Cantor Fitzgerald is readying a structured product and has applied to list it on the American Stock Exchange, which will give investors exposure to both a single exchange-listed equity and a basket of Treasury STRIPS. While the combination has already featured in over-the-counter deals, scrutiny of listed products by the Securities and Exchange Commission makes offering new structures cumbersome and this means listed products are often more vanilla, noted officials. Concerns over the direction of the equity market may have encouraged the development of the new structure as investors hunt out means of participating in any possible equity rally, while also generating current income, they added.
Tom Ryan, spokesman at Cantor in New York, said the firm anticipates filing for a registration statement with the SEC shortly, but declined further comment.
According to a request for a no-action letter sent to the SEC by Cantor, the structure, dubbed Yield Underlying Participating Securities (YUPS), is designed to blend an equity investment with a stream of predictable income at a lower trading cost than investing in the two securities separately. Each YUPS will hold 12 Treasury STRIPS at inception, accounting for 30% of the portfolio, and these will mature quarterly during the three year-term of the trust. As Treasury STRIPS, also known as zero-coupon securities, only pay out when they mature, the percentage of STRIPS in the trust will decrease during the life of structure, the letter noted. The equity of a single issuer will make up the remainder of the trust.
The filing surprised some rival structurers who noted that Cantor is not an established name in structured products and is better known as an inter-dealer broker. One official noted, nonetheless, that YUPS will be attractive to investors wanting equity exposure while also generating quarterly returns. Cantor, which will act as the initial depositor of the structure, does not name the issuer of YUPS in its letter, or note which equities will feature in initial structures.