Best in Switzerland

Eric Blattmann

Bank Vontobel

From August of this year, Bank Vontobel began the process of establishing a multi-issuer platform through which investors can buy products not only issued by Vontobel, but also from a range of other issuers in partnership with the Swiss bank. This means investors can compare offers for standard and tailor-made products from Vontobel and, currently, Morgan Stanley and Société Générale, with other providers still in negotiation. The multi-issuer platform was built within Open Deritrade, an electronic platform that the Swiss bank created in September 2010.

The aim of the new, multi-issuer component of the platform is to allow investors to design their tailor-made products in real-time, even for small trading volumes, and then compare the offers of several issuers and select the best quote for them according to their preferences in the future.

The Deritrade platform purposely does not distinguish between Vontobel and third-party products, but the bank hopes that through it Vontobel will further strengthen and expand its role in the area of structured products. "It means the client is able to have a lot of pricing transparency in terms of the other issuers as well, and the client can do that all on Deritrade in a very simple way," says Eric Blattmann, head of public distribution financial products at Vontobel in Zurich. "I think that is something that will help our structured product clients - in terms of transparency and in terms of education." The pricing offered on the platform has had a positive effect on the bank's clients, he adds.

The platform was developed through an efficient online connection to the international options market, which integrates a multi-pricing capability for those entering the market. On the platform, Vontobel offers a range of more than 700 underlyings.

In May 2011, Vontobel further developed its capabilities by adding a reference bond as a credit element that can be included in a structured product. In contrast to traditional structured products, the Collateral Secured Instruments (Cosi) technique that Vontobel has adopted works by requiring the deposit of collateral with the relevant exchange. The collateral can be sold in the event of solvency problems, which considerably minimises issuer risk. The Cosi service is provided by Six Swiss Exchange in collaboration with Six Securities Services and Eurex Zurich.

The benefit of structured products with a reference bond is the possibility of a higher yield, depending on the choice of reference bond, as well as the diversification of creditor risk within the product. "We came up with this reference credit so that the client can choose who should be his credit risk," says Blattmann. "For us, it makes no difference whether it is Vontobel credit risk or UBS credit risk. That is certainly an innovation, with the client having the possibility to build up the credit risk that he likes.

"The good thing for investors is that they're not going for single issuer credit risk, which is what the investor takes if he's buying a traditional structured product," adds Blattmann. "We have achieved a good volume of sales using this structure - it's certainly a unique selling point."

Investors in the reference bonds are informed every week through a credit default swap (CDS) list about the credit spreads of all the reference bonds that have been made available on the Vontobel service.

A Zurich-based associate director for structured products at a Swiss private bank says he prefers Vontobel because of its quality of service and the speed at which it responds to client requests and requirements: "On top of that, they are very competitive, particularly when providing assistance in secondary markets.

"The structured products with reference bonds are innovative and have been a further step in the diversification of the issuer," says the private banker.

Other products offered by Vontobel include the Voncert Solactive Top Investment Grade PR Index, based on an equally weighted basket of 12 equities, which is reviewed on an annual basis. There are strict criteria for judging the equities for inclusion in the basket. At the end of October, the basket included Imperial Oil and General Electric.

"We check the ratings and also the market capitalisation every six months then take the best 12," says Blattmann. "This means the rating has to be AA+ or better, market capitalisation more than $1 billion and there has to be daily trading volume, as well as access to the stock exchange. The best companies are members of the basket for the next year."

The bank has also applied Voncert to a copper strategy index, which switches between futures and stock investments depending on the shape of the futures curve: in the case of roll losses, the strategy invests in copper mining stocks, and in the case of roll profits, in copper futures.

"With all the changes [that have happened] within our industry, it is good to see that nowadays there is a partner like Bank Vontobel," says the private banker.