SWX: Launch of collateral-secured structured products

SWX: Launch of collateral-secured structured products


As of 28 September 2009, it will be possible for the first time to list collateral-secured instruments ”COSI” on SIX Swiss Exchange and trade them on Scoach Switzerland Ltd. Collateral for these instruments is placed with the Exchange, meaning that investors are covered should the issuer become insolvent.

At the initiative of Scoach Switzerland and the Swiss Structured Products Association, SSPA, an innovative service has been developed to minimize issuer risk by means of collateral security. The new service is being offered by SIX Swiss Exchange Ltd and build upon the tried-and-trusted securities lending infrastructure of SIX SIS Ltd and Eurex Zurich Ltd. Collateral security functions via a sophisticated collateralization mechanism which factors in an impartial valuation of the individual structured product, regardless of its issuer.

From the legal viewpoint, structured products are actually bearer bonds. Investors in structured products thus bear a default risk that depends on the creditworthiness of the issuer. The new collateralization service significantly reduces this issuer default risk. It involves the issuer or a designated guarantor depositing liquid securities as collateral with SIX Swiss Exchange. Only selected forms of security (SNB and ECB-eligible bonds, highly liquid equities and cash) are permitted as collateral. The collateral-secured instruments and the corresponding collateral are valued on each banking day. The guarantor is under an obligation to adjust the level of collateral to any changes in the value of the instruments. Should certain liquidation events occur in connection with the anticipated or actual failure of the issuer, the collateral will be realized and the net proceeds paid out pro-rata to the investors. The market risks associated with a structured product are not affected by collateralization and remain in full with the investor.

Bank Vontobel and EFG Financial Products will be launching the first collateralized structured products before the end of September. Further issuers are expected to follow in October.

Additional information can be found at: