2nd Annual SP Conference

June 2013

Platform Technology – June 13, 2013 Jonathan Boos, Sapient Global Markets - Director

2th Annual North American Structured Products Conference

Platform technology - Innovating and supporting ‘straight-through’ processes for trading

ü What platforms exist, and what innovations are emerging?

ü What are the likely developments that we will see launched in the next 12months?

ü What platforms are developed internationally? Should the US and Canada be doing more to push ahead with innovation in this area rather than playing catch-up?

ü Are increasing sophistications in platforms targeting private more than retail banks?

ü Regulatory challenges faced by platforms in the US and Canada

June 2013


SocGen Joins Banks Starting Electronic Structured Note Platforms “Societe Generale SA (GLE) is starting an electronic platform to sell structured notes, joining Credit Suisse Group AG (CSGN) and at least five other banks in providing technology they say will cut costs by as much as 95 percent …

Fully automated platforms today allow issuers to offer structured notes starting from investment amounts as low as $20,000,” Sandmeier said. Previously, banks would require a minimum issuance size of more than $1 million, he said ...

New York-based Morgan Stanley (MS) and BNP Paribas SA (BNP) said they introduced similar technology in the last 10 months. Royal Bank of Scotland Group Plc (RBS) and Barclays Plc (BARC) also have electronic platforms for creating structured notes.”

Bloomberg LP By Alastair Marsh - Mar 15, 2013

June 2013


What platforms exist, and what innovations are emerging?

Single-Dealer Platforms:

ü  In Europe UBS (Equity Investor), CSFB (Meerkat), Barclay’s (BARX Comet), RBS Market Direct), SG (Alpha), BNP, Sarasin and EFG have electronic platforms.

ü  In the US, UBS has a platforms called Equity Investor that is rolled to hundreds of UBS Wealth Management advisors for Reverse Convertibles, Autocallables and Phoenix Autocallables.

Multi-Dealer Platforms:

ü  In Europe, the emergence of multi-dealer platforms such as Derivatives.com, DeriTrade and Xicor.

ü  In Asia, Bloomberg has functionality through an ELN function, Barclay’s has an email pricing capability, and UBS has a full operational platform.

June 2013


June 2013


What are the likely developments that we will see launched in the next 12 months? ü  Commoditization: Pricing / Service / Relationship

ü  Costs: Dealers / Issuers (manufactures) will focus on lowering issuance costs

ü  Customization: Focus on individual investor needs

ü  Service: More consistent secondary pricing and reliable execution

ü  Education: Focus on the advisor education

ü  Relationship: Large issuers/dealers with affiliated wealth management businesses may try to create an oligopoly

ü  Choice: The emergence of multi-dealer platforms

ü  Changing of the guard: Emergence of the Millennial generation that will require customization tools, transparency.

June 2013


Millennials and Money – Michael Liersch Director of Behavioral Finance at Merrill Lynch ü  Skepticism appears to exist in this generation’s very DNA. They want to be

“shown the math.”

ü  The data suggest that the financial crisis merely confirmed the doubts that young people already had.

ü  At the height of the 1990s tech boom, young people were more prone to believe: If I invest, I will eventually win. Today, the inverse notion is far more common: If I invest, I will probably lose, unless I’m extremely careful.

ü  Millennials simply seem to question whether paying for financial advice is worth it.

ü  Time and Again inheritors say, “I don’t want to be the one to screw it up. I don’t want to be the one to lose the money.”

June 2013


Millennials and Money – Michael Liersch Director of Behavioral Finance at Merrill lynch ü  OBSERVATION NO. 1: Millennials take nothing at face value.

ü  OBSERVATION NO. 2: Wealth creators, in particular, want to remain in the driver’s seat when it comes to their investments.

ü  It is not enough for Millennials to accept recommendations based on vague references to “experience” or past performance; they want to be shown the math. In my discussions with them about their financial futures, they invariably ask how they can best accomplish their goals. The vital question, for them, is how.

ü  Young people we talk to feel that the real path to wealth is through business innovation — not through investing.

ü  OBSERVATION NO. 6: Millennials may not yet fully appreciate the degree to which wealth management firms have evolved to meet their needs.

June 2013


What Young People Want from Wealth Managers

June 2013

Critical for Millenials


Structured Note and CD Issuance (USD Millions) (Source: Structured Retail Products)

June 2013


Structured Note and CD Issuance (USD Millions) (Source: Structured Retail Products)

June 2013

0"

10,000"

20,000"

30,000"

40,000"

50,000"

60,000"

2003" 2004" 2005" 2006" 2007" 2008" 2009" 2010" 2011" 2012"

Vol (m)"

As with most financial products, there is a direct correlation to the equity market itself … SP issuance does well in Bull Markets

Source: Wall Street Journal


As a result of embracing technology early on, UBS’s average deal size is significantly lower than its competitor. It also has a much lower costs structure on those deals as they are automated.

