EUROPE - European institutional investors are buying customised OTC and securitised equity derivative products with a view to selling them on to high-net-worth and other retail customers, Greenwich Associates' research has found.
According to a study of 167 institutions, the proportion of European institutional investors active in customised OTC, securitised and hybrid derivative products increased from slightly more than 70% in 2004 to nearly 85% in 2005.
The notional value of these instruments traded annually by the typical European institution nearly doubled from US$420m to $820m over the same period. Trade volumes in these structured products increased dramatically in all European markets from year-to-year. The typical institution’s notional principal trading volume In the UK more than doubled from around $350m in 2004 to $880m in 2005.
The continental average continental trading volumes in these customised OTC, structured products rose from $430m per institution to $805m, over the same period, spurred by sharp increases in Switzerland (from $360m to $870m) and Germany (from $335m to $1.24bn). The main reason institutional structured trade volumes on the continent now approach or even exceed those of the UK is that a substantial portion of continental investors have begun to on-sell these equity derivatives products to high-net-worth and other retail customers. According to the study, more than 70% of continental institutions that use OTC/securitised/hybrid equity derivatives sell these products off to retail investors.
A significant 80% of European banks investing in these equity derivatives have adopted the practice, as have over 67%of mutual fund users and more than 60% of investment managers active in the products. By contrast, only 28% of UK institutional users pass these products on to retail investors. The Greenwich research study included 69 investment managers, 57 banks, and 33 hedge funds, mutual funds, and insurance companies in Europe.
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