Many legal experts and investors expect the number of financial institutions issuing structured products to decline as a result of impending derivatives regulations aimed at lowering opacity, according to an IFR Asia opinion piece written by Mike Kentz.
Risk Magazine reports that these issuers will soon be provided with the final rules surrounding disclosure by the U.S. Securities and Exchange Commission. The government agency has been reportedly telling financial institutions in recent meetings that the estimated value of structured notes will need to be contained in any offering documents.
Kentz states that these issuers charge entities that invest in structured products more than the estimated fair value. The largest motivator for doing so is to make sure that proceeds can be used to hedge while the structured product goes to maturity.
“Issuers have traditionally disclosed to buyers the fact that the fair value of the note is less than the purchase price, but now the SEC is asking, ‘How much less? Can you quantify it?’” stated Lloyd Harmetz, a partner at law firm Morrison & Foerster, according to IFR Asia.
Eric Greschner, chief executive officer and founder of Regatta Research and Money Management, told the news source that reducing opacity in structured products could serve as an impetus for investors to create a secondary market for the securities.
◦ Asset Liability Management
◦ Portfolio Risk
◦ Sensitivities & Hedging
◦ Stress Testing & Scenario Analysis