Credit risk brings renewed impetus for open architecture

The collapse of Lehman Brothers has brought new weight to calls for open architecture structured products platforms in closed US distribution channels, to sufficiently diversify client credit risk. Even measures such as using an external issuer will help to improve the situation, say industry participants.

"Now there's a move afoot to bring in different issuers such as Swedish Export Credit and Eksportfinans, and SunTrust have made their balance sheet available. It's a half step towards open architecture; diversifying credit risk is critical in the current environment," says Keith Styrcula, chairman of the US Structured Products Association (SPA) in New York.

Questions are being raised over the extent to which banks in the US have adopted open architecture. The model has been mooted by industry participants in the past as a necessary step to increase market size and bring best-of-breed products to clients through heightened competition between product providers.

Moves to implement a uniform fiduciary standard by the Financial Industry Regulatory Authority (Finra) and the Securities and Exchange Commission (SEC) could also potentially affect how products are sold by broker dealers that both trade and sell structured products.

To read the full feature story, see Structured Products December