The Structured Products Academy

Module 1: An introduction to structured products

This Module aims to:

• Provide an introduction to structured products
• Highlight how structured products can meet investors’ interests and needs
• Explain how structured products are different from other types of investment
• Explain the roles of different participants in the structured products market
• Explain why investment banks issue structured products
• Explain the different types of structured product available to investors
• Highlight the key risks associated with investing in structured products

Module 2: Understanding structured products

This Module aims to:

• Highlight some of the factors currently characterising investment markets, and the ongoing challenges facing savers and investors
• Provide a brief and simplistic look at how the UK retail structured product market has developed over the years and show how the UK market compares to other regions globally
• Explain some of the fundamental reasons why investors should consider including structured products in portfolios
• Explain why the most important fact to understand about structured products is that they equate to ‘investing by contract’ … and to detail the benefits of this for investors
• Explain what investment banks might (or might not) do when arranging / hedging structured products
• Explain the different types of stock market protection that can be used in structured products

Module 3: Issuer & Counterparty Due Diligence

This Module aims to:

• Explain the role of issuers / counterparties and the importance of professional advisers assessing counterparty financial strength in relation to structured products
• Explain counterparty due diligence metrics and considerations
• Explain what ‘credit ratings’ are, the background to credit rating agencies and the different credit ratings used
• Explain what ‘credit default swaps’ are, how they can provide an independent, market-driven measure of counterparty strength - and how CDS spreads can be used alongside credit ratings
• Explain what is meant by ‘fundamentals’ and how consideration of fundamentals can form part of a rounded approach to counterparty due diligence
• Explain the relevance of ‘Tier 1 Capital’ and ‘Tier 1 Capital Ratios’ and why these are important metrics
• Explain what is meant by a ‘systemically important’ bank and the regulatory capital adequacy requirements that apply to systemically important banks
• Highlight regulatory changes pertinent to improving the capital adequacy and financial strength of the banking sector and individual banks post the 2008 financial crisis

Module 4: What issuing banks may (or may not) do when arranging structured products

This Module aims to:

• Explain the process that issuing / counterparty banks may employ when arranging (‘hedging’) structured products
• Highlight that structured products fundamentally differ from ‘actively managed’ and other types of investments as they equate to ‘investing by contract’, without the performance / process risk of other types of investment, such as mutual funds
• Explain the different building blocks that issuing / counterparty banks may use in their process of arranging (‘hedging’) structured products, including zero coupon bonds and call and put options (derivatives)
• Provide some simple background regarding derivatives, their history and to explain the different uses of derivatives today and what types of investor might use them
• Explain the factors that can impact the cost / price of these building blocks
• Explain how the building blocks and pricing of ‘capital at risk’ structured products differs from protected structured products and structured deposits
• Provide product examples that highlight the use of the building blocks and the process that issuing / counterparty banks may employ when arranging (‘hedging’) structured products