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Retail Investors

Structured products are “complex instruments” this means that they will only be appropriate for you if you have sufficient knowledge and experience. In order to access the site you need to be able to agree to all of the following statements

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Risk Warnings

You should always bear in mind that;

  • You already hold other retail investments like funds, investment trusts or structured products
  • You would consider yourself to be a knowledgeable and informed investor
  • You understand the way that the investment return, the maturity value and any income are calculated by reference to the performance of underlying assets
  • You realize that you are not investing in the underlying assets but instead into a products whose performance is linked to these assets
  • You are prepared to invest into products where your capital is at risk
  • You have sufficient financial resources to be able to accept a loss on investments you make
  • You understand that the investment return and any coupon that you receive from structured products will depend on the performance of the underlying assets, and so you may not receive any investment return or income
  • The return of the capital may also be linked to the performance of the underlying assets. You understand how this is calculated, and appreciate that the amount that you receive back when a product matures may be less than you paid for it
  • The defined value of each product will only be realised if the product is held to the maturity date. You understand that if you sell a product before the maturity date you will not get the defined value, and the amount that you receive may be less than the amount that you invested.
  • You understand that if the issuer is unable to meet their obligations to pay the amount due when the product matures, that you will not receive the defined value and will loose some or all of the money you have invested
  • You understand that there are charges built into structured products.
  • You understand the personal tax implications associated with investing in structured products

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Persons accessing this website in the European Economic Area.

Exclusion of Liability

Certain documents made available on the website have been prepared and issued by persons other than CET Capital Limited. This includes any Prospectus. CET Capital Limited is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, CET Capital Limited shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes any warranty as to the accuracy of any information or content on the website. The description of any Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on request and should be read prior to making any investment.

Risk Warnings

Investments of the type described therein may involve a high degree of risk, and the value of such instruments may be highly volatile. Such risks may include, without limitation, risk of adverse or unanticipated market developments, risk of counterparty or issuer default and risk of liquidity. Accordingly you must independently determine, with your own advisors, the appropriateness for you of the securities/transaction before investing or transacting. You should always bear in mind that;

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Please read and agree to the following statements

Structured products are “complex instruments” this means that they will only be appropriate for you if you have sufficient knowledge and experience. In order to access the site you need to be able to agree to all of the following statements

  • I already hold other retail investments like funds, investment trusts or structured products
  • I consider myself to be a knowledgeable and informed investor
  • I understand the way that the investment return, the maturity value and any income are calculated by reference to the performance of underlying assets
  • I realize that I am not investing in the underlying assets but instead into a products whose performance is linked to these assets
  • I am prepared to invest into products where my capital is at risk
  • I have sufficient financial resources to be able to accept a loss on investments I make
  • I understand that the investment return and any coupon that I receive from structured products will depend on the performance of the underlying assets, and so I may not receive any investment return or income
  • The return of the capital may also be linked to the performance of the underlying assets.
  • I understand how this is calculated, and appreciate that the amount that you receive back when a product matures may be less than I paid for it
  • The defined value of each product will only be realised if the product is held to the maturity date. I understand that if I sell a product before the maturity date I will not get the defined value, and the amount that I receive may be less than the amount that I invested.
  • I understand that if the issuer is unable to meet their obligations to pay the amount due when the product matures, that I will not receive the defined value and will lose some or all of the money I have invested
  • I understand that there are charges built into structured products.
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Research & Analysis

PRIIPS stress testing solution available now from Cube and Investment Product ResearchApril 19, 2016 - 07:56

Cube Investing's research partner, Investment Product Research (IPR) has been offering analysis of structured products since the UK regulator, the FSA (as was), first raised the requirement for structured products to be stress-tested in 2012. The Financial Conduct Authority (FCA) reiterated the requirements for stress testing of structured products in the 2015 Thematic Review, but has never been specific about how this should be done.

The European regulator has gone further, and has published a paper describing the process that they want providers and manufacturers to follow when calculating risk and return for the new Key Information Document (KIID), which will be required to accompany all investment products under the packaged retail investment and insurance-based investment products (PRIIPs) directive.  The new regulations will come into force from January 2017. IPR can now offer a stress test that is consistent with the new European PRIIPS Regulatory Technical Standard.

NEW STRESS TEST STANDARD

The new Regulatory Technical Standards (RTS) are very similar to the process that IPR has been using for the last four years, which is no surprise given that IPR was a key contributor to the regulator's consultation on the best methodology to calculate risk and return in structured products.   The way that the inputs to the stress testing process are generated, and the way that the results are converted into risk and return, are both broadly in line with the existing IPR process. This means that IPR is able to offer a PRIIPS stress test now.

GOOD PRACTICE AND REGULATORY REQUIREMENT

Stress testing a product is now recognised as good practice globally. Investors demand reliable information about the risks that they face and the returns that they may receive. Portfolio managers require detailed analysis to support their decision making process. Advisers have to have this information if they are going to be able to match a product against a client’s attitude to risk and capacity for loss. Now stress-testing is going to be mandatory across Europe from 2017, and is already a requirement in the UK as a result of the FCA thematic review in 2015.

STRESS TESTING WILL BOOST THE APPEAL OF STRUCTURED PRODUCTS

It is tempting to see this as a regulatory chore, but the reality could be very different. Stress testing will be the catalyst that transforms the use of structured products across all investor groups. Stress testing means that products can be compared with each other, and also with benchmark assets like equities and bonds. Stress testing will show where structured products can expand the efficient frontier, and how investors can achieve a better risk/return profile from structured products than through conventional assets.

The chart below shows the current crop of retail structured products in the UK as of 15th April versus an efficient frontier connecting swaps to a FTSE tracker fund.

Source: Investment Product Research 15 April 2016 

Stress testing will also expose the products that rely on optical arbitrage. Those that seem to offer the promise of high returns with little risk, but in reality offer a much worse combination.

USERS

IPR offers independent analysis that not only meets the regulatory requirements, but exceeds them. Investment Product Research is a service aimed at users that want to know what returns a product may offer and what risks investors face. Users of IPR include:

  • Issuing banks
  • Product manufacturers and promoters
  • Investment managers and investors
  • Advisers

SEVEN SCENARIOS

IPR offers seven default scenarios, and allows users to define their own parameters:

  • The standard IPR market risk scenario, and market and issuer risk scenario
  • The new European PRIIPS scenario
  • A historic back test
  • The three UK SPA scenarios

IPR is able to generate bespoke scenarios where users can stipulate the parameters to be used in the stress test.  This may be a simple volatility and drift assumption, or a complete set of surfaces and correlation grids.

INSTANT ANALYSIS

Users can upload most products easily themselves, and get instant results across all seven scenarios. A PDF of the analysis is available immediately. Products are stored so that they are visible to the user.

REGULAR UPDATE

The analysis is updated weekly as a minimum. Each product is re-tested under each of the scenarios every week. For post strike products the stress test uses the closing levels of the underlying and the closing price of the product at the end of the week.

INTERESTED?

If you would like to know more about the research that IPR offers, please get in touch.


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