June 2013

2010 USDm Issues $ Per Morgan Stanley 8,701 322 27.0 Bank of America 8,608 264 32.6 Barclays 7,080 2,566 2.8 HSBC 6,230 528 11.8 JPMorgan 4,651 1,003 4.6 Goldman Sachs 4,349 300 14.5 CiH 2,603 207 12.6 Deutsche Bank 2,079 247 8.4 UBS 1,756 259 6.8 Freddie Mac 1,601 45 35.6

2011 USDm Issues $ Per Barclays 7,142 1,181 6.0 Goldman Sachs 6,309 431 14.6 HSBC 6,066 681 8.9 JPMorgan 5,886 1,526 3.9 Bank of America 5,392 251 21.5 Morgan Stanley 4,705 433 10.9 Deutsche Bank 3,020 363 8.3 RBC 2,945 1,076 2.7 CiH 2,533 208 12.2 UBS 1,836 1,145 1.6

2012 USDm Issues $ Per JPMorgan 5,964 1,557 3.8 Bank of America 5,841 266 22.0 Goldman Sachs 5,077 615 8.3 Barclays 5,030 977 5.1 HSBC 4,636 896 5.2 UBS 3,377 2,609 1.3 RBC 3,153 903 3.5 Morgan Stanley 2,943 418 7.0 General Electric 2,250 12 187.5 Deutsche Bank 2,196 348 6.3


June 2013

Source: Bloomberg Brief


June 2013


ü  U.S. is now the third largest market of structured products globally, just behind Italy and Germany.

ü  US structured product remains largely an equity-linked market.

ü  Remains relatively opaque / illiquid compared to the listed equity and equity options markets.

ü  In 2o12, there were 548 notes linked to Apple Inc. sold in the U.S., totaling $1.75 billion.

ü  Although we seen tremendous growth when

compared with the EU, the US still lags with respect to technology and operations (service).


June 2013



SEC tells banks to improve structured note disclosures: filing Source: By Lauren Tara LaCapra Published April 11, 2013 in Reuters

ü As of December 31, 2011, JPMorgan had $35 billion worth of structured notes outstanding, representing 13.5% of its long-term funding

ü Bank of America had $38.6 billion worth of structured notes outstanding at December 31, 2011, representing 10.4% of long-term funding

ü Citigroup had $26.3 billion worth of structured notes outstanding as of March 31, 2012, roughly 8.4% of its total long-term debt

ü Goldman Sachs had $21 billion worth of structured notes at December 31, 2011, representing 9.4% of its unsecured funding

ü The SEC granted Morgan Stanley's request to keep its structured note issuance data confidential.

June 2013


Are increasing sophistications in platforms targeting private more than retail banks?

June 2013

ü CD market may continue to grow especially in a higher interest rate environment.

ü Distribution amongst the Bank channel will continue to be a focus.

ü Focus on WM / Private Banking continues to grow in the US.

ü Move from brokerage model to discretionary continues.

ü Focus and uncertainty around taxation (FATCA and the David Camp proposal for mark to market on derivatives).


Release No. 34-69013; IA-3558; File No. 4-606- Duties of Brokers, Dealers, and Investment Advisors, 120 day comment period - SEC March 1, 2013

June 2013

Today, broker-dealers and investment advisers routinely provide to retail customers many of the same services, and engage in many similar activities related to providing personalized investment advice about securities to retail customers. While both investment advisers and broker-dealers are subject to regulation and oversight designed to protect retail and other customers, the two regulatory schemes do so through different approaches notwithstanding the similarity of certain services and activities. Investment advisers are fiduciaries to their clients, and their regulation under the Investment Advisers Act of 1940 (“Advisers Act”) is largely principles-based. In contrast, a broker-dealer is not uniformly considered a fiduciary to its customers. Broker-dealer conduct is subject to comprehensive regulation under the Securities Exchange Act of 1934 (“Exchange Act”) and the rules of each self-regulatory organization (“SRO”) to which the broker-dealer belongs. Both broker-dealers and investment advisers also are subject to applicable antifraud provisions and rules under the federal securities laws.


Regulatory challenges faced by platforms in the US and Canada

June 2013



What Do Regulators Talk about when They Talk about Structured Notes?

June 2013


Susan F. Axelrod, Finra’s head of member regulation sales practice, spoke at a forum on Sept. 27 on a familiar topic: product complexity. To find out what was really on her mind, we fed a copy of her speech through software that created a “cloud” based on word frequency.


Advisors’ Tech Strategies Help Boomers but Ignore Gen X and Y Source: By Joyce Hanson of AdvisorOne – May 21, 2013

June 2013

According to a Fidelity Investments poll, registered investment advisors and broker-dealers are making the mistake of inventing new strategies primarily for their boomer investors at the expense of developing technological innovations that would better serve their Gen X and Gen Y clients. Taken at the company’s annual Executive Forum client event, the new poll finds that two-thirds of broker-dealer and RIA firm executives are primarily focusing innovation strategies on their current customer base of boomers, ages 49 to 67, and matures, ages 68 and older. Meanwhile, fewer than one-quarter said they were looking into innovations geared to Gen X, ages 34 to 48, and Gen Y, ages 18 to 33.


Questions …

June 2013

2nd Annual SP Conference

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