Opening Up The Structured Products Market For Retail Investors

By Michel Barakat via

Structured products are financial securities which provide investors access to the derivatives market. These products are traditionally issued by large investment banks or specialized structuring firms. Why are structured products relevant to investors and how do you make them accessible for your clients?

Structured products are highly customizable and can be tailored to meet an investor’s exact needs, a characteristic not available with vanilla options. Features available with structured products include limiting your downside, specifying your upside view and receiving coupon payments.

One example is the Barrier Reverse Convertible (BRC). The investor gives up the upside potential of a position in exchange for an enhanced coupon. He is also not exposed to the downside unless the underlying asset breaks through a predefined barrier (set at the inception of the product). Because of that, the BRC always outperforms the underlying on the downside.

Let’s consider an example: a BRC on the SPY index with a barrier at 60%. The payoff and coupon payments would look as follows.


Structured products are issued by financial institutions who are also market-makers de-facto holding a monopoly on the market for these products. Two products, each issued by one institution, might share the same underlying, payoff and cash flow payments but qualify as different securities. It is thus not possible for you to buy a product from one institution and sell it to another.

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