US Structured Products

These past few years saw a large number of firms and investors cry out for a need to implement an industry standard for US structured product investments. The proponents of the industry standard claim that a specific set of guides, protocols and standards would increase transparency and facilitate comparison amongst various US structured product investments. It has been stated that this will alleviate investor confusion and will help the industry grow as a whole.

VP of Structured Investments at JPMorgan, Scott Mitchell, has said that they have found the difficulties in comparing products among different providers to be a significant hurdle when it comes to increased acceptance of US structured product investments. Their belief that “a classification system with standard definitions will better serve investors as they learn about these products” has lead JPMorgan to propose an industry standard last
December of 2006, which was implemented as a pilot program last year. The proposal that was submitted to the Structured Products Association (SPA) created a standard classification system, which allowed investors to distinguish between different prospective investments based on their respective features.

The new standards had favorable results and brought forth an increased demand for US structured product investments, with last year’s figures boasting of $50 billion US dollars worth of structured products being issued in the US alone. This marked a 57% increase from the previous year, and has lead to JPMorgan significantly expanding its offerings and distributing its structured products to as many as 125 brokerages.

The problem with the mass confusion amongst investors started when a large number of investment firms decided to adopt highly unique or proprietary names for their structured investment offerings, which resulted in a lot of confusing terms and jargons despite the number of identical products. This has become counter productive to the industry as a whole because investors were unable to compare prices and services, and those who were unlucky enough to choose bad products ended up being burned at best and bankrupt at worst, prompting a lot of potential investors to stay away from structured products and diversified business portfolios.

The loss of interest in structured product is not universal, however, as there are still adventurous investors who continued to risk and were lucky enough to make the experience profitable. In fact, during the same time, structured products were very popular in Europe and have designed them to function at the mass retail level, where even the national post office and supermarkets sell structured investments to their customers.

Fortunately, the lack of growth in the US side of the industry has stopped, and structured product investments are already catching up with the European industry. The new standards set in place has created an investor-friendly environment that product and service qualities that are associated with healthy competitions and a fair, level playing field. To this day, more and more issuers and investors are entering the industry despite the hurdles and disadvantages that would have scared them off a couple of years ago.