Bloomberg News

Structured Note Sales Slump to 9-Year Low on Regulatory Scrutiny

April 04, 2013

Structured notes sales slumped to the lowest in nine years in Europe and Asia in the first quarter, as regulators intensify scrutiny of the securities they say are too opaque and complex.

Issuance of the notes, which package debt with derivatives, fell to $23.8 billion, the least since 2004, according to data compiled by Bloomberg. In the U.S., investors bought $10.4 billion of securities in the first three months, the slowest period since Bloomberg started collecting data in 2010.

Regulators in the U.S. and Europe are seeking to increase transparency and improve sales practices for structured products. The U.S. Securities and Exchange Commission wants banks to disclose the fair value of notes, which is lower than the actual price investors pay to cover underwriting fees and expenses, while European authorities are considering similar measures.

Banks are issuing fewer structured products as investors pull back from risky assets, said Annemarie Ganatra, the global head of medium-term and structured notes at HSBC Holdings Plc in London. Regulatory attention on the suitability of the securities for individual investors and low interest rates have also damped sales, she said.

The European Central Bank, which has kept its main refinancing rate at a record low of 0.75 percent since July, is expected to maintain that level when it meets today, according to economists surveyed by Bloomberg. The U.S. Federal Reserve has kept its key interest-rate target between zero and 0.25 percent since December 2008.

Low interest rates can reduce potential returns on structured notes because the zero-coupon bonds used to create the securities become more expensive, leaving the bank with less money to sweeten the terms by buying options.

Switzerland bucked the sales decline in March. Trading on its Scoach exchange for structured products rose to 2.7 billion Swiss francs ($2.9 billion), the highest in seven months, buoyed by growing demand for leveraged securities, according to the exchange.

To contact the reporter on this story: Alastair Marsh in London at

To contact the editor responsible for this story: Paul Armstrong at

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