Derivs - Equity

Structured products sales are forecast to hit EUR400 billion globally this year, with investors insisting on capital protected products and greater clarity around pay-outs.

Hedge fund managers are seeking legal advice as to whether they should exploit a legal loophole that would allow them to hold open out-of-the-money trades with Lehman Brothers, while withholding premiums.

The notional outstanding value of credit derivative business decreased by 12% in the first six months of the year to USD55 trillion from USD62.2 trillion at the end of December, according to a mid-year survey by the International Swaps and Derivatives Association.

The absence of a legal definition for the full range of structured products in use forces lawyers in Switzerland to work backwards to ensure those products adhere to the right regulations, according to Stephanie Comtesse, lawyer at Zurich-based Bar & Karrer.

Buyside appetite for structured funds is tipped to pick up as investors look to more transparent and efficient ways to track underlyings.

Merrill Lynch is seeing pension fund interest in auto-callable notes linked to the Standard and Poor’s 500 index as investors look to make gains on market volatility in the uncertain economic environment.

German buysiders seeking exposure to hedge funds and funds-of-funds are turning to structures such as fund-linked notes to get around the legal and regulatory obstacles to holding the underlying.

The lack of liquidity in products such as hedge fund replicators should not deter investors, according to Dirk Soehnholz managing partner at Feri Institutional Advisors.

With a raft of fund derivatives players exiting the space, the remaining players taking on deals are imposing tighter restrictions on the business they write, according to one senior official in the New York market.

Institutional investors are looking to volatility products using hedge funds as an underlying spreads between implied and realized vol widen in response to the uncertain economic environment.

Nomura Holdings is set to grow the derivatives business of Lehman Brothers, after agreeing this morning to acquire the firm’s European equities and investment banking businesses.

NDF Administration is marketing two new plans, hedged by Citigroup and Morgan Stanley.