Structured Products
Structured products are pre-packaged investment instruments that combine a traditional security (usually a bond or deposit) with a derivative component to achieve a specific risk-return profile linked to an underlying asset or market.
📦 Key Characteristics
- Capital can be fully or partially protected depending on structure.
- Returns are linked to an underlying asset (equities, FX, interest rates, commodities).
- Fixed investment tenor with defined payoff at maturity.
- May be suitable only for clients who understand and can bear the product's market, liquidity, issuer and potential principal-loss risks.
- Issued by financial institutions; subject to counterparty risk.
🧾 Common Products
| Product Name | Description |
|---|---|
| Equity-Linked Note (ELN) | Deposit linked to single stock or basket performance |
| Dual Currency Investment (DCI) | FX-linked deposit that may convert to alternate currency at maturity |
| Accumulator | Obligation to purchase shares at a discount over time if price stays above knock-out |
| Market-Linked Deposit | Capital-protected deposit with return tied to index performance |
| Reverse Convertible | High coupon note where principal may be converted to shares if price falls below barrier |
🛠️ Operational Workflow
- Client suitability assessment (risk profile, investment objectives)
- Product term sheet generation and pricing from structuring desk
- Client advisory, suitability assessment and disclosure of material product risks and conflicts
- Client acceptance and subscription confirmation
- Trade booking in investment system (linked to underlying derivative leg)
- Settlement and confirmation issuance
- Daily mark-to-market reporting and barrier/knock-out monitoring
- Maturity processing — capital and return calculation, proceeds credited to account
🧮 Example Calculation
Illustrative scenario: A one-month SGD 100,000 DCI has a USD/SGD conversion strike of 1.3500. Assume the product terms require conversion into USD when the fixing is 1.3600. Coupon or yield is excluded from this simplified conversion example.
Under the stated payoff assumption, the investment converts to USD at the strike:
USD Proceeds = SGD 100,000 / 1.3500 ≈ USD 74,074
Enhanced yield (annualised) = 5.20% p.a. (vs standard SGD deposit of 3.80% p.a.)
The enhanced yield does not eliminate currency risk. The investor may suffer a loss when the converted proceeds are measured in the original currency.
📋 Risk Management & Monitoring
- Daily barrier and knock-out level monitoring for accumulators
- Mark-to-market valuation updates sent to client upon request
- Credit exposure to issuer tracked under counterparty limits
- MAS product suitability documentation retained for audit
- Regulatory reporting and conduct requirements applied according to the product, transaction and institution
- Concentration limits per issuer and per underlying asset class