On this page we will answer the most frequently asked questions about Julius Baer's structured product offering.
Structured products are innovative, flexible investment instruments and an attractive alternative to direct financial investments such as shares, bonds, currencies and the like. They are sufficiently flexible to accommodate any risk profile, no matter how challenging the markets. Basically, structured products are bearer bonds with the issuer liable to the extent of all his assets. Thus, structured product quality is directly linked to the debtor’s, or issuer’s, creditworthiness. Bearer bonds (bonds and structured products) are subject to issuer risk. In case of issuer bankruptcy, traditional bonds as well as structured products form part of assets under bankruptcy law. To keep issuer risk to a minimum, investors should stick to top-quality issuers, and spread their investments among several issuers. Diversification is, of course, a wise strategy for all forms of investment including time deposits, bonds and structured products. Issuer creditworthiness over time should also be monitored.
Structured products provide investors with any risk profile and in any market scenario with an appropriate repayment profile that makes satisfactory yields possible in growing, sinking or sideways-moving markets. Structured product risk can be closely controlled. Solutions with capital protection suit risk-averse investors, while investors looking for high yields invest in leveraged products. What’s important is that investors receive qualified advice in selecting an appropriate risk profile and that they have a clear understanding of how the product of their choice functions. Another investor advantage of structured products is easier access to new markets that in the past were open only to institutional investors, such as raw materials or growing economies. That’s why by any measure, structured products are an innovative alternative to traditional forms of investment such as stocks and bonds.
Issuer risk may be secured with collateral secured instruments (COSI) since 2009. This innovation meets investors’ changing needs to perfection. Having garnered national and international awards, the process provides suitable security against structured product issuers. The move has helped expand the market while providing investors with additional investment opportunities, combined with the best possible protection against issuer risk for maximum structured product security.
Structured products are ideal for investors seeking innovative, flexible investment instruments as an alternative to direct financial investments such as shares, bonds and currencies, etc. They are sufficiently flexible to accommodate any risk profile, even in a challenging market. Unlike direct investments, structured products make it possible to target reduced risk or increased profit.
In recent years, structured products have become innovative, highly flexible investment instruments. The more than 20 product types have turned Switzerland into an internationally leading innovator that has demonstrated its strength again and again. For instance, to minimize issuer risk, Switzerland’s SIX and SSPA came out with COSI products (collateral secured instruments, see below) just months after the Lehman Brothers collapse. Structured products have evolved into an ‘export hit’, much valued internationally. New products such as this have given a significant boost to the Swiss financial center’s reputation for innovation. Structured products have helped improve the Swiss economy’s liquidity, i.e. companies’ ability to hold or borrow capital in Switzerland’s capital market. These instruments have also created 3,000 top-rated jobs, directly and indirectly. According to the Swiss National Bank, some CHF 190 billion are currently invested in structured products at Swiss banks (assets under management) – some 5% of the asset total managed in Switzerland.
Only Swiss banks, Swiss insurers, Swiss stock brokers and foreign institutes subject to Swiss prudential supervision may publicly sell, issue, guarantee or distribute structured products in Switzerland or out of Switzerland (Art. 4 of the Collective Investment Schemes Act, CISA). To publicly issue, guarantee or distribute structured products in Switzerland, foreign institutes must have a branch in Switzerland.
Art. 5 of Switzerland’s Federal Collective Capital Investments Law (KAG) regulates the public sale of structured products within and from Switzerland: Structured products may be guaranteed and sold to the public by supervised financial companies exclusively. In addition, a free, simplified prospectus describing a product’s main features, profit and loss outlook and major risks, is to be made available. By way of self-regulation, the Swiss Bankers Association, together with the SSPA, has issued guidelines, approved by the Swiss Financial Market Supervisory Authority (FINMA), regarding the minimum of information to be provided to structured product investors.
To coordinate Swiss and European regulations, in its position paper on the regulation and sale of financial products, FINMA states the need for a new financial services law, to be drafted in the coming years. The SSPA expects to be involved in the drafting process, in dialogue with legislators.
Law requires issuers of structured products to publish their rating and that of their guarantor, if any, in the simplified prospectus of the product concerned. Non-rated issuers must state this fact in the simplified prospectus. Issuers also publish their ratings on their websites.
SSPA publishes on its website the credit ratings, credit spreads and core capital ratios (tier 1 ratings) of its members in an overview which is updated regularly.
During the product’s subscription period by stating the respective Swiss security number or ISIN number to your principal bank. Structured products are generally liquid investment instruments and can be purchased or sold at any time during normal trading hours. Most products are listed on the stock exchange and can also be traded via online banking tools. Unlisted products are traded by phone on an over-the-counter basis. Under normal market circumstances, Bank Julius Baer strives to maintain a liquid secondary market at all times during the term of the respective products.
The structured product is redeemed automatically by the issuer. It does so based on the repayment conditions defined in the term sheet. Depending on the specific structure, this may involve the delivery of an underlying security or a cash repayment. A total loss can also not be ruled out. The repayment conditions are illustrated graphically in the payoff diagram.
Should a partial delivery be made following a barrier breach (e.g. in the case of barrier reverse convertibles), the number of equities delivered is based on the respective subscription ratio. As, for example, it is not possible to deliver 10.5 equities, the investor would in this case receive a delivery of 10 equities and a cash payment worth 0.5. equities (fraction). For two structured products, the two fractions would mathematically equate to a further equity, but fractions cannot be cumulated. The investor would therefore receive 20 equities and a cash payment worth one equity (2 x 0.5).
On this website in the relevant product description.
The number of equities to be delivered upon the maturity of each barrier reverse convertible is defined at the product’s time of issue. There are, however, situations that can lead to changes in the defined number of shares. This may be necessary, for example, due to a capital increase or another corporate action performed by the company whose equities form the bond’s underlying asset. Such changes are made to ensure that the holders of the relevant bond do not find themselves in an economically less favourable position immediately after the implementation of the corporate action than was the case immediately before (“dilution protection”).