRangeofInvestments

BrokerTraining&EducationNewOnlineTrainingwithCPDpotential

BrokerTraining&Education

• NewOnlineTrainingandEducationPortalonourwebsite• Designedtodemonstratecompliancewiththenewtrainingand

knowledgerequirementsforFinancialBrokersandProductProducersunderAddendumtoCPCand/orMiFIDII

• LaunchingintheSummer2018• OnlineExaminations(onSRPsgenerallyandoneachproduct)• Passshows:

• Brokerunderstandsourproductsand• ProductProducerhasensuredthatBrokerunderstandsproducts

• WewillapplyforCPD• QuarterlyInvestmentSeminarMeetingsthroughout2018

• 2018Q1todaywithatleast3morelaterintheyear• AdHocOnlineSeminarstodiscusstopicalmattersaffectingBrokers• OthersupportsforindividualBrokerfirmsasrequired

ClosingSummaryQuestions&Answers

Summary– Topicsdiscussed

1. TheStructuredInvestmentJourney2. ItsnotallaboutCapitalProtection3. Thingstowatchoutfor4. OurCurrentRangeofStructuredInvestments5. OtherUpcomingBrokerTraining&Education

Questions?

RiskWarning/Disclaimer

ThispresentationisintendedforandisonlyforusebyregulatedFinancialBrokerfirms

Thispresentationshouldnotbeprovidedtopotentialinvestors

AllProductCalculationfiguresareforillustrativepurposesonly

MMPILimitedtradingasBrokerSolutionsisregulatedbytheCentralBankofIreland

broker seminar march 2018 · agenda • the structured investment journey ... 2015 2016 2017...

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